Editor’s Note: The following is the second and final installment in a two-part essay. If you missed Part 1, please go here.
4. One reason Dave Ramsey has become so successful is that he has explored the spiritual component of debt that people experience. This experience is often times very dark and humbling and can cause emotional distress. And it is precisely because the experience of being a debtor is so dark and serious that I believe that bankruptcy relief is essential for many people. Dave Ramsey encourages people in a spiritual way and helps them get through their dark hours, and they need that. However, it strikes me as abusive to prey on people’s religious beliefs and feelings of guilt to guide them away from a fresh start in bankruptcy. “Pay your debts” is generally good advice, but not for those at rock bottom who have no ability to repay. If it becomes clear that they can’t pay their debts, you have to give them a way out that is achievable, reasonable, prompt, and realistic. They need relief. They have already been struggling for so long. When I meet with potential clients about bankruptcy, the topic of suicidal thoughts comes up surprisingly often. Getting them relief and a fresh start can literally be a life or death issue. Divorce also comes up a lot. Getting a debtor relief can also save his or her marriage. This is serious stuff, with deep spiritual implications.
5. Using Christianity to lead people away from bankruptcy is ironic, because forgiving debts every 7 years comes straight from the Bible. Deuteronomy 15:1 says “at the end of every seven years, you must cancel debts.” This passage was the basis for the practice of debtor’s relief in the ecclesiastical courts of old, which evolved into courts of equity, which were a forebear of modern U.S. Bankruptcy Courts. In my bankruptcy law practice, it has been striking to me how many of the judges, trustees, and attorneys in the bankruptcy legal field are deeply spiritual people. (Note: Our bankruptcy law says that if you get a bankruptcy discharge, you can’t file bankruptcy again for 8 years. Until the bankruptcy law changed in 2005, the rule was that you couldn’t file bankruptcy again for 7 years. If you trace the origin of that 7 year rule, it goes all the way back to Deuteronomy.)
6. It is immoral to borrow if you know you are not going to repay, and it’s also immoral to not repay your debts if you have the money to do so. But it’s not immoral to not pay if you can’t pay. If you borrowed in good faith, with an honest intent to repay, and your plans simply didn’t work out, and you just can’t repay your debts, there is nothing morally wrong with that. Acknowledging facts is moral. Coming to terms with the truth (such as “I am never going to be able to pay off this debt”) is a good thing to do.
7. Dave Ramsey also argues that bankruptcy will harm your credit. That’s hogwash for many reasons.
- If you are a good candidate for bankruptcy, your credit is already ruined.
- Also, filing bankruptcy helps your credit recover more quickly because it discharges your debt, thus giving you a better ability to repay any new, post-bankruptcy debt. Creditors like that. Many of my bankruptcy clients have been former realtors, mortgage brokers, and auto salesmen who have been in the business of trying to get people approved for loans. They consistently tell me that it is much easier to get someone approved for a loan if they filed bankruptcy and waited 2-3 years than if they didn’t file bankruptcy and still have all that old debt and all those late pays on their credit report.
- Also, you can only file bankruptcy every 8 years, so if you have recently filed bankruptcy, any new lender doesn’t have to worry about you running out and filing bankruptcy. This is another reason why some lenders SEEK OUT people who have just filed bankruptcy.
- Also, as Dave Ramsey states so clearly in his books, you are probably better off never borrowing again. So who cares what your credit score is?
8. It is true that the fact that you filed bankruptcy will be on your credit report for 10 years, but most lenders don’t give much weight to events older that 2 -3 years. They know that many people hit bumps in the road and then get their financial lives bank on track.
I’m not the only person who thinks that Dave Ramsey has missed something important when it comes to bankruptcy. A quick search on the internet lead me to discover several other blogs that discuss the same arguments and opinions I have discussed above.
- Dan Nunley: Dave Ramsey, Financial Peace University and Bankruptcy
- Helium: The Truth About Dave Ramsey
- Bankruptcy Law Network: Why Dave Ramsey Hates Bankruptcy
- F. Bennett Callicoat: Dave Ramsey’s Financial Peace University
- Mark Emmett: Dave Ramsey, Bankruptcy Survivor