When enquiring about any Debt Solution the first thing your debt advisor or Personal Insolvency Practitioner (PIP) will do is assess your situation to determine if your are in fact Insolvent (unable to pay your debts) and how much you can realistically afford to pay towards your outstanding debts. This involves reviewing several aspects of your financial circumstances, such as:
- Your household income
- Your household expenses
- Why you are currently struggling financially
- A review of your outstanding debts (secured and/or unsecured)
If you were to enter into an Insolvency Solution, your Advisor / PIP would need to calculate a realistic budget for you to live on. The Insolvency Service of Ireland (ISI) have published set guidelines called “Reasonable Living Expenses” or RLE’s, in order to facilitate a fair budget for everyone. RLE’s are divided up into a few categories:
- Set Costs which include necessities such as food, clothing, transport, utilities and socialising as well as other categories which the ISI have identified as necessary for a reasonable standard of living.
- Other Costs which include costs of items of varying amounts between different households, such as Housing costs, additional vehicles, childcare costs and various types of insurance.
- Special Circumstances which might cover costs for people in relation to needs because of their age, health needs, or if they have a disability. For example, there might be a requirement to care for an elderly relative who is financially dependent or there might be a child that is attending college…
The ISI provide a range of examples demonstrating the different reasonable Living Expenses for family scenarios of people that might be struggling financially. We have written some articles discussing the various hypothetical examples which might help you gain an understanding of how the guidelines might work for you.
A couple that live together and have 3 children; a toddler, a child in primary school and a child in secondary school. Their household and financial breakdown is as follows:
- They have no car
- Both parents work and live near the city.
- They rely on public transport for all travel needs
- Their take home pay is quite similar
- They have a joint mortgage which they pay equally together
- They have no arrears on their mortgage
- Their house is worth €210,000 but the mortgage is €300,000, so they have negative equity of about €90,000.
- They have a significant level of unsecured debts (approximately €50,000) which have become a struggle to manage due to reduced income, some missed payments and high interest charges.
The couple realise that they need to seek help as they are having difficulty managing payments each month and the situation isn’t improving. They get in contact with a debt advisor who runs through an assessment to determine if they are suitable for any potential insolvency options.
A Debt Relief Notice (DRN) is ruled out as an option because of their level of unsecured debt. A Debt Settlement Arrangement (DSA) might be possible depending on an assessment of their income an RLE.
Their RLE is worked out as follows:
Adult Set Costs:
A couple with Children and no vehicles, that rely on Public Transport: €1,506.58 /pm
Children Set Costs:
1 Preschool – €72.36 /pm
1 Primary school – € 245.15 /pm
1 Secondary school – €454.58 /pm
Total household set costs (RLE) : €2285.36 /pm *
* includes an adjustment for the 3rd child
Mortgage costs: €1,100 /pm
Childcare costs: €680 /pm
Insurance costs: €30 /pm
Special Circumstances Costs: €0
TOTAL JOINT RLE: €4,095.36
Their total joint RLE comes to €4,095.36 per month. Lets assume their joint net income totals €4,800. Their income minus their joint RLE leaves €704.64 left over each month to service their debts, known as their disposable income. If they entered into a DSA with this disposable income, they would pay 60 monthly payments of this amount into the DSA.
60 * €704.64 = €42,278.40
Taking into consideration any PIP fees for managing the proposal and the DSA, this means that they would be repaying a significant amount of their €50,000 outstanding debts back, whilst maintaining affordable payments each month, provided their creditors agree to the DSA proposal. On successful completion of their DSA, the remaining outstanding debts would be written off and they wouldn’t lose their home in the process.
Please bear in mind that this is just a hypothetical example which illustrates a very straightforward process of a typical DSA for a couple with 3 children of varying ages and no car. This example is not based on a real DSA, nor a specific family’s financial situation, but is a demonstration to explain how RLE’s may be calculated and how a DSA might work.
The figures and calculations for RLE’s provided in this article are accurate as of the date of publication in this hypothetical scenario. However, it’s important to note that information can change. Therefore, these figures may be subject to change in the future. We recommend checking for the most current RLE information if you require the latest information beyond the publication date.