If you are struggling with your credit commitments and need advice, it might be good to speak with a debt advisor or Personal Insolvency Practitioner (PIP) to see what options are available. They will 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. They will help you work out if any of the Irish Debt Solutions are suitable in help you address your difficulties. The assessment they carry out will involve reviewing several aspects of your financial circumstances, such as:
- Your income
- Your household expenses
- Why you are currently struggling financially
- What your current household living situation is
- A review of your outstanding debts (secured and/or unsecured)
When it comes to reviewing your expenses they will apply set guidelines to make sure you have a realistic budget to live on each month that is fair and affordable. This will help in working out a plan that is sustainable for you and your creditors. The guidelines your PIP will use to calculate your expense budget are called “Reasonable Living expenses” or RLEs.
This article is one in a series of articles explaining how the RLE’s might work for people in different household situations that are struggling financially and considering entering into an Insolvency Solution. The RLE’s consist of several categories:
- Set Costs: These 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: These are costs which are essential but might vary in price depending on each persons current circumstances, such as Housing costs, additional vehicles, childcare costs and various types of insurance.
- Special Circumstances: These are essential costs for people who might have specific requirements or needs in relation to their situation, such as people of a specific age, people with health needs, or people who might 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…
A single lady called Mary that owns a car, is employed full time and rents in shared accomodation. Her household and financial breakdown is as follows:
- Mary’s rent is €700 per month, the same amount as her other two housemates. It’s a reasonable amount for the area in which she lives.
- Mary owns her car outright and it is worth approximately €1,500.
- Mary has unsecured debts totaling approximately €20,000 and she is struggling to manage repayments.
Mary’s monthly RLEs works out as follows:
Adult set costs: €1296.02
Rent costs: €700
Insurance costs: €45
Total RLE: €2,041.02
There may be two solutions open to Mary, depending on how much she earns in net pay each month. We’ll explore both options for demonstrative purposes.
Option 1: A Debt Relief Notice (DRN)
Mary’s total allowable expenses are €2,041.02. If she earned a total of €2,088 per month, this would leave her with only €46.98 income left over each month after expenses are deducted. Mary would be a suitable candidate for a Debt Relief Notice (DRN) as she meets all criteria (Assets under €1,500, debts under €35,000, and a disposable income less than €60 per month). In a Debt Relief Notice, she could be free of all unsecured debts after 3 years.
Option 2: A Debt Settlement Arrangement (DSA)
Mary’s total allowable expenses are €2,041.02. If she earned a total of €2,198 per month, this would leave her with €156.98 income left over each month after expenses are deducted. Mary would be a suitable candidate for a Debt Settlement Arrangement (DSA) in this case as her disposable income is well above the €60 DRN threshold. If creditors accepted her DSA proposal, she would pay this amount of €156.98 for 60 monthly payments, allowing her to repay what she can afford towards the outstanding debts. On completion of the DSA, any remaining unpaid debts would be written off and Mary could start over again, free of debt.
€156.98 * 60 = €9,418.80
Please bear in mind that this is just a hypothetical example which illustrates a very straightforward process of a typical DRN and DSA for a single adult with a modest car that lives in shared accommodation. This example is not based on a real person, 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.
If you are struggling financially and would like an idea of the budget that you could be allocated, if you were to pursue an Insolvency solution, click here to work out your own RLE expenses.
For more information on the RLE guidelines and the Insolvency Solutions available to help you deal with your secured and/or unsecured debts, get in touch on 01 247 88 99 or fill in the form below and we will contact you.