What happens when you have unsustainable home loans?

The answer is so simple – bankruptcy!

Bankruptcy is increasingly becoming a ”middle class phenomenon” in Australia, says the report from the University of Melbourne Centre for Corporate Law and Securities Regulation. Middle-class professionals and people on high incomes are declaring bankruptcy faster than ever in Australia, according to this study that reveals bankruptcies have risen by more than a third in the past four years.

Professor Ian Ramsay, an author of the report, which will be published later this year, said the number of personal bankruptcy filings jumped by 6 per cent in 2008-09, after rising steadily over the past four years. There were 27,520 in 2008-09, an increase of 34 per cent since 2004-05, when there were 20,501 cases of bankruptcy. In 2009 the number of personal insolvency cases (which mainly involves bankruptcy but includes debt agreements) shot up to 36,487.

In their recent report Personal Insolvency in Australia, they have focused on middle class bankruptcy profiles. ”One of the biggest findings was that more and more of the middle class are being claimed by bankruptcy and, to us, it seems a social problem that has escaped notice.”

A major cause of rises in bankruptcy among the middle class, said Professor Ramsay, has been due to unsustainable home loans.  That’s why I always stress the importance to put a 2% interest rate buffer on top of the current standard variable home loan rates.

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