Dave Ramsey Hates Bankruptcy–But Don’t Listen to Him

Editor’s Note: The following is the first installment of a two-part essay.

If you’ve found yourself in need of financial help, and have searched the internet for information on financial matters, you have undoubtedly come across Dave Ramsey’s website and his financial management products designed to help people get out of debt and manage their finances.  I used to be a big fan of Mr. Ramsey, and most of the information you find on his website is useful.  However, his stubborn disdain for bankruptcy is illogical and borders on being deceptive.

I would like to point out, before I get started on why Dave Ramsey is wrong about bankruptcy, that I am in fact a bankruptcy attorney. I meet with people on a daily basis that have run out of options for paying down their debt.  They are often in the process of being sued, or having the family home foreclosed, and they live under daily harassment from creditors.  These people need relief now!  On the other hand, I also run into people who only have $10,000 of debt, and simply need to manage their finances appropriately to pay down their debts.  For those people, bankruptcy may not be the right option.  I do not try to sell bankruptcy to people if they don’t need it.  I merely use the appropriate tool when necessary, and there are some situations where bankruptcy is the right tool.

Here is why I think you should disregard Dave Ramsey’s advice on bankruptcy.

1.  Dave Ramsey has a specific counseling service that is targeted at people considering bankruptcy. It strikes me as disingenuous to take the position that bankruptcy is never a good option when you are selling a service that competes with bankruptcy.  It’s hard not to draw the conclusion that he is trying to push his product.

2.  He claims that “bankruptcy is a gut-wrenching, life-changing event that causes lifelong damage.” It is true that the process of filing bankruptcy can be “gut wrenching,” but when compared to the reality of shouldering a large amount of debt for years to come, it is not as gut wrenching as being sued, and having the phone ring for months day in and day out from creditors calling to collect unpaid debts. I’ve seen many people struggle to make interest payments on an enormous amount of debt for years, only to reach retirement age and realize they are out of time and penniless, and they are then forced to file bankruptcy anyway.  That’s gut wrenching!  If they had just admitted to themselves earlier that they needed a fresh start, they could have been saving for retirement instead of paying interest on a debt that they really had no hope of repaying.

3. Dave Ramsey uses his own personal experience of bankruptcy to support his claims of detrimental emotional effects caused by bankruptcy.  However, Dave Ramsey’s bankruptcy experience is very out of the ordinary.

  1. Dave Ramsey was an overleveraged real estate speculator that couldn’t liquidate his assets fast enough when the bank called his loans, leaving him with millions of dollars of debt.  Most people who face the possibility of filing for bankruptcy are not overleveraged real estate speculators, but rather are normal families with both parents working to keep food on the table and pay the bills.  They might have experienced an income reduction due to the loss of a job, the loss of a spouse’s ability to work, or another life changing event such as divorce. (See The Two Income Trap, by Elizabeth Warren.)
  2. Dave Ramsey waited years before filing for bankruptcy.  He allowed himself to be sued, harassed, and frustrated.  If Dave Ramsey had realized the state of his financial situation sooner, and realized that bankruptcy is not a defeat, but a tool created to help people, he could have avoid the anguish he endured.
  3. If Dave Ramsey had not filed for bankruptcy, it is very unlikely that he would have enjoyed the success that he has today.  It was because he filed bankruptcy that he was able to move past his debt and begin his new life debt free.

 For Part 2 of this two-part article, go here.

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  • Doug

    Dave Ramsey is right… in life, there are consequences for our actions.  Many times, the consequences are undesirable and downright tough to handle.  What is so wrong with taking personal responsibility?

  • Anonymous

    Sorry, I disagree.  For the most part, Dave Ramsey is correct.  Bankruptcy hurts many people apart from the person who owes the money.  My family is in the contracting business.  For the second time now my father’s and brother’s company is being walloped by the bankruptcy of a customer.  They may now have to lay off employees and suffer financial damage themselves all because a company over leveraged itself and cannot pay its bills.

    Bankruptcy is not the best way to solve problems.  It leaves other people holding the bag for your mistakes.  Perhaps there should be less credit available or better checks before credit is extended.  And, of course,  it’s time for people to grow up and take responsibility.

  • Anonymous

    Mr. Fulwiler, as a married couple, we have facilitated Financial Peace University courses at local parishes and are frequent listeners to Mr. Ramsey’s podcasts.  We must respectfully disagree with the premise of your article.  First, his programs are not about competing with bankruptcy.  If anything, people who have needed to take such a financial step could use his programs perhaps most of all, to be sure that they do not repeat financial habits that may have contributed to the bankruptcy.  Second, we have heard him counsel people away from bankruptcy when repayment seemed difficult but possible.  Unfortunately, there are situations which warrant a bankruptcy and use of an attorney such as yourself.  Unless you are able to prove, through his own materials, that Mr. Ramsey believes that bankruptcy is never an option, I suggest that you submit to charity and honesty in your next article. 

  • Editor

    With all due respect to the commenters so far, your responses sound a bit reactionary. 555Watson’s 3 points for defending Mr. Ramsey in fact only reinforce Mr. Fulwiler’s article: Your 1st point demonstrates that Mr. Ramsey does steer people away from choosing bankruptcy. Your 2nd point also demonstrates that Mr. Ramsey steers people away from bankruptcy. Your third point backs up Mr. Fulwiler, namely that sometimes declaring bankruptcy is a viable option. Whatever indication you can give of Mr. Fulwiler being “dishonest,” now’s the time. Also, I would encourage all to continue following the article for the full picture: Part 2 posts tomorrow. Thank you, and God bless.

  • guest

    “It strikes me as disingenuous to take the position that bankruptcy is never a good option when you are selling a service that competes with bankruptcy”. . . it strikes me as disingenuous that a bankruptcy lawyer is trying to tell you that bankruptcy is okay–pot, pot, this is kettle.

  • Franklinstein

    ?? “…
    bankruptcy may not be the right option.  I do not try to sell bankruptcy to people if they don’t need it.  I merely use the appropriate tool when necessary, and there are some situations where bankruptcy is the right tool.” Sounds like the pot and the kettle are two totally different colors to me.

  • Joe DeVet

    I see the point, but I object strenuously to the headline. 

    We should listen to Dave Ramsey!!  Many people have benefited from his advice, people close to me by the way, and his advice about getting out of debt is very valuable, and very needed.

    The genius of Ramsey’s approach is that in a marriage, you get two people who are each used to managing, or mismanaging, their finances in their own unique way.  When they pool their resources in marriage, their two different ways of treating money can quickly cause expenses to outrun income.  Credit seems the answer, but credit is too easy and its costs are not well-recognized by most people–till they’re in over their heads.

    Ramsey’s KISS approach is just what the doctor ordered for these people.  Don’t put up a headline which puts people off about it.

    OK, bankruptcy has its place.  It can give people the breathing room they need when there’s no other recourse.  But since this is a Catholic site, it is well to remember that, even if a debt is legally “forgiven”, that debt is still a moral responsibility to be repaid.

  • Sallyforly456

    Thank you so much for this! It always seems like people are afraid to critique Dave Ramsey for some reason. That’s always bothered me. 

    As a small business owner, I often work with Dave Ramsey devotees and while I admire their determination to take control of their finances there are aspects of their approach that disturb me. For instance, I am often pressured–often too an extreme degree–into giving them discounts and accepting reimbursement well below what my services deserve simply because they are trying to pay down debts. This happens all the time. 

    Again, I admire this goal but to pressure business owners to accept less than what they deserve strikes me as very un-Catholic, indeed. We need to be focused on the health and wellness (financial and otherwise) of the entire body of Christ, not just our individual pocketbooks. 

    There is just something a little obsessive about many Ramsey followers that doesn’t sit right with me. He’s not a God, just a man.

  • Stewart

    This article reaks of lack of personal responsibility.  You’d think that a Catholic would at least mention the moral obligation of paying back debts in an article such as this.  I guess I’m wondering why Catholic Exchange decided to feature this article?

  • Briana

    Really?  Dave Ramsey Hates Bankruptcy But Don’t Listen to Him?”  Really???  The title of the article is extremely off-putting and sets the tone for a rather unconvincing argument.  If I was going to listen to someone making the case for bankruptcy, a bankruptcy attorney would be the most biased party I could think of, sorry!  I find Catholic Exchange’s articles over the last year or so to be gradually becoming more and more bizarre, but this one takes the cake.  It just really makes you guys look bad.  I think I’m going to stop coming here.  Things here are just getting weird.

  • Sallyforly456

    Because when missing one credit card payment can result in companies raising your interest rate to over 30% and when hospitals routinely grossly overcharge to compensate for those who never pay their bills ($25 aspirin, anyone?) perhaps a conversation should be had about responsibility. It’s certainly not as black and white as you seem to want make it. Perhaps an article about usury is in order, Catholic Exchange editors?

    Dave Ramsey filed for bankruptcy himself!  He reaped that benefit and lived to curse the rest of us. Nice. 

  • Editor

    The title of the article is completely apropos. Dave Ramsey Hates Bankruptcy (he does) But Don’t Listen to Him–the author of this article is strongly urging the reader to ignore Mr. Ramsey’s advice. The author goes on to explain why, and this isn’t even the complete list–tomorrow Part 2 posts. And, as the author clearly points out, he is an attorney who helps people find debt solutions, including bankruptcy when it’s “the right tool.” He finds Dave Ramsey “off-putting” for universally advising against bankruptcy, when sometimes it is the best solution. What is “weird” about any of this? I’ll say it again: as an editor of a magazine read by Catholics, I am dismayed at the knee-jerk reactions I am seeing in the combox here today.

  • Editor

    There is simply nothing in the article that implies that Mr. Fulwiler is opposed to the moral obligation to pay back debts. As should be clear, he works everyday to help people do precisely that–his point is that sometimes people are too far gone, financially, to do that in any reasonable way. As to why Catholic Exchange decided to feature this, it’s because there is such a huge number of people out there right now desperately struggling to pay off debts that they will never be able to pay. Those people need hope.

  • Editor

    Again, another mix-up related to the re-launch. The above comment is by the author, Joe Fulwiler, and not by the Editor. Thank you for your patience.

  • Doug

    I agree with Briana, some choices by Catholic Exchange seem a little weird.  This just really seems like an odd cover story for the whole website.  I think Dave Ramsey does far more good than bad.  Of course he is not God, but he seems to have helped an awful lot of people.  It seems the whole premise of this article is to bash Ramsey… is that what CE is all about?  Maybe part one of this series should have been Mr. Fulwiler’s OWN vision for the proper place of bankruptcy instead of resorting to simply bashing Ramsey’s approach.  Then part two could have been critiquing Ramsey.  I have never seen an article on CE educating readers on the proper “Christian” place for bankruptcy.  That would have been a logical place to start.
    Editor… what is the purpose of a comment section if you’re going to criticize legitimate comments as being “knee jerk” and “reactionary”?  I love almost everything CE offers on their website, but I have choices and I’m choosing to take my Catholic news intake to another source.

  • God Loves You

    I too share many of the sentiments below–this article (title and tone) does not speak well of Catholics.  Last week, my Cursillo small group talked specifically about this and other articles on Catholic Exchange (CE) recently that do not seem Christian.  The topics are OK (in my opinion) for what topics can’t you find are related to faith?  But the tone is not OK.  It is not a tone of love.  I will pray that CE return to its former days of posting articles (many of them difficult for people to hear) in a loving manner/tone.  Some members of my Cursillo small group have discussing the need to get their Catholic News elsewhere.  I have not yet decided to leave CE yet.  I have been a CE reader since almost the day they started but am probably going to be leaving as the tone of the messages coming from CE continue to not speak well of the Catholic Church.  I would be interested in any suggestions from other readers as to alternative CE websites.  In the meantime, I will pray for all Catholic media and the Church as a whole–that God gives us the ability to share the Truth with Love. 

    God loves you all, including CE.

  • Bec O.P.

    I think you don’t understand any of the concepts us dave supporters do. your criticism of Dave “pushing his product” is a just another way to complain that you won’t be getting as many clients. just a thought. however, people need to learn to be responsible for their own financial messes. that right there is the key difference between what dave does and what you do; he is empowering people to fix their own problems by teaching them the methods to be responsible and not take the easy way out; he only supports bankruptcy as the very last thing to do for certain situations. he can readily give advice on financial situations because he has been there and done that and he knows his stuff.
    bankruptcy would only solve the symptoms but not cure the actual disease. the disease (that seems so contagious in this society) is people making bad, stupid, or ignorant choices. they need to learn how to be responsible with their money and make smart, educated choices; not settling for second best because it’s easier.

    Your article makes it seem as though nobody can get anywhere if they DON’T file for bankruptcy; that people need to file for one to be successful. 

    if he wasn’t so successful at helping people help themselves and “un-learn” our crappy societies “must-have debt to get anywhere” mentality, then why are millions of people following his system and succeeding? why wouldn’t people want to know there is another way to manage their financial issues successfully without having to file for bankruptcy or take crap from creditors?

    You really are ignorant of dave’s mentality and system.

  • If a business fails and can’t pay it’s debts, then it files bankruptcy.  The bankruptcy filing doesn’t cause the problem.  Your father and brother’s company went unpaid due to economic problems with the business that was supposed to pay them.  That is a reality that precedes the bankruptcy filing.  The bankruptcy filing just provides an orderly process to round up whatever assets the debtor company has left, and divide them fairly among the creditors (i.e. to prevent a “land grab” by one creditor), and pronounce the whole affair closed.  

    You say “perhaps there should be less credit available.”  You are on to something there.  Extending credit is a business decision.  It involves a risk of non-repayment.  Businesses extend credit to other businesses because the benefit of additional work outweighs the risk of occasional non-payment.  That’s just how the economy works.  If you are the owner of the failed business, there is no need to commit suicide nor to work two jobs until you are 80 to pay it all back.  In the old days, if you couldn’t pay your debts, you were sold into slavery.  We don’t do that any more.  Bankruptcy is the right call.  It is the humane choice.  It just recognizes the reality that the debtor can not pay.  People do need to be let off the hook sometimes.  Forgive them their debts, it’s a Christian idea, you know?

  • Bankruptcy and repaying debt are not mutually exclusive. There is nothing that prevents anyone from getting the creditor protection of bankruptcy and repaying their debts.

  • David Hanson

    Hmmm, lets see here. On one hand, we have Dave Ramsey, who is well known for helping people get themselves out of enormous debt, sometimes to the tune of $100,000. On the other hand, we have a lawyer. A bankruptcy lawyer at that.
    *Looks at hands and does the teetering scale motion*
    Hmmm, who to trust, who to trust…. Choice seems pretty obvious to me.

  • IamREAL

    I disagree. . .If customers come in and pressure you for discounts, etc that is up to you. . . You simply have to learn to say no and walk away. I don’t think Mr. Ramsey is a or is God but I listen intently. I have a small business and guess what people want discounts who are not Dave Ramsey/FPU followers. People paying down their debt is their issue. . .NOT YOURS!! And that may be the way you have to run your business be nice, try to gain a customer but that is the nature of some people. You may need to toughen up in business!!