Dave Ramsey Hates Bankruptcy, Part 2

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.

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  • Joe DeVet

    Another thing to hate about bankruptcy is that when it is readily available, as it is today, it becomes a stumbling block to obtaining credit and to capital formation.  Why?  Because when a lender realizes how easy it may be for his debtor to escape repayment by simply getting in over his head, then getting out via bankruptcy, sticking the lender with 10 cents on the dollar, he will be less inclined to extend credit in the first place.  The consequence is that good, responsible individuals and business people find it harder to get credit, to the detriment of the Common Good.

    No thanks, Mr Bankruptcy Lawyer.  I’m gonna go with Dave Ramsey on this one.  I’d have been more willing to listen if you’d offered a balanced caveat rather than a screed against Ramsey and his total message, which has benefited millions of people.

  • Editor

    But no one is disputing the fact that every reasonable effort should be made to avoid bankruptcy. The question is: is bankruptcy the best solution for some people? This is the subject matter for the author; there is no screed against Dave Ramsey’s “total message,” which by anyone’s standards (including the author’s, as stated in Part 1), has been beneficial for many people.

  • Elice L.

    I only read part two of your article (I couldn’t find my way back to page 1 even with the link) but I am a little disappointed by it.  First, I love Dave Ramsey.  He tells people to suck it up and quit living like so many Americans, deep in debt becuase they want what they want and now, and do the right thing.  Yes he spouts Christianity becuase he is such and this drives his beliefs.  It is our gauge on what is right and wrong and more people should live by this vs. what feels good or makes us happy in the moment.  If someone is depressed because they are in debt, getting them out of debt without a paradigm shift won’t solve their problem.  They will likely get right back into that same situation.  It is a stretch to chastise him for Christian speech regarding bankruptcy, using quotes from the bible about 7 year relief.  Typical lawyer speech.
     I think it is a bit unfair to say that Dave Ramsey shouldn’t tell people to pay their debts if they feel very upset and suicidal.  If someone was truly suicidal then they most likely wouldn’t be seeking the help of an attorney either.  Do you not charge these individuals becuase they are in this state?  Doubtful.  A bankruptcy attorney would not like someone like Ramsey as if people listened to him they would be out of business.  It is in your best interest to have people live beyond their means and have to come to you.  I guess this is proof that the Ivy League colleges are liberal as you really seem to have that mindset.
    Speaking of bankruptcy harming your credit, I don’t know where you get your information about what Ramsey says on this but I have never heard him speak about worrying about your credit.  He says that people shouldn’t care about their credit bacuase they shouldn’t be using it.  They need to pay cash or wait.  Just like our ancestors did.
    For me, I am left wondering why this article is on a Catholic site.  It doesn’t seem Catholic in nature.

  • John

    Re: #6.  I am only a part-time listener to Dave Ramsey, so I don’t know all of what he says, but your argument on number six seems to be his as well.  When I have heard a caller asking about bankruptcy he asks them questions to see if they are truly bankrupt.  If they can pay, but it would be painful to do so, he advises them not to seek bankruptcy, but he seems to accept it if they are truly bankrupt.  I’ve even heard him say that although he repaid his creditors after his bankruptcy, he doesn’t believe it is a moral obligation.

    John
    servantofcharity.blogspot.com

  • Michelle Lynch

    We live in a fallen world, and a post-christian society.  Bankruptcy can be a moral option.   Is if best to not get into debt?  Yes!  Is it right to repay that which you have borrowed? Yes!  Many people fall into the debt trap when they are young. Society as a whole expects young people to borrow their way through college.  So they come out of university with many thousands of dollars debt (non-bankruptible).  And while in school the credit card companies have already hooked them with fantastic low-interest credit card offers.  And being young and optimistic they take those offers.  After all they are in school and will have a degree in a few years and then find that perfect high paying job.  Schools’s over and it is time to grow up and settle down, and they fall in love with and marry Mr/Miss right….who by the way also brings to the marriage school loans and a card or two.  Part of settling down is buying a home and taking on a mortgage.  No problem qualifying with those 2 incomes (which may or may not be quite as high as their expectations were during college). And that clunker that saw them through college just really isn’t reliable enough for a career car. But hey, the car dealer has low interest loans…yeah, we can afford the payments.  Then along comes a baby and their world changes!  SAHM/working mom?  Either way there isn’t as much money coming in as before…day care isn’t free.  little by little the amount on the credit cards grows, but they always pay the minimum on time and the limits get raised.  Another baby or two and and there never seems to be enough money, but they have to pay those student loans and mortgage.  It’ll get better next year when that raise comes through.  But the economy takes a downturn and suddenly he’s lucky to even have the job.  Oh, and those low interest fixed rate cards?  Well, even though a payment has never been late the interest rate is suddenly raised to 24%.  Then, one of the babies get sick….really sick and has to be hospitalized.  2 weeks later baby is doing okay, but even with insurance there are a few thousand dollars in medical bills.  How long should we expect this family to struggle?  Is it right that credit card companies can raise those “fixed” rates they hooked people with when they have never missed a payment? How many times what people have borrowed should they have to repay?  Has slavery been outlawed or not?  It is not always possible to work your way out of debt.  Should people have to live their whole lives in servitude to finance companies who have saddled them with exorbitant interest and penalties?   Yes, bankruptcy can be overused, but I think that it is a necessary option for some.  I would like to think that a Catholic bankruptcy lawyer would seek to counsel his clients  to avoid bankruptcy if possible, but if it is the only reasonable option in their particular situation would guide them and watch out for their interests and suggest how to avoid getting back into the same situation.Many people seek bankruptcy after having made a paradigm shift in their financial behavior and still being unable to overcome debt which is destroying them. I don’t believe bankruptcy is on the list of intrinsic evils.  

  • Catholic HomeSchool Mom

    Thanks for this article — It is a Catholic article — because it seeks Mercy. Seems people are awfully critical of debt and bankruptcy. When our family found ourselves in this situation (3 yrs ago) we were looked down up on many people for making this choice to save our family and stop the “bleed.”

    I pray NO ONE EVER has to go thru the bankruptcy process — its VERY difficult to walk away from your life that you have worked hard to build for your family. We built our dream home on money saved for over MANY years — we waited to build after we were debt-free. In addition, we had rental property which we had been paying off (the mortgages were becoming very small) — But, unfortunately the man we hired to manage our properties was embezzling money from us (he was very crafty – and had a ring of people/tenants involved in his scam — he started scamming when he, for whatever reason, got involved in gambling and drugs – his criminal activity didn’t begin until he had been working for us for over 5 years??? Poor guy?!) our savings was depleted to zero — without boring you with all of the details, things went from bad to worse very quickly!! 

    We always have been “gazelle intense” about our financial situation however, we couldn’t sell things fast enough to keep up with the “bleed.”

    The bankruptcy proceedings helped us start over — we lost our rental houses, our home, a car, a boat and other investments — we owned all of it free and clear (exception: small mortgages) — but to settle the debt faster we had to surrender these things so we could move on. We had a second chance! We KNOW God was using it for His Glory — although it was a difficult time for us, beautiful fruit continues to come from it. Redemptive suffering? – perhaps?Is the bankruptcy process abused in our culture? Yep! Is credit abused too? Yep! Are people trying to make it better? I hope…. Dave Ramsey has a good thing going — I’m happy for him that God used his pain and misfortune to help many people. I’m also happy for him that he (& his family) continues to make a lot of money from his ministry.I hope folks would have a little more compassion for others who find themselves in this situation… its not always so cut and dry — and for some, its VERY personal. One more thing: its easy to sit around and say “suck it up” — if you’ve never been in a bankruptcy proceeding where cancer patients & their families are there having to file because they can’t keep up with the medical bills, house payment, etc. ALL bankruptcy filers are not all abusers of the process. Its rough out there — compassion is necessary and God calls us to show it daily.

    Prov.16:3

  • Editor

    My apologies for the link to Part 1, It should be fixed now. In fact, I chimed in yesterday expressing my dismay at the reactionary position of many commenters. If I may apply that to your own comments: 

    1. “I love Dave Ramsey” is not a valid counter argument. 
    2. No one here takes issue with Mr. Ramsey placing his overall message in a Christian context–it is laudable. Mr. Fulwiler finds it “ironic,” though, that he extends that context in order to rule out bankruptcy, considering the Scripture passages that Mr. Fulwiler quotes.
    3. Finally, you’ve chosen to characterize Mr. Fulwiler as a “typical lawyer,” though it is unclear what you mean by that. You imply that it means he is a liar, who doesn’t really have suicidal clients as he claims, and that he is greedy, whose chief interest is in milking his clients for all they’re worth. I can personally attest to the fact that Mr. Fulwiler is the very opposite of that. Can you personally attest otherwise? You are wondering why this article is on a Catholic site; I am wondering why comments like yours are on a Catholic site. 

  • Jessica

    Great point. I’m all for tough love but justice should always be balanced out with mercy.

  • Helene

    “What does forgiveness have to do with Christianity?”  Are you people really asking that?  Come on commenters!  Are you serious?  

  • rich

    Dear Mr. Fulwiler,

    I see so much of the world as lacking in personal responcibility and many times think that hardship is a very good remidy for correcting bad behaviors.  While I have not personally filed for bankruptcy, my parents have and so has a younger brother of mine.  In both cases, these individuals have since filed additional bankruptcies because they are unable to break the cycle that they are caught in.  While I am sure that there are some cases where this course of action is a reasonable (yet in my opinion personally unresponcible) tool, I am sure that there are probably many times when people declare bankruptcy when they do not need to.  I have no statistics to back this up so the editor will probably state that my assumption is not accurate enough. 

    Anyway, my point is that I believe that both solutions Dave Ramsey’s hatred of bankruptcy and the author’s liking of it are flawed, but I find that at least Mr. Ramseys approach is filled with hope and development of financial practices and morals that are necessary to break the habit and change to a more biblical way of living. 

    I must agree that I do not see why this article should be the “Headliner” for Catholic Exchange, but it is not my job to decide.

    Thank you for your time and may God bless everyone who reads this and thos ewho they love and hate most,
    Rich

    PS – Dear Editor, I must state, for charity, that I find your responces to the others in the reply section to be knee-jerkish and boarderline rude.  I hope that you will understand that I am not trying to attack you, it is your section to monitor and I am thankful for that, I just would like you to perhaps tone down the negativity of your replies (but perhaps I am out of line)

  • Cath

    Thank you so much for this article! As someone who is facing bankruptcy – very regretfully – I finally feel some hope. 

  • Jane Hautanen

    I gave more than seven years of my life to the radio network that carried Dave’s show including running the board for one of their AM stations which broadcast his show. I was treated very badly by them and let go under false pretenses with no severance. Since then my life has become worse and bankruptcy is my only option — I will probably lose my home.

  • M Rogerosr

    As a financial planner, I find Dave Ramsey’s advice on life insurance and investments indicative of someone who simply does not know what he is talking about.  It is a tragedy that people swoon to his advice on these matters.

  • mrogerosr

    As someone who has been in the Financial Planning and Insurance business for 39 years, I find it a tragedy that people swoon to him for advice on Life Insurance planning and investments.  His recommendations on how to manage your investments, mutual fund returns, and the role of cash value life insurance as part of a sound and well diversified financial plan is indicative of someone who simply does not know what he is talking about.  There is NO one shoe fits all approach to handling your financial affairs. Each financial plan is unique to the needs of the client and the particular goals they are trying to accomplish.  I taught the Crown Ministries program in our Parish and unlike Ramsey’s program which is premised primarily on his opinions about certain financial matters and then spiced up with a Christian emphasis for appeal, Crown takes a total scriptural approach to how God wants us handle our Financial affairs without opinions on strategy or product recommendations.  Strategy is unique to each of us and can come later with a knowledgeable advisor.  By the way, his advice on handling debt is nothing unique at all.  You can find that all over the internet and from dozens of reliable sources.  

  • Elice L.

    Mr.Editor,

    1. I was not trying to argue so stating that it wasn’t a valid arguement is irrelevant.
    2. Why are you speaking for the writer of this article and his intent?
    3. I absolutely didn’t write that Mr.Fulwiler was a typical lawyer, but that the writings were typical lawyer speech.  To explain, I have many atty friends and family so I know the types of speech they use.  My point was the plucking of one part of the Bible to make a complete summation was unfair.  It also says in the Bible that slave to the lender the debtor be, which Ramsey often quotes.  Being in debt is difficult to bear and hurts the spirit.  Yes, compassion is necessary in dealing with all of our fellow men but it is also necessary for people to have accountability.  I don’t speak of the people that have been wronged and are in a bind but those that have lived beyond their means and are now in a bind of their own making.
    I don’t see where you get that I imply that Mr.Fulwiler is a liar, doesn’t have suicidal clients, and greedy.  I didn’t say that and apologize if you have that impression.  
    The author was very negative, attacking the validity of Dave Ramsey and his teachings.  Some of the writings were half truths and out of context, misleading readers.  I felt it worthy to state that I had another opinion of Ramsey.
    In regards to posting on a Catholic site, I guess this may have been a low blow that you returned in kind.      

  • Elice L.

    First, I love that you find redemption from your suffering.  I believe that all hard experiences help to make us stronger and grow closer to God.  I feel very simpathetic to those that are in a tough situation that is not of their making or for medical reasons.  I would never condemn anyone either for going into bankruptcy.  My personal experience has been that so many people I know are in huge debt because they have lived beyond their means.  Sometimes they try getting down the debt but very half-heatedly, still treating themselves to dinners out, cable tv, expensive phones, etc…  We are completely debt free but had to work hard and sacrifice to get where we are.  It is frustrating to see those that stick their head in the sand and keep spending.  I think that all in all, Ramsey has a good message to the general masses-If you ain’t got it, don’t spend it!

  • http://profile.yahoo.com/3IO433M2UI4KQ6BJS2KBTQDUE4 Weiss

    It’s really sad that the editor finds it necessary to comment at all on readers’ posts, much less make snarky comments about them!  It’s not clear why the editor so feels the need to personally defend this article, either.  You don’t see editors of non-Catholic newspapers and other media sources attacking their readers when they don’t like an article they’ve published, so why would a Catholic-news editor act even lower than they do?  I don’t get that.

    I also don’t get why this article is on a Catholic website.  If I want to read articles about Catholicism, I don’t go looking for them on financial-news sources. 

    Go ahead, Editor, make some snarky comment now.  You might as well put up a headline saying, “Attention all CE readers!  Please go find another source for your Catholic news!”  Believe me, I’ve already heard you.

  • Editor

    Many people are genuinely suffering from debt but feel disinclined to consider bankruptcy because Dave Ramsay categorically hates it–they live in perennial shame as well as financial burden. Doesn’t that seem like a worthy topic for a Catholic website to you? And yet, to my chagrin, what do I find? An inordinate number of readers who seem pathologically driven to protect Dave Ramsay at all costs. That makes me far more than “snarky,” my friend. That makes me outraged. 

  • http://www.facebook.com/profile.php?id=1022537063 Shannon L Mohan-Sitsis

    As someone who has been there and back and has the morals income to back it up, I’d say he does know what he’s talking about,and he WANTS to share it!  He doesn’t need to make one more dime and he is set for life, because he dealt with the spiritual and emotional issues driving him to spend.  He has our best interests, because he answers to a higher power.  But I would question any lawyer who would counsel anyone to downplay the seriousness of debt or declare bankruptcy rather than encourage the person get to the root of why they are in such debt in the first place.  Bankruptcy lawyers wouldn’t put up with not getting paid any more than credit card companies who just want what is owed them.  They can be despicable with their games and rate changes, but they don’t force anyone to sign up for and use their product.  Rich (below) has it right, AMEN to you!!  We need to start addressing the real problems in our society, and stop bashing the man who only wants to help us.

    Yes, the Bible does talk about forgiveness, but it also talks about borrowing money and what damage it does to relationships.  Even Jesus told us in the NT to pay Caeser what is Caeser’s…….  The BIBLE addresses personal accountability, responsibility and doing everything we can to pay our debts.  If someone were to choose to forgive that debt then wonderful!  But our attitude shouldn’t be that b/c credit card companies are evil that I can just walk away without even trying.  It’s wrong to take a loan or purchase anything we know we cannot or never intend to pay for.  Tax collectors and creditors can be evil, but getting into credit card debt is a CHOICE.  Dave Ramsey has been there, knows what he’s talking about and is trying to help the rest of America to be FREE, emotionally, spiritually and financially, of what holds us all in bondage.  Who can fault that, except bankruptcy lawyers and credt card companies, who are only in existence as long as debtors stay in debt and see Dave Ramsey’s Financial Peace System as flawed and the real problem?

  • Madame X

    I think most people are not needing to file bankruptcy because of a bad deal gone wrong or being stolen from and you have nothing left…most bankruptcies are filed because of not wanting to pay back debt owed.  There are a lot of good people out there who just got caught up in a bad situation and it got out of control.  I don’t think Dave is unsympathetic to this.  I would call his show and see what he says about it.  It’s a good point made on the comments here…what if it’s because you were railroaded, and not out of control spending?   

  • raskolnikov37

    To anyone who thinks that debtors have any moral obligation toward their creditors, it’s important to first take a look at who these creditors are. In many cases, if the creditors are small businesses or friends or family members, then, yes, I believe there is a moral obligation to pay off your debts. However, if the creditor is a credit card company or any other large corporation then there is absolutely no moral duty to pay these companies anything. Why not? Well, because corporations like banks and credit card companies are some of the least moral entities on the face of this planet. Banks and credit card companies are like wolves preying on a flock of sheep. There is a reason why banks and credit cards continue to post record profits while the rest of the world is growing poorer and poorer and going deeper and deeper into debt. Human beings are not nearly as capable of making sound choices as many here would have us believe. Experiments in neuroscience over the past five to ten years have exposed great holes in our sense of free will and our ability to make conscious choices. For example, when people in experiments are shown objects and then asked to choose one of them, researchers using fMRIs are able to tell which object they will choose up to six full seconds before the test subject becomes aware of it themselves. What studies like this show is that the decision making process seems to be happening at the unconscious level of the brain and our consciousness only becomes aware of these decisions after they’ve been made. While these sorts of studies are far from conclusive many neuroscientists, cognitive scientists, and philosophers believe that free will is merely an illusion. In light of our advances in brain science it’s interesting to note that the vast majority of people are not able to make sound choices even when they know what the sound choices look like. People continue to smoke, over-eat, under-exercise, and over-spend, and so on even though we know the ultimate consequences of these so-called choices. The fact is that most people are very poor at making decisions when it comes to resources. The reason for this may be because our brains evolved many hundreds of thousands of years ago and are poorly equipped to deal with many of the resource decisions about food, money, etc, that exist today. A hundred thousand years ago it would have been very important for a human being to consume as much food as possible when it was available, since there was always a very good chance that you could starve to death next week. However, in modern society where we have too much food available, this wiring in our brains now works against us and more often than not causes us to over-eat and make poor nutritional decisions. The same goes with money. This does not mean that our decisions are wholly deterministic, but clearly, they are somewhat constrained by the processes of our brains which have evolved, and which are wired through genetics, the environment, and our experiences. Clearly, many corporations have been able to take advantage of these short-comings in our cognitive wiring and are reaping Hugh profits from it.
    Some people at better able to resist the trappings of modern society, but this is mostly attributable to the luck of the draw (genetics, life history, environment, experiences, etc) and has very little to do with any sort of ghost in the machine decision making. It’s purely mechanistic.

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