What Does Dave Ramsey Think About Bankruptcy? What You Need to Know

Dave Ramsey once filed for bankruptcy. I’m pretty sure that’s one piece of information you didn’t see coming. He rightly and clearly described bankruptcy as both a financially and emotionally demanding endeavour. He described the process as a delicate one where mistakes are synonymous with financial hardship.

What is Bankruptcy?

Bankruptcy is best described as a legally binding proceeding where a debtor that can’t afford to make regular monthly payments as agreed in the loan contract defends their inability to pay. The debtor files for bankruptcy with the belief that he’ll receive a bankruptcy discharge form. Dave described bankruptcy as one of the extreme ways to deal with debt. It’s quite effective, but it can’t be used regularly. Other than this, there’s also the debt consolidation method.

To start the bankruptcy process, the debtor will first file a bankruptcy case at the bankruptcy court. The creditor may also file a bankruptcy case, although that’s a very rare phenomenon. The bankruptcy trustee evaluates the debtor’s assets, he/she can then choose to liquidate the asset and pay unsecured creditors or allow the debtor to keep the asset. Whether a bankruptcy trustee liquidates an asset or not is determined by relevant state and government exemptions. If you’d rather learn from other people’s experiences on this matter, then you should search for “filing for bankruptcy” on Reddit. There, you’ll find a sneak-peek into a different perspective of others, and their general experiences from the process.

Bankruptcy often wipes off debtors’ debt and gives them a fresh start. The bankruptcy discharge wades off debtors as they’ll no longer have the right to request that you make monthly debt payments. Finally, there are different types of bankruptcy to consider. The most common types are Chapter 7 and Chapter 13 bankruptcy. Many people question whether Chapter 13 is worth it because of the length of time and the cost.

What Does Dave Ramsey Say About Bankruptcy

If you’re struggling to make a decision on whether or not to file for a bankruptcy discharge, Dave Ramsey has some encouraging words for you. He says “You’re not a terrible person for being in this predicament as bankruptcy is a very difficult process that should be well thought out before making a decision.” He also says that you’ll definitely get through it if you’re resilient enough.

Would you rather avoid bankruptcy? Here are some 6 steps to avoiding bankruptcy:

  1. First take care of your four walls
  2. Sell what you can
  3. Get a second job
  4. Create a budget to guide your spending
  5. Consider more suitable bankruptcy alternatives
  6. Consider the opinions of a financial coach

Although Dave Ramsey is an adherent believer in bankruptcy, he holds some salient opinions that suggest his penchant for other debt-relief options. To give his followers a more idealistic debt relief strategy, Dave suggests that other alternatives should be first considered before filing bankruptcy.

When Should You File Bankruptcy?

When Dave Ramsey had a debt problem and banks started calling in, he took the option of filing for a bankruptcy discharge that left him financially broke and emotionally broken. Some file bankruptcy when they have been sued for unpaid debt, sometimes as little as $5000. An important question to ask is “have you tried all available alternatives that Dave Ramsey suggests and nothing seems to work out?” if you have, then you have no choice but to opt for a bankruptcy discharge. Here’s a video you may watch to know what Dave Ramsey truly feels about bankruptcy, and some alternatives he finds appropriate.

Another thing to consider is whether you qualify for bankruptcy. Many people do not know that you generally have to be under an income limit for filing Chapter 7 bankruptcy to qualify.

Dave and other personal finance experts understand that the thought of filing for bankruptcy is a scary and confusing one. This fear is further heightened by numerous tales of people that have gone from grace to grass as a result of being bankrupt. Celebrity gossip columns never seem to get over the narrative of celebrities being poor after filing for bankruptcy. All these create a false negative of what bankruptcy entails. However, this isn’t bankruptcy, and all can be fine if you’re making a move at the right time. But when is the right time to file for bankruptcy? Here are some questions you should ask yourself to know the most ideal time to file for a bankruptcy discharge:

  • Are you constantly harassed by bill collectors?
  •  Are you only financially capable of making minimum payments on your credit card debts?
  • Do you feel that your finances have spiralled out of control?
  • Do you get confused about what you owe due to multiple debts?
  • Would you consider debt consolidation as a noteworthy option?
  •  Are credit cards your go-to option when it’s time to pay for important financial obligations

If your answer is a yes to more than two of those questions above, then it seems like filing for a bankruptcy discharge may be a reasonable way out of debt for you. That said, you should also consider the cost of bankruptcy and whether it’s an affordable option for you.

Bankruptcy Alternatives

Although Dave expresses his view against some of the bankruptcy alternatives below, you may still want to consider them according to your current predicament. Here are some popular alternatives to bankruptcy to consider:

Debt Settlement: In this type of bankruptcy alternative, a debtor hires a debt settlement company that’ll help with negotiating for a much-reduced debt sum by explaining that you’re in a difficult financial predicament. For example, they can help to reduce a debt sum of $50,000 to as low as $5,000 if you have valid reasons for that. A disadvantage with this method is that it’ll damage your credit score, however, it offers a great way to rejig your debt.

Debt Management: Quite familiar with debt settlement, however, the company negotiates here for a much-reduced interest rate. This method is ideal for high interest-rate loans. Many people compare debt management to debt settlement.

Summary 

If Dave Ramsey didn’t file bankruptcy, would we have the baby step method or other points of financial guidance?

If you read every piece of this article, I’m sure that you’ll come to a conclusion that bankruptcy should only be considered as an option of last resort. If you’re still considering bankruptcy, then you should talk to a knowledgeable bankruptcy attorney, a friend who recently applied for bankruptcy and use this Chapter 7 bankruptcy means test calculator to know if this option is ideal for you.