Nobody thinks filing for bankruptcy is a great idea. Even quality bankruptcy attorneys will tell you it is a last resort. The fear, the shame, the guilt—it turns your world upside down. Although someone might do everything possible to avoid bankruptcy, sometimes good people still have to go through it. But it’s definitely not an easy out.
Dave’s Bankruptcy Story
Did you know Dave Ramsey filed for bankruptcy? He had earned a net worth of over a million dollars by the time he was 26. But in September of 1988, it all came crashing down when the bank called the notes of his loans. He was left totally broke and completely broken.
That was Dave’s turning point.
If you’ve already filed bankruptcy, you can get past it, just like Dave did. Every successful person has failed at one point or another, but they learn from their mistakes instead of carrying them around.
What Does Filing for Bankruptcy Mean?
When you go through the process of filing for bankruptcy, you’re telling the court you can’t pay your debts. Set up through federal laws, bankruptcy will cancel many of your debts so you can get a fresh start. The bankruptcy itself will be listed on your credit report for the next 7–10 years.
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When you file for bankruptcy, creditors have to stop any effort to collect money from you—at least temporarily. Most creditors can’t write, call or sue you after you’ve filed. Bankruptcy can also stop foreclosure on your home, repossession of property, or garnishment of your wages.
But filing for bankruptcy won’t erase all your debt. Unsecured debts like student loans, child support, and IRS debt don’t qualify for bankruptcy. And although the record will leave your credit report after some time, the scare of it can follow you for the rest of your life.
Sadly, a lot of people who file bankruptcy have lost hope and can't see another way out. They've given up. Most of those who come to our office or call The Dave Ramsey Show have options, but they’re too wrapped up in the situation to see alternatives.
Ways You Can Avoid Bankruptcy
Take Care of the Four Walls First
When you’re trying to crawl out of debt and avoid bankruptcy at all costs, the first thing to do is make sure the necessities are taken care of: food, shelter and utilities, transportation, and clothing. If you’re at the very bottom, make sure you pay for food and utilities. Then make sure your rent or mortgage is current. Don’t pay anyone else until these basics are covered. It’s not okay to lose the house because your credit card company is getting cranky with you!
Sell Everything in Sight
You have money hanging around in the form of DVDs, TVs, boats, clothes, books, furniture, tools, office supplies, craft supplies, and toys. Get rid of everything you don’t need. That sounds drastic, but so is filing for bankruptcy. Take the money you make and put it toward getting bills (including the mortgage and the car payment) up to date. Those late fees are a killer.
Live on a Bare-Bones Budget
You’re trying to avoid bankruptcy here. That means your budget has no room for frills. No streaming services, no cable, no huge cell phone plans, no dining out, and no vacations until you’re out of debt. Buy generic food, eat beans and rice, and drink water from the tap. Drink coffee you brewed yourself, not a barista. And stick to your budget. Drastic times call for drastic measures.
Get a Second Job
These days, it’s not uncommon to hear of someone working a second (or third) job. Having an additional source of income can help you avoid bankruptcy. Just be sure you’re putting the extra income toward paying off your debts. Getting a second job will mean sacrificing time with family and friends, and we know that’s hard. But remember—this situation is only temporary. You won’t have to live like this forever. If you live like no one else, so later you can live like no one else, the payoff will be worth all your effort.
Connect With a Financial Coach
Sometimes it’s best to sit down and talk with a financial coach when you need guidance with money issues. Don’t let that intimidate you. When looking for a financial coach, just make sure you find someone who has the heart of a teacher. You want a person who will walk with you and guide you along the way—not someone looking to take advantage of your situation.
Don’t let bankruptcy become your only way out! Avoid bankruptcy and get your finances in order by contacting a financial coach in your area. They'll even set up a virtual call with you, so you can connect from the comfort of your own home.
Not sure where you stand or have a specific financial question? Ask a Ramsey Preferred Coach your question right now for free.