Ireland now has four formal routes to deal with unmanageable debts. These include debt relief notices, debt settlement arrangements, personal insolvency arrangements and bankruptcy. Each of these differing types of personal insolvency will involve an assessment being made of your income and expenditure. The purpose of this is to assess whether you’re able to contribute towards your debts.
The outcome of this assessment makes a big difference as it may determine which options you do (and do not) qualify for. For example, if you don’t have assets to sell you’ll have to have a reasonable level of disposable income in order to qualify for a debt settlement arrangement or personal insolvency arrangement. Equally, your disposable income will need to fall below a low threshold in order to qualify for a debt relief notice.
The calculation of disposable income is relatively straightforward; income minus reasonable expenditure. The concept of “reasonable” expenditure has been further simplified by creating a system of allowances that will depend upon your family size, housing costs and so on. The subject of defining your income can however cause confusion.
It’s not uncommon for people to take on a second job when they’re struggling financially. Will this income be taken into account when working out your disposable income for personal insolvency? The answer is that, normally, it will be. Whoever is advising you or supervising your arrangement is responsible for striking a fair balance between you and your creditors. That will encompass factoring in all of your income.
You might therefore wonder whether it’s worth carrying on working all hours of the day (or night) if the extra income is being used solely to repay your debts? Some people may conclude that this sacrifice is no longer worthwhile once their debts are under control. Others may be determined to repay as much as they can towards their debts even if they’ve had to avail themselves of personal insolvency.
What you should remember is that giving up a second income may greatly change your disposable income. This could have the effect of excluding you from your chosen debt relief option, so don’t make any decisions about your employment without first talking through the consequences with your adviser or arrangement supervisor.
How about extra earned income from your main employment? For example, what will happen if you work paid overtime, get a bonus or earn commission? Again this is a subject to discuss when you are taking initial advice. If you’re looking at the possibility of a debt settlement arrangement (DSA) or personal insolvency arrangement (PIA) you’ll want to work through the consequences with your personal insolvency practitioner. They might suggest a compromise by which you keep a percentage of extra earnings (an incentive to work hard) with the remainder going to your creditors. Failing to arrange how this will work in advance might leave you exposed to paying it all over.
Should you rely on casual work or non-guaranteed income to fund a debt deal? If you’re determined to avoid bankruptcy you may want to include all possible sources of income in order to be able to demonstrate that you have a disposable income from which to fund contributions to your DSA or PIA. This is highly risky if the income isn’t reliable or secure. We’d urge caution in this respect as you’ll not be helping yourself or your creditors if you sign up to a personal insolvency option that isn’t likely to be sustainable and which later fails.
Author: We hope that this information about incomes and their relationship with personal insolvency is useful. If you have further questions related to your personal situation you may wish to visit the Debt Advice Ireland website. We have experts on hand to answer your questions in our forum. We also have a professional advice team that you can contact directly for personal advice.