The long awaited Guidelines on a reasonable standard of living and reasonable living expenses have been published by the Insolvency Service of Ireland (the "ISI"). These Guidelines are relevant to the assessment of a debtor's eligibility for a Debt Relief Notice, the formulation of Debt Settlement Arrangement and Personal Insolvency Act Proposals, and the Court's making of a bankruptcy payment order. Their aim is to safeguard a minimum standard of living so as to protect debtors while facilitating creditors in recovering all, or a portion of, the debts due to them.
2. Reasonable Standard of Living
The ISI considers that a reasonable standard of living is one which meets a person's physical, psychological and social needs. Under these Guidelines it should be possible for the debtor "to eat nutritious food..., to have clothes for different weather and situations, to keep their home clean and tidy, to be able to devote some time to leisure activities, and to read books, newspapers and watch television". It follows that "reasonable living expenses" are the expenses a person will necessarily incur in achieving a "reasonable standard of living" which fulfils these criteria.
3. Reasonable Living Expenses
Four categories of expenses will be examined in order to determine the amount of reasonable living expenses, namely, household composition, the need for a car, variable costs such as paid childcare or payment of rent/mortgage and special circumstances including medical costs associated with a physical or mental disability.
In forming an opinion on the reasonable living expenses of a debtor, differences in the size and composition of households will be considered. Regard will be had to the differing needs of persons, including matters such as their age, health and whether they have physical, sensory, mental health or intellectual disability. For example, where childcare is paid for, the reasonableness of this expense will be considered and will take into account the hours of childcare needed, the type of childcare and the typical cost of child care in the debtor's locality.
However, whilst the concept of reasonableness is one which is open to flexibility and interpretation, it is fundamental to achieving fairness and consistency that reasonable living expenses be as objective as possible. Ultimately, the decision on reasonableness or otherwise of living expenses will be a matter for the creditors to determine on a case by a case basis, with the Personal Insolvency Practitioner acting to facilitate debtors and creditors in working out an arrangement acceptable to both.
4. Household Expenditure Allowances
The total figure is made up of a number of categories, namely, food, clothing, personal care, health, household goods, household services, communications, education, transport, household energy, insurance, savings and contingencies, social inclusion and participation. Housing and childcare costs have not been included in the expenditure categories as these costs are variable given the number of housing situations possible and on how much childcare is required and who is providing the childcare.
Specific tables of expenditure are provided for various household compositions and circumstances.The costs attributed to a typical household in terms of household composition and the need for a vehicle is deemed to be "set costs". To these are added the reasonable costs of housing and childcare and special circumstances where they arise. This produces the total reasonable living expenses.
As a general principle, the ISI wishes to see debtors retaining the autonomy to make their own choices as to what is best for them, within the constraints of reasonableness and overall expenditure limits. Therefore, so long as a debtor comes within the overall headline figure for reasonable living expenses, the ISI will not be prescriptive in terms of what the applicant can or cannot spend. A debtor is entitled to prioritise certain aspects of his or her own budget. In the event that a debtor spends in excess of what is considered to be reasonable under the Guidelines, the ISI may examine their spending across the categories of expenditure.
Changes may be made to these Guidelines where sound reasons exist to support such changes. The ISI will issue Guidelines at least every year and they may be revised from time to time to take account of emerging issues and circumstances.