Dave Ramsey has established himself as the money-making guru in the United States and around the globe. His program of making “Everyday Millionaires” has inspired countless individuals to get out of debt, live within their means, and save wisely until they can “live like nobody else.” But what does Dave Ramsey think about bankruptcy? We will go over this in detail, but, in short, Dave Ramsey thinks bankruptcy should be the very last option. In fact, he compares it to filing for divorce. Would you file for divorce after a small argument? Or even one big fight? For most people, the answer is no — divorce happens after you have tried absolutely everything else to save the marriage. 

It’s no secret that Dave Ramsey is passionate about personal finance. Watch a single YouTube video or listen to one podcast episode of his, and you’ll hear the conviction and passion he has. And with so many people praising his “7 Baby Steps,” he has to know what he’s talking about, right? But what happens if you are a little bit further behind financially than you’d like to be? What if your debt is so massive that even the “Debt Snowball” method Ramsey preaches wouldn’t help you get back up on your feet? What would Dave Ramsey say if you asked his opinion on bankruptcy? Well, luckily, we don’t have to ask. 

Dave Ramsey’s Background

Though now, Dave Ramsey is a self-made millionaire helping others around the globe reach financial stability — and even abundance — he hasn’t always been so successful financially. In fact, in 1988, Ramsey himself had to file for bankruptcy. Why? Well, though he was worth over a million dollars at the time, his financial risks — mainly real estate loans — came calling and he didn’t have the liquid cash to cover them. Unfortunately, this forced Ramsey to file for bankruptcy, causing him and his wife to start back over. 

While this may have seemed like a terrible event, it actually was a reset that allowed Ramsey to realize how reckless he had been with money. After getting through his bankruptcy, Ramsey turned his financial life around and began making logical money decisions. Through his initial failure, Dave Ramsey learned a lot about how to be financially free from the worries of the world. Because of this, he has set out on a journey to help others do the same. Though his tone can be rough and his advice can be harsh, his financial wisdom is something many seek when attempting to regain control of their finances. So, if Dave Ramsey can file for bankruptcy, would he ever recommend it? Let’s find out. 

What is Bankruptcy?

Before talking about Ramsey’s take on bankruptcy, it’s important that we understand exactly what bankruptcy is. There are two main types of bankruptcies that an individual would file: Chapter 7 and Chapter 13. Let’s go through these two main types in a little more detail.

Chapter 7 bankruptcy is often called liquidation bankruptcy. This is true because, when you file for Chapter 7, your assets are often liquidated in order to pay off your debts. Once the assets that are able to be liquidated are sold, the remaining debt that you have is discharged —or forgiven. It is important to remember that you have to qualify for Chapter 7 bankruptcy through the means test. The means test considers your income level compared to that of the state’s median income. Depending on where you fall will determine whether you are able to file for Chapter 7. Also, one major concern of Chapter 7 bankruptcy is that you will have to sell your house and your car. Luckily, there are exemptions you can use to help protect some of the assets you have, including your car and home. Talk more to a bankruptcy attorney in your area if you want to know what might be exempt if you were to file for Chapter 7. 

How Much Does It Cost To Avoid Bankruptcy? What Are My Options?

In 2019, we realized that there were few to no unbiased resources to help people understand their options to get out of debt cheaper, easier, and faster and avoid wage garnishment. So, we built a debt cost and options calculator that provides personalized estimates of your different options, the pros and cons, and alternatives. It’s been helping thousands of people and has helped us receive a 5.0 rating on Google based on over 100 reviews. With the calculator, you can estimate all-in monthly costs of options such as debt payoff planning, debt management (non-profit credit counseling), debt negotiation, and bankruptcy.

If you are interested, you can take the calculator below. Not even an email address is required unless additional insights are helpful.

Other Forms of Bankruptcy

The other most common form of bankruptcy is Chapter 13. This form of bankruptcy is often called the wage earner’s bankruptcy. Chapter 13 earns its nickname because you are still required to make monthly payments on your debt. With Chapter 13, you would work alongside your creditors and a bankruptcy trustee to determine an amount you would pay to the court each month that would then be distributed amongst your creditors. Chapter 13 cases tend to last between 3-5 years. Any debt remaining after that time is eligible to be discharged. 

One important detail to keep in mind is that not all debt can be discharged. For instance, most federal student loans, owed taxes, child support payments, and alimony payments cannot be discharged and require full repayment. 

Now that we have briefly covered what bankruptcy is and how it can help you get out of debt, let’s take a look at what Dave Ramsey has to say about the process. 

Would Dave Ramsey Recommend Filing For Bankruptcy?

Dave Ramsey’s website has hundreds of articles listing ways that you can better your financial life. From investing in real estate to creating a “beans and rice,” meal plan, there are countless articles advising readers on how they can live a life of financial freedom. So what does Ramsey have to say about bankruptcy? 

In short, Dave Ramsey recommends bankruptcy being literally your last option.  As in, “sell everything you have ever owned before filing for bankruptcy” last option. Why? Well, according to Ramsey, there is not a bigger financial blunder than filing for bankruptcy. In fact, Dave Ramsey has said that it is a devastating and life-altering event that he would avoid recommending at any cost. While it can be a helpful debt-relief tool, Ramsey says that the effects — emotional, physical, mental, financial, etc.— will stay with you for a lifetime. He also says that many people jump into bankruptcy way too quickly, before they even need to. Because of this, Ramsey advises you to do everything you can before getting up in front of a judge and declaring you are unable to pay back your debts. 

Having filed for bankruptcy himself, Ramsey can attest to the fact that the ramifications of bankruptcy are far-reaching. He recalls in many of his videos and podcasts the feeling of abject hopelessness he felt when filing for bankruptcy and how hard it was to even emotionally recover from that time in his life. So what does Dave Ramsey suggest you do instead? Well, his website lists 6 things that you can do to prevent yourself from having to file for bankruptcy.

Ramsey’s 6 Steps To Avoid Bankruptcy

These aren’t six different options that you can do instead of filing for bankruptcy. Instead, there are six steps that will get you where you want to be. I think it’s important to mention here that this advice will not work for every situation. If you are potentially facing homelessness or can’t find a way to even feed your family, bankruptcy right away may be the best option. Please consider your unique situation before taking any advice from anyone. However, if you aren’t at a place where you have to file for bankruptcy immediately, consider doing these six steps to avoid filing for bankruptcy. 

1. Take Care of the Four Walls First

What Ramsey means by this is make sure your basics are taken care of. The four walls include the four most basic things you need to survive: food, utilities, shelter, and transportation. Ramsey says that taking care of these four things are a must before you begin paying off anything else. If you don’t have food, water, electricity, and shelter, there’s no way you can get out of debt. And if you don’t have any form of transportation, there’s no way you can keep the other three things available. All four walls have to be taken care first — no exceptions. Now, this doesn’t mean you need the best, newest, shiniest form of transportation. It can simply mean making sure you have a bus pass. It may be hard, but you are going to have to make lifestyle sacrifices in order to avoid bankruptcy.

2. Sell Everything In Sight

This is a piece of advice that Ramsey lived out. When he and his wife filed for bankruptcy, they ended up selling absolutely everything that had any sort of monetary value. This may be extreme, but Ramsey pushes back, noting that bankruptcy is just as extreme, if not more. 

So if you have old DVDs, furniture, books, school supplies, boats, or whatever else lying around, SELL THEM! This can help you scrape together enough cash to either keep the four walls up or start paying off your debt. 

3. Live on a Bare Bones Budget

If you are at the point of considering filing for bankruptcy, you are at the point where your budget cannot handle any kind of excess or luxury. This means getting rid of a lot more than you might realize. It means canceling cable, streaming services, and potentially even your cell phone service. It means absolutely no eating out, especially at sit-down restaurants. 

This also means a change in day-to-day lifestyle. Are you accustomed to getting your hair done every few weeks? Not anymore. Car detailed every time it gets muddy? Nope. Only buying ultra-organic food from farmers’ markets because of the aesthetic? That’s gonna have to wait. Bare Bones Budget means you are buying generic products that are cheap and can keep you full and energized. Dave Ramsey usually calls this the “beans and rice, rice and beans,” diet. Again, this may feel extreme, but so is filing for bankruptcy. 

4. Get a Second Job

Having even one smaller second stream of income can greatly reduce your need to file for bankruptcy. Have a couple of hours off in the afternoon or evening? Great! Use that time delivering pizzas, working in an office, or doing something else that pulls in more income. BUT all this extra income should not be going toward your personal budget. Rather, it should all be going directly to your creditors. 

Getting a second job can mean sacrificing time with your friends or even your family. But it’s important to remember that it is for a good cause, and it’s only for a season. If it can get your family out of debt sooner, it may be worth the lost time. 

5. Don’t Fall For Debt Settlement or Consolidation Tricks

Oftentimes, when you are in extreme desperation because of your situation, you may be more perceptive to common debt-relief selling techniques. If you have had a company pitch their services to you, you may be thinking “That sounds amazing!” The promise of having your total debt amount decreased is a dream! However, at the end of the process, you may very well wish you were only dreaming. The amount in fees that you will have to pay to these companies is outrageous, and it can often outweigh the amount of debt that was forgiven — leaving you paying more than you started out with. 

Instead, trust the process. Work hard and pay off your debts, and you will be able to survive without all those gimmicks promised by the shady debt settlement companies out there. 

Editor’s Note: We would like to point out that Dave Ramsey has a pretty strict policy when it comes to working with outside entities to either purchase items or get relief from debt. His motto is to never use credit cards, loans, or debt settlement /consolidation companies. We do not necessarily agree with this. Just like there are ways that credit cards can be helpful if used correctly, we think that there are, in fact, some debt relief companies that actually can offer you a solution for your overwhelming debt. It is, however, super important that you are incredibly thorough in your research if you decide to work with a debt relief company. 

6. Talk to a Financial Coach

The last piece of advice that Ramsey gives is to talk to a financial coach. Talking about money can be hard, especially if you’re in the middle of a crisis. But educated coaches can help you better understand your financial situation and help set you up for success. 

Conclusion

Though Dave Ramsey himself had to file for bankruptcy, he testifies that it should be your LAST option for getting out of debt. In fact, he lists 6 steps that could help you avoid bankruptcy — if you’re willing to stick with it. If you would like to talk to someone about your options, feel free to reach out. Our own financial gurus are here to help you figure out what the best plan may be for your financial future.