Insolvency arrangements ‘hugely positive’ for distressed borrowers, ISI head claims

The head of the Insolvency Service of Ireland said yesterday he had been frustrated in recent weeks by the number of leaks of drafts of the minimum income guidelines to be used by the agency and stressed that the actual guidelines are flexible and will be of assistance to thousands of people burdened with unsustainable debt.

Lorcan O’Connor said the guidelines have not been set in stone or at “subsistence level living or anywhere close to that” and he insisted they would not see people’s finances being “micro-managed” by banks or new personal insolvency practitioners.

Under the microscope
He told The Irish Times that childcare costs would come under the microscope in any insolvency arrangements but denied that people would be forced to give up work if their earnings were less than the cost of that childcare and said "it would be completely counter-intuitive to ask anyone to give up a job".

The service has relied heavily on work carried out by the Vincentian Partnership for Social Justice on income guidelines and the levels have been "sense-checked" with both the CSO and the Central Bank as well as with counterparts in the personal insolvency service in the UK. Mr O'Connor said the VP study had been done "in a very scientific way" and its figures were "based on needs rather than wants. I certainly wouldn't describe the Vincentians as being pro-bank".

The UK does not make its spending guidelines available to the public but they are known within the industry and, according to Mr O’Connor, the levels of expenditure in the Republic will be higher than in the UK. “That is not to say we are being more generous because the cost of living here is higher but it does give us comfort that our figures are not off the wall.

“I could have said that an adult had a spending limit of €1,000 a month but the guidelines – which are for information purposes only – are trying to bring transparency to the process. This is a stepping stone to get unsustainable debt written off and it is hugely positive.”

He said that as a starting point “health insurance is not included” and claimed that this “was not an easy decision to make”.

Need for flexibility
However, he said there would be flexibility. "If you have a pre-existing condition that requires ongoing healthcare then that will be looked at or if you are of an age where getting insurance after allowing it to lapse would be difficult you will be allowed to retain it."

“There are very few people in Ireland who could claim to be experts in personal insolvency,” Mr Lorcan pointed out, and he highlighted that personal insolvency practitioners would need a legal or financial background and would also require “the intangible which are the negotiating skills needed to bring opposing sides together”.

He said he did not anticipate banks would stand in the way of arrangements. “I don’t see them having a veto. The debtor has to agree and so does the creditor but in my view it will be logical for the creditors to come to agreement because the alternative is bankruptcy and this process will be much cheaper and much quicker for the banks. We hope to be in a position to begin accepting applications for the insolvency process by the end of June,” he said, adding that the first arrangements could be signed in the autumn.