Staying In Your Family Home
The appropriate family home was brought in as part of the personal insolvency act 2012 and essentially said that an overriding cornerstone of the legislation was that a debtor should be allowed stay in their home but that it had to be an appropriate sized dwelling.
What is an Appropriate Family Home?
This is as you would expect it to be, so that a single person living in a four bedroom house would be seen as disproportionately large.
An appropriate family home for two adults and two kids might be a two or three bedroom semi detached house not a mansion.
Perhaps surprisingly the valuation of the home doesn’t really come into it so whether you live in Foxrock or Clondalkin it is the appropriate size that counts.
It is a grey area, however. Creditors can vary in their approach to this although we have rarely had any significant pushback.
It is normally a case of being able to make a compelling argument. So for example if you live in an inherited family home that has been in the family for several generation then even if it is deemed to be too large you can still make a case to stay there and the creditors will listen.
How Is This Used For Your RLE?
If we are trying to establish your Reasonable Living Expenses (RLE’s) we will generally look at what the rent in the area is and this is then used to establish what is reasonable for the mortgage costs.
So if you are living in a house where the monthly mortgage payment is €3,000 a month, but you can rent a similar house for €1,800 a month then it is the rental figure that is used in your RLE figures.
Appropriate Family Home, RLE & Your Debt Repayments
In our example where the mortgage is €3,000 a month. Let us say you are just about managing to pay this but cannot then afford to pay anything more to any of your other unsecured creditors. Many people are in this situation where they continue to pay their full mortgage because they are afraid they could be put out of their home.
The rental figure of €1,800 for the area is used to determine what your RLE’s should be. Depending on where you live (what part of the country or what suburb of the city) your RLE’s will vary quite considerably.
The rule is that we must go with what is reasonable in order to be fair to all the creditors. Therefore, once this rental figure has been established we will look at whether the mortgage can be sustained on €1,800 a month.
If so, this then leaves an additional figure of €1,200 a month for distribution to your other creditors.
This is the parity that is required.
How Does A Reduced Mortgage Payment Work?
In the above case our proposal to the creditors will ask the mortgage lender to agree to park 40% of the mortgage for you while 60% is serviced for the duration of the Personal Insolvency Arrangement (PIA). Hence a reduced payment from €3,000 to €1,800.
At the end of the PIA you will again have the additional €1,200 available to start servicing the mortgage again, but all the other unsecured debts will be written off.
The advantage here is that you get to stay in your home while the unsecured debts are written off. These could include the negative equity on a buy-to-let that you surrendered plus credit card and credit union debt.
But by this time circumstances may have also improved and you can look again at the situation and whether you want to stay in the home. For example perhaps your children will have left home by this time so you don’t need such a large house.