The Truth About Bankruptcy

By Dave Ramsey

Myth: I'll just file bankruptcy and start over; it seems so easy.
Truth: Bankruptcy is a gut-wrenching, life-changing event that causes lifelong damage.

Bankruptcy. That word sends chills up the spine. If you're facing the prospect of bankruptcy or you're in the middle of it right now, you know it's a living nightmare. It can devastate your job, destroy your marriage and steal your peace of mind.
Kathy called my radio show, ready to file bankruptcy. Her debts were overwhelming, and her cheating husband had left with his girlfriend. The house was in his name, as was all the debt except $11,000. Kathy was 20 years old, and her "brilliant" uncle - a lawyer from California - told her to file bankruptcy. Kathy was beat up, beat down, and deserted without help, but she was not bankrupt. When her soon-to-be ex-husband ends up with all the debt in his name, he may be bankrupt, but Kathy won't be.

Why Avoid Bankruptcy?
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 five 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.

Types of Bankruptcy
Chapter 7 Bankruptcy, which is total bankruptcy, stays on your credit report for 10 years. Chapter 13 Bankruptcy, more like a payment plan, stays on your credit report for seven years. Bankruptcy, however, is for life. Loan applications and many job applications ask if you have ever filed for bankruptcy. Ever. If you lie to get a loan because your bankruptcy is very old, technically you have committed criminal fraud.
Most bankruptcy cases can be avoided with proper help, such as my certified counselors and the Total Money Makeover. Your Total Money Makeover may involve extensive amputation of stuff, which will be painful, but bankruptcy is much more painful. If you take the thoughtful step backward to get on solid ground instead of looking at the false allure of the quick fix that bankruptcy seems to offer, you will win more quickly and easily. I know from personal experience the pain of bankruptcy, foreclosure, and lawsuits. Been there, done that, got the t-shirt, and it is not worth it.

This content is provided by and may be used only in its entirety with all links included. Dave Ramsey is changing the face of America by helping people beat debt and build wealth with his best-selling book, The Total Money Makeover, and nationally syndicated radio show, The Dave Ramsey Show. Read more of what Dave says about bankruptcy.

Article Source: Dave Ramsey

Tips to Get Out of Debt and Avoid Bankruptcy

Facing the most difficult economic conditions in decades, many Americans are sobering up to the fact that they're deeply in debt.

For many American households, extraneous spending and poor money management combined with an unforeseen event, such as a job layoff, a health crisis, divorce or a death in the family, has resulted in the perfect cocktail for financial disaster. In fact, a recent survey by, the world’s leading online source for free legal information, 10 percent of Americans have considered filing for personal bankruptcy at some point in their lives.

There are several danger signs that you’re headed for financial trouble. One of the most worrisome is living paycheck to paycheck. If you are, you’re not alone. According to one survey by the American Payroll Association, 7 out of 10 American workers are living paycheck to paycheck. Other danger signs include:

* Making only minimum monthly payments on your credit cards

* Using a series of consolidation loans or home equity loans to pay overdue bills

* Taking out cash advances to pay other bills

* Incurring a growing number of late fees due to late bill payments

To help you get out of debt and avoid bankruptcy, here are eight tips from

Get Help Now.
You'll need willpower and a lot of support from those around you to get out of debt. For many people, having someone who can hold you accountable, as well as someone with whom you can celebrate the little victories, is essential to reaching your goal of becoming debt free. For expert help, seek the assistance of a debt management or credit counselor, which are available through many social service agencies. Try visiting the United Way at or call (888) 995-HOPE for a toll-free foreclosure prevention hotline sponsored by NeighborWorks America and the Homeownership Preservation Foundation. If you’re facing foreclosure or are wondering about declaring bankruptcy, immediately seek the counsel of an attorney specializing in debt management and bankruptcy.

Pick Up the Phone.
Don’t wait for your creditors to call you. Call them to negotiate a new payment plan that you can realistically handle. Some creditors might be willing to settle their claim with you for a smaller cash payment, or they might be willing to stretch out the term of the loan and reduce the size of the payment.

Budget Time -- Back to Basics.
Food, clothing, shelter and transportation -- focus on these basics when you start to determine which expenses are essential and which are not. Start a monthly budget by tracking your expenses against take-home pay (cash flow). Cut the non-essentials and look at how you can reduce the costs of your essential expenses. For example, stop dining out and instead take your lunches to work and make meals at home, or reduce your transportation costs by taking public transportation instead of driving to work. Likewise, start to look for opportunities to increase your income, from taking on a second job to selling household items on eBay or Craigslist.

Pay Essential Debts First.
Paying all of your debt down is important, but there are some bills that are more important the others. Go back to the basics -- mortgage, electricity, heat, water, etc. This may sound obvious, but when pressured by bill collectors, many people forget the obvious.

Don't Skip These Expenses.
Depending upon the laws in your state, there may be some expenses that you must incur, such as auto and medical insurance, student loan payments, child support payments, license fees, and of course, paying local taxes as well as state and federal income taxes. Skip any of these expenses and you may wind up with a much bigger headache.

Go Automatic.
Have your employer automatically deposit your paycheck into your bank account. But don't stop there. Arrange for the most essential bill payments -- mortgage, electricity, heat and water -- to be automatically withdrawn from your checking account. If you have a mortgage, escrow property taxes to ensure that they’re automatically paid.

Cut the Lattes and Lottery Tickets.
Now is the time to cut back on all of those little non-essentials that eat up your budget -- the lattes at your favorite coffee shop, buying lottery tickets or purchasing that mid-afternoon candy bar or soda from the company vending machine.  

Beware of Credit Scams.
Beware of ads and phone calls from debt management companies that tend to target consumers with poor credit histories, promising (for a fee) to clean up your credit so you can get a car loan, a home mortgage, insurance or even a job. The telltale sign that it’s a scam is if the company demands payment up front for their services.

For more information about getting out of debt and avoiding bankruptcy, visit

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DISCLAIMER -- The author(s), Johnson Publishing, and shall have neither liability nor responsibility to any person or entity with respect to any loss or damage caused, or alleged to be caused, directly or indirectly, by the information found on this web site. The information, methods and techniques described may not work for you in your financial situation, and no recommendation is made to follow the same course of action. Every effort has been made to verify the accurate content contained herein. However, any articles published on this site are not to be construed as rendering professional legal or financial advice. You must always seek the proper professional advice before taking any financial or legal action. Copyright 2006-2015 Johnson Publishing and All rights reserved. You may not reprint, or host these articles on your web site, without our explicit permission. Send email to to request fair use permission.