Bankruptcy avoidance if about to file

[5yrplan]

Bankruptcy is a expensive solutions to your money management issues. Learn how to avoid it. 9 times out of ten Bankruptcy can be avoided.
live a debt free life and never live pay check to pay check again.
Learn the 7 baby steps of money management. [removed by moderator]

[shipo]

5yrplan , what are you trying to accomplish here? It certainly seems you have both an axe to grind and an agenda, one which serves you, and only you. The fact remains, living a debt free life is, in many cases, the worst use of one's money and will only make them poorer in the long run.

[justbroke]

5yrplan bankruptcy is an expensive solution? I discharged well over $1,000,000 of debt for the cost of about $500 (filing plus some mailings). Without pointing me to an advertisement, please tell me a cheaper solution which would have divested me of debt within 6 months? I would be interested to hear this through a conversation. Even Dave Ramsey concedes that bankruptcy is a necessary tool.

Avoidance is fine, tough most people that end up in bankruptcy are not in there simply because of poor money management.

[5yrplan]

You filed your own I believe. If a lawyer files they charge about $4K some of that is paid by the plan.

Most debtors are debt free except the mortgage in 24-36 months following the steps. Is it easy, no. Steps 1-3 require giselle intensity but that's temporary.

There's no such thing as good debt.

[shipo]

Once again 5yrplan, you prove you do not understand credit (either that or you've allowed yourself to b brainwashed by Dave Ramsey and folks of that ilk). For folks like you there may indeed be "no such a thing as good debt"; for the rest of us, used properly, credit is a tool to help build wealth much faster than living debt free.

[5yrplan]

And when a Pandemic locks us down and causes financial ruin. It's nice to have no debt payments and the cash and nest egg to survive it.

[5yrplan]

[shipo]

And when a Pandemic locks us down and causes financial ruin. It's nice to have no debt payments and the cash and nest egg to survive it.

You presume too much. Well diversified folks have many times their debt in investments, 401Ks, IRAs, stock portfolios, and even simple savings accounts. Having say, a half-million in investments, another say $30,000 or so in savings, and then say, a car loan for say, $40,000 will not come to any even remotely reach financial ruin when a Pandemic locks us down.

[justbroke]

I would say that even if I paid $5K to discharge $1.3 million of debt, that would surely be worth it over having judgments lingering for 10-20 years.

5yrplan I think your plan, and true financial planning, work under certain conditions.

• there can be no income, employment, or housing issues when you're in the building phase. Issues during the building phase are fatal.
• the person must have sufficient income and resources to maintain basic lifestyle. I would say that the IRS Financial Collection Standards (FCS) show what are basic needs for an individual (or a family), down to personal hygiene products. If a person can't meet that standard, they simply can't build wealth.
• the person must either have good employment or has the skills and ability to maintain a sole proprietorship (self-employment). If not, then one can't meet basic housing and other needs.
• the person can't rely on others as other can and will fail. Sometimes this is good when a person is young and still living with parents until a certain age. Living at home until you are done with college / trade and have a good savings will help get a person started. Many young people are now living at home into their early thirties. The environment just doesn't seem to allow escaping mom/dad at 18 as a given.
• children, marriage, work stoppages, layoffs and life generally interferes with any plan, especially during the building phase.
• not all people are wired for aggressive saving over living-their-life. The issue is that we are simply not taught to save or invest. Much of this comes from our parents having been able to work for companies that provided an actual pension. Today, business / employer funded pensions are very far and few between.
• some people are overcome with illness and accidents which severely affect their livelihood, ability to earn, or savings.
• Life happens.

Those are just a few things. It is not usually until a person is established in their career -- working for a company or as a sole proprietor -- that they are able to build that wealth. I think this is why most people in Ramsey's seminars are not 18-29.

Most debtors are debt free except the mortgage in 24-36 months following the steps. Is it easy, no. Steps 1-3 require giselle intensity but that's temporary.

I would change that to many and not most. Few people could payoff all their debt in 24-36 months without negotiating their debt down. And that is not guaranteed to work. In fact, many plans call for debt consolidation loans of 36, 48 or even 60 months by taking one large loan to reduce the interest rates.

I think educating people about interest rates and when to use credit is a good thing. If it were possible for everyone to just payoff debt in 24-36 months, there wouldn't be so many lenders. There are too many environmental factors to apply this to "most" debtors since location, job, education, savings, ability to save, ability to earn, negotiations and many other factors over which a debtor may or may not have control.

I had a cash and nest egg. Calamity struck during the housing crisis. I spent it all. I ended up having to file bankruptcy. That simple. It's one thing to survive 3-6 months of an issue (I survived 12 months), but earners that are out of work more than 6 months, seldom recover. There's no plan to save them at all.

Now if someone went around saying "Learn How to Avoid Unnecessary Debt, Build Retirement, and Save" rather than "You can be debt free in 24-36 months"... I would say that's the correct approach. I think the entire "be debt free in 24-36 months" is a gimmick. There are 75% of adults that carry credit card balances. There are 43,000,000 adults (25%?) that have student loans. No one mentions the student loans in these "debt free in 24-36 months" because some of these loans are more than the cost of a home.

Okay, I went on a little rant, but it's because I want people to learn how to reduce their future debt whether it's student loans (the largest) or credit card debt. Everything else is nearly unavoidable (vehicle, to own a home).

[flashoflight]

Most of us here know the ins and outs of Dave Ramsey very well. So you're really not telling us anything we don't know.

He's actually got a lot of good advice which is very helpful during a chapter 13 repayment plan. It's not worth it to go to the court to incur new debt (other than a mortgage) or to keep a tax refund. C13s should try real hard to not have a tax refund. The legal fees are high relative to the gains. Getting into additional debt anytime during the chapter 13 has a high chance of derailing the whole plan and not getting the discharge. Most C13s who get the discharge end up following many of the tenets that Dave preaches.

That being said, a lot of Dave's advice is bad and his show is often misleading such as grossly estimating net paycheck amounts for high income earners. Taxes are high and many people have to pay a huge amount of coin for benefits such as health insurance and mandatory retirement pension so there really isn't much money for BS2. I choose to cherrypick his good advice (BS1-3, BS6) and ignore the garbage (BS4 with active funds, BS5 is a no bueno - college is a bad investment nowadays).

[5yrplan]

Yes debt free except your mortgage includes student loans. There is no borrowing, consolidations, or gimmicks. It's simple , live below your means , maximize your means ( 2nd job, over time, side hustle etc.) Then snow ball pay off your debts by attacking them with all extra income above your means. Lookup your average cost of living then subtract that from your maxed out income. Pause saving and investing until debt is all paid then save 3-6 months expenses. Build a brick financial house then you can save and invest. There are a lot of 30 something's that have become debt free and some have paid off their mortgage.
normal people are broke and spend more then their means so they can't save then murphy comes and creates more debt. Mortgages need to be less then 25% of your household take home pay, 15 year fixed and 10-20% down payment.
do the steps and you'll be weird and wealthy.

[justbroke]

I don't think you'll be weird. I'm about to buy another home at 2.125% with a 15-Year mortgage. That's not weird at all as I even considered a 10-year mortgage. But, the majority of people can't afford a 10, 15 or even 20 year mortgage (amortized over 10, 15 or 20 years) and live in a home suitable for their family (and family size). The fact is that American's don't have that kind of savings (10-20% of the average home prize in the U.S. is about $300,000 so 20% is $60,000. Plus you should have 6 months of reserves, so tack on another $30,000 for reserves (for a person earning $60K/year and purchasing a $300K home).

It's just this simple. The American housing and job market doesn't support this for everyone. Some people who are salaried work 60+ hours a week and simply can't work a second job. Side-hustles require time and effort and even then, can only help keep a person afloat. There are more limiting factors than there are liberating factors.

I wish i could get a second job, but my current one consumes 90-hours a week. My business was slammed during the pandemic (shuttered for months). But I do make significant money at my regular job so it didn't hurt as much for me personally, but did for my employees.

[shipo]

5yrplan, you write, "...debt free except your mortgage includes student loans."

To that one should add "vehicle loans"; slice it and dice it any way you want, vehicle loans are cheap, and it is seriously counter productive to pay cash for any vehicle new enough to qualify for a loan versus either paying down other high interest debt (thinking credit cards here) or pulling that money from higher yield investments.

Case 1:

• An individual with $25,000 in credit card debt with an average interest rate of 18% need a new(er) vehicle
• Said individual has $15,000 in cash and is considering a new(er) vehicle worth $12,000
• If they use the cash to pay down their debt and then borrow the money for the vehicle at say, 4% interest, they are way ahead of the game
• If they simply pay cash for the car then they will continue paying that 18% instead of swapping that cash around for 4% interest
• Vehicle loan wins

Case 2:

• An individual with $500,000 in their 401K, $80,000 in their Roth IRA, $100,000 in their investment account (be it stocks, funds, whatever), and a savings account/slush fund of $20,000 (which they prefer to keep liquid for emergencies)
• All three of their investment vehicles historically yield an average of 9% per year
• Said individual is considering a new $50,000 vehicle
• If they finance the vehicle with a new vehicle loan at say 1%, then they are way ahead of the game once again
• If they pull money from any of their investment accounts to pay for the vehicle they will lose out on the yields
• Vehicle loan wins once again

[flashoflight]

Yes debt free except your mortgage includes student loans. There is no borrowing, consolidations, or gimmicks. It's simple , live below your means , maximize your means ( 2nd job, over time, side hustle etc.) Then snow ball pay off your debts by attacking them with all extra income above your means. Lookup your average cost of living then subtract that from your maxed out income. Pause saving and investing until debt is all paid then save 3-6 months expenses. Build a brick financial house then you can save and invest. There are a lot of 30 something's that have become debt free and some have paid off their mortgage.
normal people are broke and spend more then their means so they can't save then murphy comes and creates more debt. Mortgages need to be less then 25% of your household take home pay, 15 year fixed and 10-20% down payment.
do the steps and you'll be weird and wealthy.

You and Dave make it sound easy. Like I said before, we know his plan so you need not explain how it works. You need to address why Dave's plan is better when it's far easier and quicker to file bankruptcy, especially chapter 7 but even chapter 13 is far superior to Dave's snowball plan. Don't dance around it by reciting Dave's plan. We know what is.

Chapter 7 I'm not going to explain because it is one and done.

Chapter 13 forces unsecured creditors to be repaid from the net disposable income of the debtor, which could be zero or close to it. The repayment period is limited to five years maximum. Any remaining amount unpaid after 5 years, which can be as high as 99% or 100% of the debt, is wiped out in one shot after five years. Unsecured creditors have almost no say at all.

Dave's plan requires you to follow the contract rate which can be above 20%. Dave's plan ignores the contract rate in favor of the snowball, which I totally understand when psychology of paying small balances to zero is involved. But nevertheless math is math and putting off 20% credit cards just slows things down even more. Chapter 13 allows debtors to ignore the contract rate and force a very low interest rate or zero interest. When interest is 20%, interest is almost the entire minimum payment so you won't be paying down anything. If it was forced to be 0%, that's a lot better.

[5yrplan]

Vehicle loans add risk and only millionaires can afford the depreciation. If you can't handle setting $25K on fire and watching it burn then don't buy new or financed vehicles.

Pay cash for vehicles. When you pay off debt you don't borrow ever again.

check out debt free screams and plan yours.

[shipo]

Vehicle loans add risk and only millionaires can afford the depreciation. If you can't handle setting $25K on fire and watching it burn then don't buy new or financed vehicles.

Pay cash for vehicles. When you pay off debt you don't borrow ever again.

check out debt free screams and plan yours.

Sorry, epic fail. You clearly don't understand how money works.

Even if you only have $5,000 in cash and need a vehicle, a well used $5,000 car will cost you less money if you finance it and invest that five-grand than if you pay cash for it.

As for only millionaires being the only ones able to afford depreciation, once again, epic fail. The $5,000 used car will depreciate in two ways, 1) it's resale value will drop as it ages and wears out, and 2) the cost of maintenance will bleed you for money faster than the depreciation on a newer/more expensive car.

In my case, I will be buying a new car in the next year or so, the new car could end up being upwards of $80,000; why? Because I want to. My two options would be to liquidate some of my investments which over the last 10 years have averaged almost exactly 20% (yes, I know that is unsustainable, but that's what I've gotten) and pay cash for the car, or to finance it at 1.79%. Even you can do the math and see it is cheaper to borrow the money for the car.

[Ekop785]

I am not a fan of Ramsey. I don't dislike him personally - seems like a decent guy - but his plan is based on having a significant amount of disposable income. Telling people they will save money by doing a 15 year mortgage instead of a 30 year - well, no sh**. But most families can't do that.

Same with his car buying advice - sorry, but a 5K car that you will be paying cash for will probably need a 5K transmission in a few months.

His answer to money problems is get your side hustle on. Sorry Dave, that dog-walking-uber-driving side job just isn't always enough these days. Times are very hard, and that is assuming you are not elderly, disabled, have a learning disability, mental health condition, or lack of transportation.

Like I said, I don't dislike him, I just think he oversimplifies things.