The Mortgage Choice franchise, Australia’s leading mortgage broker, continues to see many people going into bankruptcy arrangements for a relatively small amount purely on the advice of debt agreement companies.
According to the financial services franchise, these people are often told that bankruptcy is the easy – and sometimes only - way out, but this may not be the case.
Mortgage Choice National Corporate Affairs Manager, Warren O’Rourke said a significant number of people are getting themselves caught up in this situation.
“Many of our loan consultants are seeing people coming in to get advice and service on a current or potential mortgage, saying they’ve gone into bankruptcy due to only a few thousand dollars of debt,” he said.
“What they don't realise is the impact claiming bankruptcy has on their future financial arrangements. Most lenders will be very wary when it comes to approving a mortgage application and it is near impossible to be accepted for low or no deposit home loans”.
Mortgage Choice wants to take this opportunity to highlight the issue as a community service warning.
“Consumers should be wary of the debt management agreements some companies may suggest is the best way to go,“ Mr O’Rourke said.
“Under the Bankruptcy Act, people can declare bankruptcy or, as alternatives, enter into Part 9 and Part 10 arrangements. These involve agreeing to repay part or all of the debt under structured arrangements.
“We have found that some debt management companies peddle these arrangements on the pretext that people are rearranging their debt and paying it back and therefore the debt problem is solved.
“Unfortunately, the banks and other lending institutions view these arrangements similar to a full bankruptcy and many people are devastated when we tell them this”.
Anyone who is in a situation where they feel they can’t afford to repay, at the current amount, a mortgage or other debt such as a car loan or credit cards should visit their mortgage broker before filing for bankruptcy.
A reputable broker does not charge customers for service and can search through a database of lenders (in Mortgage Choice’s case, 28 leading lenders) for a more suitable loan or discuss a plan for debt consolidation.
“Bankruptcy may seem like an easy way out but its long term effects can be quite debilitating for your financial future,” he said.
“If you are a borrower in trouble - either currently bankrupt or considering the option - it really is worth checking with a reputable broker first to make sure there isn’t another way out of your financial strife. With the mortgage landscape being as competitive as it is, there are new loan products being released all the time. One of these could be the answer to your repayment difficulties”.
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12-Feb-2007