Chris from North Carolina is literally getting back on his feet after being bedridden for two years.
While he was ill with Lyme disease, he lost his business and accumulated nearly $80,000 in credit-card and loan debt. He just started working again.
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Chris called into The Ramsey Show because he’s about to be served a court-ordered judgment requiring him to pay his creditors back, even though he has no assets to his name. (1)
He’d like to file for bankruptcy to have a clean slate and asked co-hosts Jade Warshaw and Ken Coleman if that would be wise. They gave an emphatic no.
“Short answer is we’re not going to be doing bankruptcy,” Warshaw said definitively.
Here’s why Warshaw and Coleman rejected his bankruptcy plans, and what you can do if you find yourself in a similar financial situation after a long illness.
Taking back control
Chris’s new job as a project manager pays $130,000 per year. He said that’s why he wants to file for bankruptcy now — before he earns too much to file for Chapter 7 bankruptcy in North Carolina.
On paper, Chris has no assets. That’s because he divided his assets between his common-law wife (so the house is in her name) and his daughter. That got Coleman’s attention.
“You are living with a woman that you refer to as your wife, and you signed a house over to her that you bought,” he asked. “Am I understanding this correctly?”
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Chris responded yes. While he and his partner married in church, they never registered their marriage with the state and still file their taxes separately.
Chris didn’t deny it when the co-hosts suggested that he signed the house over to his spouse to avoid having it count as his own asset.
He laughed. But Warshaw and Coleman warned this kind of legal trickery can come back to haunt you.
“What you’re doing, there’s nothing funny [about it],” Coleman said. “It’s scary.”
Warshaw said regardless of his job and assets, if Chris were to file bankruptcy, it would decimate his credit for seven years — and take an emotional toll, not only on Chris but his family.
“It’s basically you signing a paper that says, ‘I lost control. I’m not fit to handle this by myself. Here, you guys take it.,’” she said.
Warshaw noted that with his relatively small debt relative to new income, Chris could repay all his debts within 2½ years on a strict budget.
“Instead of losing your confidence, you can build your confidence up by cleaning it up one debt at a time,” she said.
Warshaw told him to get clear about exactly how much he owes, listing his debts from smallest to largest. From there, he can apply the debt snowball method to tackle his debt.
This means paying off the smallest debt first while making minimum payments on larger debts, eliminating debts from smallest to largest till everything is paid.
How to deal with the financial impact of medical bills
Chris’s situation isn’t unique. One in five Americans have medical debt, according to a 2023 report by The Commonwealth Fund. (2)
At least 14 million owe $1,000 or more and 3 million owe $10,000 or more in medical debt, according to the Kaiser Family Foundation. (3)
With the median income standing at just $45,140, such debt can take a serious toll on a person’s ability to save for the future. (4) In fact, medical debt is a predictor of a number of financial issues, including:
- Ballooning credit card debt
- Skipping or delaying payment on other bills or debt
- Delaying long-term financial goals
- Skipping doctor or dentist visits due to outstanding debt
You can protect yourself and your family by saving up to six months’ of expenses in an emergency fund that you can tap in the event of an unforeseen emergency.
It’s also good to take out life insurance coverage to ensure your family is protected from financial burden in the event of your death or disability.
If you’re in this position, research the grants and programs available in your area to support your health spending needs, including medication costs. (5)
Finally, strict budgeting is essential for anyone struggling to pay down debt.
While you may have ongoing medical expenses, it’s key to understand how you spend every penny each month.
Track your spending by reviewing your bank and credit card statements, and look for ways you can reduce spending to funnel more money towards your debt: you might trim your transportation expenses, shop in bulk, cut down on discretionary spending or cancel your subscription services.
While living with a chronic condition is difficult, especially if you’re under financial strain, it’s possible to dig out of debt and reduce your money stress.
Article sources
We rely only on vetted sources and credible third-party reporting. For details, see our editorial ethics and guidelines.
The Ramsey Show (1); The Commonwealth Fund (2); Kaiser Family Foundation (3, 4); Needymeds (5)
This article originally appeared on Moneywise.com under the title: NC dad who has $80K debt after long illness asks The Ramsey Show if he can declare bankruptcy. Why the hosts say no way
This article provides information only and should not be construed as advice. It is provided without warranty of any kind.