I've always had a soft spot for older people with debt problems. They often take it very hard, perhaps because they come from a generation where debt problems and bankruptcy were more stigmatized. So, we spoke about her options. Given her low income and meager assets, she qualified easily for Chapter 7, which would result in a discharge of about $40,000 in consumer and medical debt. However, our conversation wasn't just about money. She told of me of her great emotional reluctance to file bankruptcy. Only one inescapable fact made her consider it at all, that she would soon have nothing left and be unable to even eat without some serious debt relief. Then she mentioned that she listened to the Dave Ramsey radio show.
I don't really listen to Dave Ramsey, but I've seen him on TV a few of times, and I am familiar with his message. Mr. Ramsey is well known as a fierce anti-bankruptcy crusader despite famously filing bankruptcy himself several years ago and discharging about $4,000,000 in debt. Despite this small mercy that allowed him to move on with his life, he now counsels people to avoid bankruptcy at all costs and does everything he can to re-stigmatize the process.
Behind the scaremongering, Mr. Ramsey's makes two basic wrong points. His first avenue of attack is that bankruptcy damages credit. Bankruptcy does damage credit for several years. However, the simply truth is that people considering bankruptcy already have or shortly will have severely damaged credit. Not paying debts on time severely damaged credit. When this is inevitable, very little additional damage is done by filing bankruptcy. In fact, bankruptcy can even clean up the cluster bomb of multiple debt defaults by replacing the credit balances on a report with zeros. In any event, a Google search of "credit after bankruptcy" will quickly illuminate the well-trod path to rebuilding credit after bankruptcy--something that is not an option while you're still mired in debt.
The second avenue of attack is more insidious. Mr. Ramsey lays it on thick about the psychological cost of bankruptcy, comparing it to the death of a loved one and having the nerve to suggest that it might be one of the worst experiences of your life. This is just insane. I've been practicing bankruptcy law since 2002 and I can say without any reservation that the reverse is true. People are so relieved after getting a debt discharge after struggling with it for so long. Permission to move on with your life is freeing and cathartic. By way of an example, check out this message board I found tonight discussing Dave Ramsey and people's real experiences with bankruptcy. You can also read my site to read about people's experiences with us and the bankruptcy process.
The truth is that Mr. Ramsey did what many rational and intelligent people do when faced with an insurmountable debt problem: He sought refuge in the legal system created to help him. Counseling people to do otherwise is irresponsible. I usually don't mind anti-bankruptcy posturing, but when it affects someone in their 70s, it does bother me. I say live what life you have left for yourself and your family, and not for the credit card companies. The credit card companies--the beneficiaries of Mr. Ramsey's rhetoric--can take care of themselves and have had plenty of influence on the bankruptcy laws on the books today. One should pay their debts if they can, but if someone simply cannot pay and qualifies for bankruptcy, they are doing themselves and their family a great disservice by not taking the help that the law provides.
