A woman in Los Angeles called into The Ramsey Show to ask if it was time to file for bankruptcy after racking up more than $230,000 in debt — despite earning $142,000 a year. She said her financial situation was causing her to lose sleep.
She told the hosts that she is carrying approximately $115,000 in unsecured debt, including credit cards and student loans, while feeling the strain of living expenses raising a child as a single mother.
“I’m trying to see if it’s worth me possibly filing bankruptcy,” she said, “or just really grind it out and just keep paying debt.”
Though she makes $142,000 per year, most of her income is eaten up by paying off her mortgage, which is $4,800 per month, and payments on a $125,000 HELOC she used to build a guest house in her backyard.
Instead of steering her toward the courts, the hosts had a different solution: one that required her to face her biggest fear head-on.
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‘I’m terrified of going below that number’
The single mother told the hosts that her financial problems started when she bought a “fixer-upper” in the Los Angeles area — a purchase that stretched her budget to the breaking point.
She put just 3% down, leaving her with private mortgage insurance. Later, she refinanced to remove PMI, which bumped her interest rate from 3% to nearly 5%. Along the way, she took out a $125,000 home equity line of credit (HELOC) to build a guest house she hoped to rent out.
Today, she owes about $650,000 on the mortgage and $125,000 on the HELOC. On top of that, she has about $100,000 in credit card debt and $15,000 in student loans. Her monthly mortgage payment is $4,800, and her HELOC adds another $1,100, eating up well over half of her take-home pay.
Still, she does her best to maintain an emergency fund. “I try to keep my savings between $9,000 and $12,000 because I’m terrified of going below that number,” she admitted.
But despite a healthy savings cushion, she was drowning in debt — and wanted to know if bankruptcy was the answer. That’s when Ramsey personalities Rachel Cruze and George Kamel stepped in with a different plan.
‘You need to let go of this dream’
Cruze suggested selling the house, using the proceeds to pay off the credit cards, HELOC and student loans, then moving into a rental and rebuilding a down payment for a new home.
The caller was hesitant, saying “See, I’m scared if I get out of my house, I’ll never have the chance to buy another house.”
But Cruze pushed back, saying “That’s not true. That’s you living in fear… Let’s set yourself up to where you can [buy a home again] the right way without all the stress and burden you have today.”
When the caller suggested renting out her house and guest house, both hosts advised against the idea. Kamel explained how holding onto the house would only keep her trapped in debt, adding, “You need to let go of this dream.”
He also warned her that bankruptcy was not the shortcut she thought it might be. “I would sell before bankruptcy,” he said. “It’s going to cost you thousands, destroy your credit for the next seven years… You’ve got a way out.”
Read more: How much cash do you plan to keep on hand after you retire? Here are 3 of the biggest reasons you’ll need a substantial stash of savings in retirement
When bankruptcy makes sense, and when it doesn’t
Bankruptcy can be a lifeline for people who truly can’t meet their debt obligations, but it comes with serious consequences. Two common options for individuals are:
- Chapter 7, also called liquidation bankruptcy, where a trustee collects and sells nonexempt assets to discharge most unsecured debts. It typically takes four to six months and requires credit counseling, means‑testing, and a meeting of creditors, among other steps. It stays on credit reports for 10 years.
- Chapter 13 is a reorganization plan where you repay debts over three to five years through a court-approved plan. You may keep assets like your home and car if you comply with payments. It appears on credit reports for 7 years.
In this case, the hosts noted that the caller makes too much money to qualify for Chapter 7 in California. And with significant home equity and income, she still had other options — the fastest and cleanest being to sell the house and start fresh.
How to avoid bankruptcy when you have other options
As Cruze and Kamel reminded the caller, fear is a dangerous driver for financial decisions. Her fear of losing her home was pushing her toward bankruptcy, when in reality, she had a clear, workable path out of debt without taking such a drastic legal step.
Declaring Chapter 7 or Chapter 13 bankruptcy is never a step to take lightly. It carries long‑term financial and emotional consequences, and it should only come after downsizing your lifestyle and exhausting every other option. Yet, as the caller discovered, sometimes the real turning point is not the legal process but the willingness to let go of her fear of loss.
Walking away from a dream home can feel like a loss, but in this case, it’s a choice to stop compounding past mistakes and clear a path toward stability. As the caller learned, sometimes the best way to move forward is to let go and give yourself the space to imagine a future that truly fits your life and your means.
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