A little know fact is that Dave Ramsey filed bankruptcy back in the 1980s before the baby steps method. Dave Ramsey clearly and rightly described bankruptcy as a confusing and potentially emotionally devastating endeavor. Dave Ramsey described it as a serious decision where surprises can be financially fatal.
What is Bankruptcy?
Bankruptcy is a legal proceeding where a debtor can’t afford to pay his/her debt. The goal of bankruptcy is to receive a bankruptcy discharge, which eliminates debt liability. It is often one of the more extreme avenues of debt relief. The most common consumer bankruptcies are Chapter 7 and Chapter 13.
The bankruptcy process starts when the debtor files a bankruptcy case. The assets of the debtor are evaluated by the bankruptcy trustee. The trustee can decide to liquidate the assets to repay the creditor if the assets’ equity is above the exemptions.
Bankruptcy gives debtors the much-needed opportunity to start afresh by wiping off debts. When the debts are cleared, the bankruptcy court will issue a bankruptcy discharge to the debtor. This certificate shows that the debtor is no longer obliged to pay the discharged debt. In addition, the creditor has the right to harass the debtor for payment.
What Does Dave Ramsey Say About Bankruptcy?
Dave Ramsey has some caring words for those who are struggling with whether to make the decision to file. He says you are not a bad person to be in that position. He also states that bankruptcy is not the easy way out, and that you will get through this.
Dave Ramsey also provides 6 steps to avoid bankruptcy.
- Take care of your four walls first
- Sell everything that you can
- Try your hardest to live on a bare-bones budget
- Get a second job
- Watch our for bankruptcy alternative provises
- Talk to a financial coach.
Dave Ramsey says that bankruptcy is not necessarily your only way out. You may also have other alternatives to filing for bankruptcy.
When should you file for bankruptcy?
Dave Ramsey filed for bankruptcy when the bank called in his loans. The bankruptcy left him totally broke and completely broken. One question to ask yourself is, “have you tried all the alternatives that Dave Ramsey and you are still in a similar situation?
You can see that Dave Ramsey looks at bankruptcy alternatives on the Ramsey show. Here’s one video where Dave Ramsey looks at alternatives. He gives the reader Ramsey plus after the caller spoke of a wage garnishment letter. You can also see where Dave Ramsey is empathetic to those who file bankruptcy.
Choosing when to file for this scary proposition can be confusing. Especially with the constant tales by the media about super-rich individuals going from bedrock to bankrupt. Gossip columns never seem wary about giving us gist on celebrities who are about to file for bankruptcy. You might even be bothered that you’re bankrupt. But how can you tell when it’s the perfect time to throw in the towel and file for bankruptcy? Here are some questions you should ask yourself to know when it’s the right time:
- Are bill collectors constantly reminding you of your debt
- Can you only afford to make minimum payments on credit card debts
- Do you feel scared or out of control anytime you think about your finances
- Are you confused about the amount you owe
- Is debt consolidation an option for you right now?
- Do you use credit cards to pay for necessary financial obligations
If you answered yes to two or more of those questions above, then you need to consider filing for bankruptcy.
Types of bankruptcy filings
Let’s say you have attempted everything that Dave Ramsey suggests, and there’s still no way out. There are 3 different types of bankruptcy to know.
Chapter 7 bankruptcy
This is a type of bankruptcy that allows individuals and businesses (with few or no assets) to dispose of their unsecured debts such as medical bills and credit card balances. Individuals who have assets that are non-exempt by the laws of their resident state may liquidate those assets to pay off unsecured debts. For more information on the specific laws in your area, visit the United States Courts website.
You often have to qualify for a Chapter 7 bankruptcy by having to be below an income limit.
Chapter 11 bankruptcy
Businesses file for Chapter 11 bankruptcy discharge because it’s designed to help businesses reorganize their finances so that they can remain profitable. When businesses file Chapter 11 bankruptcy, they can cut costs, make plans for profitability, and seek other avenues to increase their revenue. If you want to apply for a Chapter 11 bankruptcy, you should use this Chapter 11 calculator to see if you qualify.
Chapter 13 bankruptcy
Individuals who earn higher than the income limit for a Chapter 7 bankruptcy discharge can opt for Chapter 13 bankruptcy, as it also wipes off the unsecured debt of the debtor. The major difference between Chapter 7 and Chapter 13 bankruptcy is the modalities for getting the discharge.
In a Chapter 13 bankruptcy, you would pay through a Chapter 13 repayment plan each month.
Understand Bankruptcy Alternatives
Dave Ramsey does not like many of the bankruptcy alternatives below, but you may look at these per your situation. There are multiple alternatives to bankruptcy that you may consider.
Debt Settlement:
This is a type of debt relief method where the debtor hires a company to negotiate a lower debt amount. The goal is to show your creditors a financial hardship that hindered them from paying your debt. For example, if you owe a debt of $20,000, the negotiating company may negotiate the amount to be paid down to $5,000. One disadvantage is that it’ll help the debtor clear the debt faster. This option will often damage your credit score. Check Dave Ramsey’s view on debt consolidation as well as there is often multiples options.
Debt Management:
This method is quite similar to Debt Settlement, the only difference is that a company will negotiate for a reduced interest rate. This option works best with high-interest rate loans.
Summary
From the content of this article, I’m sure that you’ve deduced that filing for bankruptcy can be a difficult last resort decision per Dave Ramsey’s advise.\. As such, you can speak with a reputable bankruptcy attorney, speak to a friend, or use a Chapter 7 bankruptcy means test calculator to understand that option for you.