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Dave Ramsey – Bankruptcy Bigot or Personal Finance Saint?

I was just over on the blog of Dan Nunley, an Oklahoma bankruptcy attorney.

He has a fantastic post on his site about Dave Ramsey and his aversion to bankruptcy. It is a post worth reading and the comments as well. It provided a good look at different points of view about Ramsey’s zealous effort to help people to avoid bankruptcy.

Here is what Dave Ramsey says about bankruptcy on his site.

Bankruptcy is not something I recommend any more than I would recommend divorce. Are there times when good people see no way out and file bankruptcy? Yes, but I will still talk you out of bankruptcy if given the opportunity. Few people who have been through bankruptcy would report that it is a painless wiping-clean of the slate, after which you merrily trot off into your future to start fresh.

Don’t let anyone fool you. I have been through bankruptcy and have worked with bankruptcy for decades, and it is not a place you want to visit. Bankruptcy is listed in the top 5 life-altering negative events that we can go through, along with divorce, severe illness, disability, and loss of a loved one. I would never say that bankruptcy is as bad as losing a loved one, but it is life-altering and leaves deep wounds both to the psyche and the credit report. Source

I find that position to be a gross disservice to people in trouble and an exaggeration of the truth. Because the path contained some pain, does not mean it isn’t the best path to follow. Sometimes the most appropriate treatments are. Should we avoid heart surgery because it is painful even though it will save our life or make it better? Besides, credit report wounds can be easily healed.

People who go bankrupt, as Dave himself did, are most often better off financially after a fresh start, as Dave was. But Dave has built a very profitable following based on his position that his recommended path is somehow better, more evangelical, or appropriate in some divine way.

As someone that has lived through bankruptcy, the trials of debt, and spent every moment since 1994 helping people find a way to overcome their debt situation I’d like to offer my point of view.

Several commenters on the post noted that living through financial problems is a mentally taxing event. It is. In my studies I found that 40% of people living through financial troubles are clinically depressed.

The survey found that 49.3 percent of people with problem debt can be classified as depressed, of those 39.7 percent report symptoms of severe depression. In comparison, studies have shown that 9.5 percent of the general population is clinically depressed.

In August, 2001 we surveyed 136 clients whose unsecured debts range from $1,000 to more than $100,000. Their ages range from 21 to 77 years old; incomes range from $6,000 to $165,000 per year. Participants were asked a series of questions about their financial situation and mood states using the Center for Epidemiological Studies Depression Scale (CES-D), an industry standard for measuring depression. They also were asked about other psychological factors such as social support and optimism.

“Single women are at the greatest risk for depression related to financial problems,” said Steve Rhode. Depression is typically thought of as a combination of feelings of hopelessness, inadequacy and other negative emotions and behaviors.

The survey found that 58 percent of women reported mild and major signs of depression, compared to 36 percent of men. More than six out of ten women reported their level of debt to be very bad, while 46 percent of men described their situation that way. Women think about debt troubles more often than men, and feel less competent to solve their problems. More than half of women reported their stress level to be high or very high.

“For women and men, too often financial problems equal depression,” said Rhode. “The survey found that it doesn’t matter how much debt or income a person has. In fact, many of our clients have incomes exceeding $100,000 a year. Depression affects people who have high and low debt and income.”

The survey found that nine out of ten of all debtors feel some stress over their financial situation. Stress is commonly defined as emotional strain that manifests itself as fear and/or anxiety. Almost 50 percent of the respondents said debt caused their stress level to be high or very high. Seventy percent of respondent said they think about their debt very often or constantly.

“Depression creates an inability to conquer financial problems,” said Psychologist Joe James. “People become emotionally paralyzed, which leads to the inability to develop a plan or take action and compounds their financial problems. This is why people who are having money troubles should get extensive professional help as soon as possible.”

And in my humble opinion I don’t think that we best assist someone to live through a well intentioned path of bankruptcy avoidance simply to avoid bankruptcy, a path that may be considered punishment, at a time they may be lowest in their life. Whose goals are being served by that course?

The process of bankruptcy can result in the teachable moment for those that will hear the message, which is most. Less than 8% of Chapter 7 bankruptcy filers file for bankruptcy protection again. (Source) The emotional pain of loss and the process can result in a lifelong desire to avoid such pain again. In fact it often results in the detrimental avoidance of credit which is more harmful than bankruptcy.

I do object to declaring that those that choose to embark on the path promoted by Dave Ramsey to avoid bankruptcy are somehow better because they lived in deprivation to make amends and meet their goals. And I’m left asking what the success rate is of Dave’s approach in the elimination of debt by all who try. There does not appear to be any transparent public data to support his path as a better route to overcome immediate financial problems.

I spent many early years telling people to avoid bankruptcy as well but upon introspection that was more about my internal voice than what was the best technical tool for that person at that moment in their life.

If Dave wanted to promote a path that worked best for the individual, he would promote the investigation of all methods to allow the individual to make a fully informed decision about what is best for them in their individual situation. Financial peace does not come only from the purchase of his Financial Peace University books, tapes, seminars or consultations. There are more ways to a destination than just Dave’s road. And for some, the best tool to accomplish the task at hand may be bankruptcy.

Bankruptcy is the only route out of debt that provides the individual with any legal rights and protects them from unfair creditor actions, judgments, wage garnishments, etc. And at a time when the social safety net is strained to breaking or is falling apart, bankruptcy serves as a way for people to recover from traumatic situations without the access to or demand for additional social welfare programs.

One point that is often missed in the avoidance of bankruptcy discussions is that someone can go bankrupt, receive the protections available under the law, and still repay their creditors because they have a moral belief to honor that obligation. I wonder if that is what Dave did? I took that approach and tried to but actually had some creditors ask me to not send payments. A subject of a future post.

Forcing people to live a path certified by Dave Ramsey because of his personal experience and his emotional scaring is a disservice to many who are suffering with depression, pain, emotional trauma and difficult life situations as a result of their current financial misfortune.

Dave Ramsey   Bankruptcy Bigot or Personal Finance Saint?
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About Steve Rhode

Steve Rhode
Steve Rhode is the Get Out of Debt Guy and has been helping good people with bad debt problems since 1994. You can learn more about Steve, here.
  • http://www.facebook.com/profile.php?id=1022537063 Shannon L Mohan-Sitsis

    I’m sorry but I have to respectfully disagree here.  Dave doesn’t make money off the poor.  And yes, he did make a new start but can say through personal experience that claiming bankruptcy was awful and regrets it – it wasn’t a “fresh” start.  Unlike most Americans with money issues, Dave learned from his mistakes, and is trying to help us, too.  His positin is to take personal responsibility for how you got where you are today to avoid it in the future and to let GOD help you moving forward.  I know people who have filed bankruptcy. One was able to keep his home, but suffered incredible pain of bad credit which taxed him emotionally and physically for many years, even a divorce.  BUT, what happened when the 10 years were up?  He turned around and staredt all over again with the credit cards.  I too have been a dire straits financially, and what helped me was taking it one day at a time and leaning on GOD and learning how to manage money better.  I took his course and it changed me.  I worked hard, I paid my rent and food first, creditors came last, like Dave says to do.  But I still paid them what they were owed, because I chose to use that credit card.  Dave isn’t addressing just the money, he’s addressing the heart issue.  He doesn’t just tell people only what they want to hear.  And I would be wary of an “expert” that tries to do so….

    • http://GetOutOfDebt.org Steve Rhode

      I appreciate your comment and opinion but a couple parts confuse me.

      Ramsey filed bankruptcy and received a financial second chance and fresh start under the bankruptcy law. His debts were discharged and he was no longer obligated to repay them.

      If you run into anyone that thinks that bankruptcy will ruin their credit for a long time, that’s more of a myth than reality. In fact here is a guide that shows how easy it is to rebuild credit after bankruptcy. http://getoutofdebt.org/32410/how-to-easily-rebuild-your-credit-and-have-good-credit-again

      Following bankruptcy it’s even possible to buy a new home within 2-3 years.

      I’m glad you found an educational benefit to the information you received but it seems your perception of bankruptcy is a bit skewed. I’m not suggesting that everyone should run out and file bankruptcy, just trying to correct information that is not correct here.

    • Jm lash

      I agree with you Shannon I think one is able to learn there lesson by suffering through making the payments on debt and not go into debt again by paying the debt cause there isn’t an easy way out of being in debt

      • http://GetOutOfDebt.org Steve Rhode

        But at what future cost? How much pain and penance is enough to learn the lesson?

      • Jim Lash

        Cause its the moral thing to do if I walk myself into debt I am obligated to pay it how much clearer can that be

      • http://GetOutOfDebt.org Steve Rhode

        You didn’t answer my questions? Just made a statement.

        Who said anything about you not repaying your debt?

  • Kazoo

    It is all about personal responsibility and the choices you make in life, depending on your given circumstance(s). Dave Ramsey has never said “don’t file” – he did, years ago. That said Dave Ramsey does say “try everything you can think of, including off-the-wall stuff” to avert filing bankruptcy, but often there is simply no choice and most often that is because creditors force you in to bankruptcy court, though often simply to protect themselves and even some of them knowing it will eventually be in both your best interest. I do not believe every bankruptcy is because of care-free spending – though many are. Simply put, the laws are put in place to protect us, but often fail us – again, it is all about what we do with what we have – good or bad.

  • Kazoo

    It is all about personal responsibility and the choices you make in life, depending on your given circumstance(s). Dave Ramsey has never said “don’t file” – he did, years ago. That said Dave Ramsey does say “try everything you can think of, including off-the-wall stuff” to avert filing bankruptcy, but often there is simply no choice and most often that is because creditors force you in to bankruptcy court, though often simply to protect themselves and even some of them knowing it will eventually be in both your best interest. I do not believe every bankruptcy is because of care-free spending – though many are. Simply put, the laws are put in place to protect us, but often fail us – again, it is all about what we do with what we have – good or bad.

  • Josh

    Hey Sara, Let’s not forget that without BK Relief or other Financial Protection these credit card companies and Credit in general wouldn’t exist. Maybe that would be a good thing, but they go hand in hand. Creditors, to MAKE MONEY, take the same risk by Lending the money as someone takes borrowing. By your self righteous tone, I’m guessing you don’t have a mortgage or car payment either, but we would not have these luxuries without the Financial Protections offered. The Government wouldn’t allow it. The fact that this protection is available allows the companies to make BILLIONS of dollars from people in interest every year. Bankruptcy is simply the balance to the Dark Side of the Force, so to speak. Once people are in the hole, its time to help them out, not chastise them for getting there…

  • Josh

    Hey Sara, Let’s not forget that without BK Relief or other Financial Protection these credit card companies and Credit in general wouldn’t exist. Maybe that would be a good thing, but they go hand in hand. Creditors, to MAKE MONEY, take the same risk by Lending the money as someone takes borrowing. By your self righteous tone, I’m guessing you don’t have a mortgage or car payment either, but we would not have these luxuries without the Financial Protections offered. The Government wouldn’t allow it. The fact that this protection is available allows the companies to make BILLIONS of dollars from people in interest every year. Bankruptcy is simply the balance to the Dark Side of the Force, so to speak. Once people are in the hole, its time to help them out, not chastise them for getting there…

  • Josh

    Hey Sara, Let’s not forget that without BK Relief or other Financial Protection these credit card companies and Credit in general wouldn’t exist. Maybe that would be a good thing, but they go hand in hand. Creditors, to MAKE MONEY, take the same risk by Lending the money as someone takes borrowing. By your self righteous tone, I’m guessing you don’t have a mortgage or car payment either, but we would not have these luxuries without the Financial Protections offered. The Government wouldn’t allow it. The fact that this protection is available allows the companies to make BILLIONS of dollars from people in interest every year. Bankruptcy is simply the balance to the Dark Side of the Force, so to speak. Once people are in the hole, its time to help them out, not chastise them for getting there…

  • Cindi

    I have a friend that did not file bankruptcy. The hell she went through was much worse than what she would have faced in BK court. These creditors sued her and took some land that she owned. They didn’t stop there either. They also sent an officer from the sherriff’s dept to go inside her home and look around! They also tried (but were unsuccessful) to take a small SUV that had belonged to her father before he passed away. She can now no longer have a home phone or a bank account. These credit card companies are ruthless. She owns a home and I’m sure there are several leins against it now.

  • Cindi

    I have a friend that did not file bankruptcy. The hell she went through was much worse than what she would have faced in BK court. These creditors sued her and took some land that she owned. They didn’t stop there either. They also sent an officer from the sherriff’s dept to go inside her home and look around! They also tried (but were unsuccessful) to take a small SUV that had belonged to her father before he passed away. She can now no longer have a home phone or a bank account. These credit card companies are ruthless. She owns a home and I’m sure there are several leins against it now.

  • Doug

    Please correct my post to: “IT would have been…”!

  • Doug

    Sara, could you state why you are a FORMER tax auditor? I read a self-righteous attitude from your post.

    Steve – I don’t think it is ENTIRELY your fault that the insurance you could afford did not cover ALL the bodily damage you suffered! I would have been your fault ENTIRELY if you rode the motorcycle WITHOUT ANY INSURANCE!

  • Sara

    I am a former tax auditor. I dealt with a lot of bankrupt people. Every single one was living beyond their means. Expensive houses, cars, motorcycles etc. Not one was bankrupt because of health. You can buy health insurance, it might cost you more but you can get it. But you want cell phones, expensive clothes, restaurant meals, etc. I have been extremely poor in my life, never in debt. Won’t do it. And Steve, you chose to ride a motorcyle with inadequate insurance. Your fault entirely.

  • Sara

    I am a former tax auditor. I dealt with a lot of bankrupt people. Every single one was living beyond their means. Expensive houses, cars, motorcycles etc. Not one was bankrupt because of health. You can buy health insurance, it might cost you more but you can get it. But you want cell phones, expensive clothes, restaurant meals, etc. I have been extremely poor in my life, never in debt. Won’t do it. And Steve, you chose to ride a motorcyle with inadequate insurance. Your fault entirely.

    • Doug

      Sara, could you state why you are a FORMER tax auditor? I read a self-righteous attitude from your post.

      Steve – I don’t think it is ENTIRELY your fault that the insurance you could afford did not cover ALL the bodily damage you suffered! I would have been your fault ENTIRELY if you rode the motorcycle WITHOUT ANY INSURANCE!

      • Doug

        Please correct my post to: “IT would have been…”!

    • Josh

      Hey Sara, Let’s not forget that without BK Relief or other Financial Protection these credit card companies and Credit in general wouldn’t exist. Maybe that would be a good thing, but they go hand in hand. Creditors, to MAKE MONEY, take the same risk by Lending the money as someone takes borrowing. By your self righteous tone, I’m guessing you don’t have a mortgage or car payment either, but we would not have these luxuries without the Financial Protections offered. The Government wouldn’t allow it. The fact that this protection is available allows the companies to make BILLIONS of dollars from people in interest every year. Bankruptcy is simply the balance to the Dark Side of the Force, so to speak. Once people are in the hole, its time to help them out, not chastise them for getting there…

  • steve

    I think there is a medium here, what Dave says is to avoid bankruptcy, and take personal responsibility for your dept. I dont see anything wrong with that, BUT there are time where the debt you have was because of situations beyond your control. i had a bad motor cycle accident and although i had insurance, it only covered 20 % and now i have over $30,000 in debt. during that time i also lost my job and had to use credit cars to keep my four walls ( and Dave is all about the four walls theory) up and running. I am still thinking and praying about what we can do. i believe in what Dave says, but i also know I do not make enough money to pay this and even though i have a full time and a part time job and my wife works, it is not feasible to pay all this debt in a timely manner. Could bankruptcy actually be a gift of God’s Grace in a situation like that? I think so.

  • Justin

    Like I said, Dave is a D#%k! He makes money off those who least afford it, and laughs all the way to the bank.

  • http://bankruptcystory.com BKstory

    I couldn’t agree more! I tried to repay my debts but found I just could not make any headway. I finally had found a better paying job, living in Seattle for a year while visiting my family in Boise when I could. Clinically depressed – you bet!

    I found that some creditors would settle for 15%, others would file suit. Some offered reduced interest rates and payment, others gave no help whatsoever. In the end, I filed Chapter 7 and found my anxiety disappear overnight.

    Contrary to Dave Ramsey, I recommend bankruptcy. When you are ready to cut your loses, you file. Just like a military general about to lose a battle will retreat (or surrender), when you find debt overwhelming, you need a way out too. Bankruptcy is that legal and (in my opinion) totally ethical way out.

  • Justin

    Good Point Steve! I Agree :)

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