BK attorney's reaction to Dave Ramsey telling homeless, unemployed Ohio man with $14K debt there’s no point declaring bankruptcy.
- Peter Schneider
- Nov 15
- 8 min read
Updated: Nov 27
Yahoo Finance just ran a story "Dave Ramsey tells homeless, unemployed Ohio man with $14K debt there’s no point declaring bankruptcy." I just had to read it and give my reaction.
A Mr. Toby gave Mr. Ramsey a call. Toby is homeless, unemployed and saddled with $14,000 in debt of which nearly half is a car loan. He was charged with a DUI last year, and added that he had developed a mental block about working. Toby called in asking Mr. Ramsey if declaring bankruptcy was a smart move.
“Toby, you’re not bankrupt,” Ramsey responded. “You’re broke, homeless and don’t have a job.” [Whether or not you declare bankruptcy, you are bankrupt when servicing your debts exceed your assets and [potential] positive cash flow. At $14k, many people in Toby's position are bankrupt for reasons I'll get into below.] Ramsey said debt was simply a symptom of “all the other crap that’s going on in your life — not keeping a job, DUIs and all this other stuff.” [I can't argue with Dave here, I didn't listen to the call and his not working when he can and getting a DUI are choices] He and Warshaw urged Toby to find a steady job to get his life back on track. Toby asked them to help him with his lack of motivation. “The problem with your money is the guy in your mirror, and he’s difficult,” Ramsey said. “Controlling the guy in our mirror is every one of us. It’s the thing we struggle with the most.” Here’s what Ramsey recommended Toby do instead of declaring bankruptcy. He told Toby that may be able to pay off his car loan some day but not to worry about it too much as there’s nothing debt collectors can chase down; the car’s broken down. “If they come find you, they can’t take nothing,” Ramsey said. “You’re what they call judgment-proof.” [Again I can't argue with Dave too much here. We frequently have consumers call in who are unemployed and deep in debt. Typically unless they are being sued we advise they keep what money they have in their pocket, and look at filing bankruptcy when they are back to work. It may be counterintuitive to not taking their money, but we recommend waiting until you are back to a positive cash flow before filing if you can because who knows what other debts you might incur after filing but before going back to work, the cash you have now is the most precious, and unless someone might soon get a judgment against you, filing for bankruptcy likely is not a pressing need]. Filing for bankruptcy can be helpful if you’re inundated with collection calls or are being sued for payment, but it’s important to note that even if you file for bankruptcy, the court may not grant you one. [There is a means test for Chapter 7, any bankruptcy lawyer can quickly tell you if you quality for a Chapter 7 bankruptcy. If you make less than the median income in your area you likely do] A Chapter 7 bankruptcy allows individuals to forgo paying debt if they can prove their assets are not reasonably sufficient to satisfy their creditors. Chapter 13 Bankruptcy, also called a wage earner’s plan, enables individuals with a regular income to repay all or part of their debts over a period of three to five years. [Avoid Chapter 13 if you can, and higher earners are wise to call a bankruptcy attorney. Often life events can give higher earners a window to file. For example a higher earner was unemployed for 4 months and was about to go back to work. That four month window of unemployment got her past the means test and into a Chapter 7 - wiping out $60k of unsecured debt.] Most financial advisors like Ramsey say to stay away from filing for bankruptcy if possible. There are better alternatives, like out-of-court agreements with creditors or debt counseling services and debt consolidation plans. [What makes these better alternatives? It is true that many lenders will possibly shave off some of the debt and offer a repayment plan. It is rare for them to offer more than a two year repayment plan. Let's say Toby gets a sweet deal, his $14k is reduced to $10k, with a 36 month repayment. That is a $309 monthly payment which is a significant financial head wind for many workers. Mr. Ramsey and his ilk ignore that many lenders will force people in Toby's position to agree that a missed payment can give the lender a right to immediately reduce the debt to a judgment, and that has a lengthy negative impact on ones credit, and a judgment can give the lender the right to garnish wages which is a debt trap that also causes bankruptcy. Meanwhile, many of these debts are accruing interest at a ridiculous rate. What Mr. Ramsey and his ilk gloss over is many consumers on debt repayment plans often end up as our bankruptcy clients because a) many debt settlement companies are a fraud who take the money and at some point the consumer figures out the debts aren't getting paid, and b) the monthly payments are a big financial headwind and 3 years is a long time to go without another financial bump in the road that causes a missed payment which blows up the debt settlement deal and all the past payments end up being useless and the consumer files for bankruptcy anyway. We often ask consumers "If I offered you $10k today would you file for bankruptcy?". The answer is almost always yes. Well, essentially Toby is being offered $10k to file for bankruptcy and he is probably wise to take it.] That’s because the long-term effects of bankruptcy are serious: losing your assets and not being able to take out a loan or mortgage for seven years. [This is part true and largely false. First, if you are bankrupt, what assets are you losing? Many people looking at filing for bankruptcy already have a wealth of late pays, high debt-to-income ratios, and collection accounts. For them getting a mortgage or more credit isn't happening anyway. But yes filing for bankruptcy can affect getting a mortgage for a while, but most bankruptcy filers find that after 18 months their credit score is good enough to get credit at reasonable terms. Lenders aren't stupid - Someone who filed a chapter 7 has to wait 8 years to file again, and their debt to income ratio can look great. Who is a better risk, someone who can't file Chapter 7 again for six years and has a low debt to income ratio, or someone who can file Chapter 7 at any time and has debts. Mr. Ramsey and his ilk generally greatly exaggerate the consequences of Chapter 7.] It can have a serious impact on your lifestyle and financial future, so it’s critical to work with a financial advisor if you’re considering this option. [People in many walks of life file for bankruptcy for many reasons. People should or should not file for rational reasons and Mr. Ramsey and his ilk's true objection to bankruptcy is based on their religion, not a rational analysis. That doesn't mean they are always wrong - a stopped clock is correct twice a day - but don't look to them for rational advice. A bankruptcy lawyer can look at your particular situation and is obligated to give you the advice that is in your best interest, not in the best interest of the lawyer's religious beliefs.] Ramsey said what Toby needs — more than financial support — is moral support. He recommended that Toby seek out mentors, for example, at his local church, to help him work toward more stability in his life. Toby responded that he did have mentors who were already helping with his own self-reflection.
We are not here to just take your money and give you a bankruptcy. We listen to your situation - age, income, work status, expected work status in your future, nature of your debts, and we give rational advice for your situation. If not filing for bankruptcy is in your best interest, we will tell you. If filing later is in your best interest, we will tell you.
Just based on the facts of the story, our advice to Toby would be, don't file for bankruptcy now. But if and when Toby recovers financially, filing for bankruptcy is probably very much in his best interest to get a clean start and not a repayment plan.
Repayment plans would case Toby to spend years with a significant financial headwind and he would run a high chance (based on our many, many experiences) of putting a lot of money into it, it blowing up anyway, and he still ending up filing for bankruptcy.
I did a little more research on Mr. Ramsey and found a second story demonstrating Mr. Ramsey's cluelessness on how debt repayment works.
Fraudulent transfer aside [people sometimes try this, from the facts of the story it doesn't sound like legally that is what happened here], Mr. Ramsey is demonstrating his cluelessness again. As the story is given he’s about to be served a court-ordered judgment requiring him to pay his creditors back. Mr. Ramsey is omitting that a judgment is very bad for your credit too. And once they have the judgment they won't negotiate the debt down, they'll garnish his wages till they get all their money, even if that leaves the consumer without enough money to actually live on.
Now at $120k a year, this man will still probably have enough money to live on, but it is the situation for many median and below wage earners, they can't have their income cut by 25% and still live, and the costs of the garnishment are added to the judgment which for many median and below wage earners makes the garnishment last much longer and cost far more than the judgment.
Not filing for Chapter 7 bankruptcy is moral advice, not financial advice. Never get the two confused. We give everyone a personalized analysis and we won't impose our personal religious beliefs on you.
*** Update
Here is a real world example. A consumer called in with a situation. She was getting sued in 2016 for medical debt arising from a child's serious illness. They filed filed for bankruptcy, recovered financially, and this year looked to take out a home equity loan.
Although notified about the bankruptcy filing, the plaintiff in the civil suit kept going (unbeknownst to the consumer) to getting a judgment. That judgment - not the bankruptcy - is keeping the home equity loan from closing. Judgments are a serious threat to your credit.
Got a Case Like This?
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Are telemarketers or debt collectors bothering you in Washington or Oregon? I handle debt and TCPA lawsuits in Washington State and Oregon and may be able to help.
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Note: The opinions in this blog are mine (Peter Schneider) and do not constitute legal advice. If you're considering suing over illegal robocalls or Do Not Call list violations, contact me for a legal consultation.
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