Key Post Using the ISI's Expenses Guidelines in discussions with your mortgage lender

[FONT=&quot]The Insolvency Service has published[broken link removed] for people to live on while they are in an insolvency arrangement such as a Personal Insolvency Arrangement or a Debt Settlement Arrangement. [/FONT]

[FONT=&quot]They are also very useful for people who are negotiating a mortgage restructuring arrangement with their lender outside an insolvency arrangement. The purpose of this post is to help a mortgage holder to use and understand the guidelines. Where a section is in "quotation marks", it is a direct quote from the Insolvency Service's Guidelines.

Up to now, the borrower and the lender had to go through each line of expenditure and argue whether or not it was reasonable. There were frequent rows over whether Sky Sports was reasonable or whether the borrower was spending too much on socialising. Now the borrower can work out what the total monthly expenditure should be and the lender should accept this as long as it is within the total amount guided by the Insolvency Service. Within that total amount, the borrower can choose how to spend their money. They can spend more on socialising than is recommended as long as they spend less in some other area.

If these guidelines suggest your minimum RLEs are €1,200 and the lender requires you to live on €1,000 a month, you should refuse.
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[FONT=&quot]These are guidelines. If you have particular needs which make your living expenses higher than the Reasonable Living Expenses, then you should include them as long as you can justify them.

For a longer term deal, a lender may well agree to a level of expenditure higher than the Insolvency Service's guidelines. For example, it may be in the interests of both the borrower and the lender that the borrower avoids a Personal Insolvency Arrangement and the lender might encourage this by allowing a higher level of expenditure than a PIP might allow using these guidelines. [/FONT]



[FONT=&quot]What is a “reasonable standard of living”? [/FONT]
[FONT=&quot]“a reasonable standard of living does not mean that a person should live at a luxury level but neither does it mean that a person should only live at subsistence level. A debtor should be able to participate in the life of the community, as other citizens do. It should be possible for the debtor ‘to eat nutritious food …, to have clothes for different weather and situations, to keep the home clean and tidy, to have furniture and equipment at home for rest and recreation, 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” [/FONT]

[FONT=&quot]Components [/FONT]

[FONT=&quot]There are 4 separate components [/FONT]
· [FONT=&quot]Household composition and transport costs[/FONT] (called Total Set Costs by the Insolvency Service)
· [FONT=&quot]Paid childcare [/FONT]
· [FONT=&quot]Rent or mortgage payment [/FONT](Called Housing by the Insolvency Service)
· [FONT=&quot]Special Circumstances – primarily exceptional medical costs [/FONT]

[FONT=&quot]Excluded items [/FONT]
· [FONT=&quot]Private medical insurance except in exceptional circumstances [/FONT]
· [FONT=&quot]Holiday costs [/FONT]
· [FONT=&quot]Having more than one car[/FONT]
· [FONT=&quot]Discretionary items ( e.g voluntary donations) [/FONT]
. Private shoools (presumably as it's not referred to in the Guidelines)

[FONT=&quot]Household Composition & transport costs [/FONT]

[FONT=&quot]The RLEs provides a set of tables which shows the RLEs for each category of household e.g. single person with no children; couple with three children and whether or not they need a car for work. [/FONT][FONT=&quot]The amount allowed for children varies according to the age of the children. [/FONT]

[FONT=&quot]If a car is necessary for work [/FONT][FONT=&quot]
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Note that the table numbers refer to the tables in the Insolvency Service's Guidelines document


If a car is not necessary for work
[FONT=&quot]Note in relation to Child Age Groups[/FONT]

[FONT=&quot]For the purposes of these guidelines, infant means a child between the ages of 0-2 years old inclusive, preschool means a child three years of age, primary school means a child between the ages of 4-11 years old inclusive and secondary school means a child between the ages of 12-18 years old inclusive.[/FONT]

[FONT=&quot]“[/FONT][FONT=&quot]Need for a car:[/FONT]

[FONT=&quot]Th[/FONT][FONT=&quot]e household will not normally need a car where the applicant lives in an urban location with adequate public transport links. Where public transport is not adequate to meet the needs of the household, the AI or PIP should choose the vehicle option based on the needs of the household (needs, not wants). A car will be required where a debtor needs it to travel to and from work. Where a car is not included, the ISI model includes costs associated with the use of public transport.”[/FONT]

[FONT=&quot]It is unlikely that a second car would be justified very often. It could be where both adults are working a great distance from the home in opposite directions. [/FONT]

[FONT=&quot]Paid childcare [/FONT]
[FONT=&quot]“[/FONT][FONT=&quot]Where childcare is paid for, the reasonableness of this expense should take into account [/FONT]
· [FONT=&quot]t[/FONT][FONT=&quot]h[/FONT][FONT=&quot]e hours of childcare needed,[/FONT]
· [FONT=&quot]th[/FONT][FONT=&quot]e type of childcare (e.g. crèche, childminder, etc.) and [/FONT]
· [FONT=&quot]t[/FONT][FONT=&quot]h[/FONT][FONT=&quot]e typical cost of childcare in the debtor’s locality. [/FONT]
[FONT=&quot]Where applicable, the Early Childhood Care and Education (“ECCE”) Scheme, which provides a free year of childcare and early education for children of pre-school age, should be deducted when calculating childcare costs given that each of the new arrangements continues over a number of years.”[/FONT]


[FONT=&quot]Special Circumstances – primarily exceptional medical costs [/FONT]
[FONT=&quot]"Allowance should be made [/FONT][FONT=&quot]fo[/FONT][FONT=&quot]r a debtor to specify reasonable costs which arise as a consequence of ill-health or disability[/FONT]. [FONT=&quot]Th[/FONT][FONT=&quot]e category of special circumstances may also be used where a debtor has persons other than his or her minor children financially dependent on him or her, such as where the debtor is contributing financially to the care of an adult dependent such as, for example, an elderly relative or a college-going child.[/FONT]"

[FONT=&quot]Private medical insurance – excluded except in exceptional situations[/FONT]
[FONT=&quot]“Examples of such situations include where the employer of an applicant pays the premium or where the applicant or a dependent has a health condition which would otherwise result in a higher expenditure on health as compared to the insurance premium. It might also be proposed to retain a policy where an existing medical condition would make it difficult or impossible to regain insurance cover in the future or where an individual is of an age such that it is reasonable for a private health insurance policy to be maintained. [/FONT]

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A practical example on how to use these guidelines

John and Mary have an income of €3,000 per month, before child benefit.
They need a car for work
They have [FONT=&quot]one primary school child and one secondary school child.
As Mary is not working outside the home, they have no child care costs.
They have a mortgage of €300,000 @4.5% with 20 years left
Monthly repayments: €1,667
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[FONT=&quot]First calculate what their RLEs should be[/FONT] for a couple with kids and a car
[FONT=&quot]
Now calculate what is available for mortgage repayments


They need to come up with a solution which does not involve paying more than €1,220 per month.


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What about other debts e.g credit union loan, credit cards etc.?

Are they to be added onto the monthly allowances or included in the total amount that is 'left over' for servicing debt? Hope this makes sense.

Hi daftpunk

Very good point. I have edited my post as follows:

[FONT=&quot]"Available to pay mortgage and other creditors [/FONT]"

What is left over after deducting costs from income is what you can pay your debts with. In general, you should prioritise your mortgage over unsecured debts.

Great work Brendan, well done.
Very good table to use.

I have tried on several occasions to negotiate with my bank using these guidelines. They point blank refused to allow the figures in areas such as clothing as well as socialising. Even when most of my figures in other areas were under the guidelines amount. Are these guidelines part of the new code of conduct for MaRP or is it only in regards to PIA?

Hi ellen

I don't think you need to get down to the detail of clothing and socialising. Just use the overall figure and spend it as you like. Or are they accepting the overall figure, but reducing it by the clothing and socialising?

It is not part of the MARP and has no validity outside the insolvency arrangements.

Which bank is refusing to accept it?