The Insolvency Service of Ireland (ISI) have published guidelines in regard to reasonable living expenses which insolvent persons will be allowed if they wish to sort out their debt problems by using of one of the three new insolvency solutions which will become available in the next few months in Ireland under the Insolvency Act 2012.ISI provide a wide range of examples to illustrate how to calculate what will be allowed in various different scenarios depending on the insolvent debtor’s personal circumstances. In the example below, we are assuming that the debtor complies with all the other eligibility criteria for availing of the debt solution chosen. We will look at what these other eligibility criteria are in a future article. Here we will just concern ourselves with income and living expenses. It is relatively easy to work out what the allowable expenses are for any given set of family circumstances. In this article we will summarise one of those scenarios i.e. the simple situation where we have an adult living alone in rented accommodation, without a car and relying on public transport to get to work and for any other travelling needs. Let’s call our debtor George.
George is a PAYE worker who rents a modest apartment where he lives alone and which costs him €600 per month. Assuming that rent is not considered to be excessive and is the going rate for the area where he lives and works, George would be allowed a further €900 on which to live. So his total reasonable living costs come to €1,500. To avail of a DRN, George’s income would have to be no more than a net €1,560 per month, giving him a disposable income of no more than €60 per month. If George’s disposable monthly income is greater that €60 per month i.e. he earns in excess of €1,560 per month he might be eligible for a DSA. For example if his take home pay was €1,850 per month, his disposable income would be €350 per month and that is the monthly amount he would have to pay into a DSA, assuming he was otherwise eligible for a DSA and George’s creditors agreed to accept his DSA proposal. Let’s assume that George has commitments to his creditors of €700 per month due to a personal loan and credit card debts that he racked up over the last ten years and he is therefore insolvent. How are George’s reasonable living expenses made up?
Out of the amount of €900 for living expenses, George is allowed €247 for food, €136 for transport and €126 for social inclusion and participation. He can spend €57 on home heating and €49 on electricity. He can put €43 aside for savings and contingencies. He can spend €43 on communications and a total of €100 on clothing, personal care and health. He is allowed €60 on household goods and household services and that leaves him with €39 for such expenses as home insurance, education and personal costs. Of course George doesn’t have to spend the exact amounts on each of the various expenses he is allowed. Provided his total expenses come to no more than €900 per month, George has the flexibility to spend his living expenses himself as he sees fit and ISI have no problem with this.
In our next article we will look at a somewhat more complex case than this simple scenario.
Written by Paddy Byrne 13/05/2013
