Advice from Nashville's Financial Guru Dave Ramsey
Dave Says
By Dave Ramsey
Author of Financial Peace and The Total Money Makeover
8/9/2004
Baby steps and bankruptcy?
Dear Dave,
About a year and a half ago I had about $125,000 worth of debt and I filed Chapter 13 bankruptcy. The good thing is that I'm in sales so, without having to go get a second job, I can just work my butt off and make more income. I do have some things that were not able to be part of the 13, different tax issues and things like that with a fixed figure of about $2,000 of that left. I've got a ten-year-old car and a five year old truck that still have payments that are part of this bankruptcy that I can't do anything about. I have to keep them running while they're in this.
I've got your Baby Step One, $1,000 emergency fund, out of the way. How do I move on to Baby Step Two, the debt snowball, when I can't really get out of this bankruptcy? My attorney says once the court finds out I've got the ability to pay more, they will begin demanding more money from me regularly.
Mike
Pittsburgh, Pa.
Dear Mike,
You're going to need to break this into two steps.
First, you need to clean up all the debt that's outside the bankruptcy. Car repairs need to be part of your budget. That's a budget item, not really a debt. You need to clean up all the other debts first, using the debt snowball paying off everything from smallest balance to largest. It doesn't sound like there are a bunch of those.
Second, what I'd do is either save up big piles of cash and pay off the Chapter 13 and ask for a voluntary dismissal, or item by item ask your attorney to release some of the big items from the bankruptcy and pay those. Change your payments and roll them down each time. If the court finds out you've got more money and demands more, that's okay because that's what we're doing anyway is paying more and getting out of debt. So, just treat that bankruptcy like it's a debt snowball also and get in attack mode. Just attack that thing. The goal is, if you've got four years left in bankruptcy, get out in two - then you get on with your life two years sooner.
Dave
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