‘I’ve been living with my head in the sand’: California woman says her husband racked up $4.5 million in debt, now they’re facing foreclosure on the family home — Dave Ramsey sees a path out

Optimism veering into delusion

Despite the multimillion-dollar debt burden on their shoulders, Katie says her husband is optimistic that his business can turn around and solve their financial woes. Ramsey believes this pattern of thinking is common with entrepreneurs.

“You do have to be an optimist to operate a business,” he says.

Borrowing money can a great tool entrepreneurs can use to supercharge their expansion plans. And it’s very common. For firms that employ more than one person, about 75% of them had some debt, with 8% with balances exceeding $1 million outstanding as of 2023, according to data from the Federal Reserve. So, a seven-figure commercial loan isn’t unusual in the end.

But there’s an important difference between looking on the bright side and leaping before you look. And if a business can’t generate enough revenue to sustain a hefty debt burden, it can quickly lead to bankruptcy. That’s not something even the most optimistic of dispositions can change.

Unfortunately, this is what many entrepreneurs and business owners face every year. In the first six months of 2024, 1,176 small businesses filed for bankruptcy, 61% higher than the same period last year, according to Epiq Bankruptcy.

Katie’s husband risks being part of this statistic, but his efforts to hide the problem from his partner make him part of another unfortunate statistic — Americans who commit financial infidelity.

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Financial infidelity

Financial infidelity is just what it sounds like: when you keep secrets about money — whether that be how much you actually make or what you’re spending on — from your partner. Keeping debts secret is a common form of financial infidelity, something 15% of people admitted to doing in a recent survey.

But these secrets take a serious toll, with 11% saying they’ve been in relationships that ended because of debt. And 38% say they’d end a relationship if their partner lied about debt or spending.

To salvage their relationship, Katie and her husband must move fast. Cruze encourages Katie to set a deadline for husband to turn the business around, or give up and find a job. For his part, Ramsey encourages a “scorched earth” fire sale of all their assets, including the family home, the commercial warehouse and their vehicles.

Fortunately, Katie estimates that the house and warehouse are worth more than their respective outstanding debt so offloading these assets should help the couple make considerable progress.

However, the couple needs to have honest conversations about money going forward or these secrets may well end up costing them their relationship.