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Irish Debtors Face Ban on Vacations, Caps on Food Spending

Irish borrowers struggling to meet their loan repayments may be banned from taking vacations and face limits on how much they can spend on food under guidelines published by the country’s personal insolvency service.

Monthly individual living expenses for people seeking debt relief may be capped at 35.73 euros ($46.7) for clothing, 247.04 euros for food and 33.40 euros for personal-hygiene items, the Insolvency Service of Ireland said in Dublin today. Households in towns with “adequate public transport links” may not need a car, while private health insurance may also be banned, the ISI said.

The guidelines set a “standard of living that is based on needs, not wants, but it is more than survival and allows for meaningful participation in society,” the ISI said. “It should not be regarded as a standard of living for people in poverty.”

Ireland’s government set up the service after lawmakers passed personal insolvency laws last year, paving the way for write-downs of unsustainable debt such as home loans. With Irish central bank data showing household debt at more than 200 percent of disposable income, twice the euro-area average, the laws also enable bankrupts to emerge debt-free after three years, instead of 12 years under previous legislation.

‘Unsustainable Debt’

“One of the main priorities of this government was to put in place the best solutions we could for people living under the burden of unsustainable debt,” Justice Minister Alan Shatter told reporters in Dublin today.

Almost 12 percent of Irish owner-occupier loans were at least three months in arrears at the end of December, compared with about 19 percent of buy-to-let mortgages, the central bank said on March 7. Ireland’s unemployment rate has more than trebled in the past six years to 14 percent, after the collapse of the nation’s real-estate market sparked an economic slump.

“We welcome the acceptance by the insolvency service that a reasonable standard of living does not mean that a person should only live at subsistence level,” the Free Legal Advice Centres, a Dublin-based consumer advocacy group, said by e-mail.

The central bank, pressing lenders to do private deals with borrowers instead of personal insolvencies, last month set quarterly targets to tackle “unprecedented levels” of mortgage arrears. Banks have begun writing off irrecoverable home loans and allowing borrowers to suspend repayments on part of their mortgage until their personal circumstances improve.

Allied Irish Banks Plc Chief Executive Officer David Duffy said on March 27 that the country’s largest mortgage lender’s debt-restructuring offers are “likely to be significantly better” than what debtors would achieve through personal insolvency arrangements. The bank plans to restructure almost all of its troubled residential mortgages by the end of 2013, he said in an interview in February.

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