Mortgage-holders who cannot repay their home loan will be warned today that they must be prepared to forgo sending their children to private schools and give up luxuries such as a second car and satellite television if they seek to enter an official insolvency arrangement to settle the debt.

The Government expects the Insolvency Service to take a firm line with distressed borrowers on their living expenses, the argument being that many borrowers are doing without second holidays and other luxuries to ensure they can make their mortgage repayments.

Applications
As the newly established Insolvency Service of Ireland prepares to accept insolvency applications from June, it is anticipated in political circles that the first settlements could be finalised by September or October. Such settlements will be subject to the agreement of banks and other creditors.

Minister for Justice Alan Shatter will introduce the new body at an event this afternoon in Government Buildings at which the service will initiate an information campaign to explain how it will go about its work. The organisation – led by former Deloitte accountant Lorcan O'Connor – will publish guides to debt settlements at this event. A website goes live today and the service is set to open an information line for queries.

Cornerstones
One of the cornerstones of the package is the release of official guidelines on a "reasonable standard of living" for insolvent debtors and "reasonable living expenses". These are expected to prove contentious given the expenditure limits they will impose on insolvent debtors.

The guidelines – drawn up in consultation with the Government – are central to the insolvency regime as they set out how much money people will be allowed to spend within the insolvency arrangement. This will include limits on expenditure on items such as food and basic medicine.

Although the aim remains to impose the same basic set of criteria on all insolvent debtors, a source briefed on the plan said it will embrace a degree of flexibility to ensure a “sensible” approach is taken.

For example, this may provide leeway for an exam student in a private school whose parent enters an insolvency arrangement to stay at the school.