‘I Don’t Care What Your Interest Rate Is, You’re in Bankruptcy’: Ramsey to Daycare Owner Clinging to 2.5% Mortgage
A 2.5% mortgage sounds like a prize worth protecting, but for one childcare owner six months into bankruptcy, clinging to that rate may be the exact thing keeping her trapped in a five-year court-supervised financial prison.
This post may contain links from our sponsors and affiliates, and Flywheel Publishing may receive compensation for actions taken through them.
“I don’t care what your interest rate is or your cash flow is. You’re in bankruptcy.” Dave Ramsey said that to Kim, a Charlotte childcare owner who called his show six months into a five-year Chapter 13 plan. Her filing covers roughly $120,000 in credit card and personal loan debt. She ran it up keeping her business alive after COVID. She says the business now brings in about $80,000 a year.
She has two rentals and is current on both, and she asked whether selling them could end the bankruptcy early, then talked herself out of it. One rental has a 2.5% mortgage, and the tenant pays $1,950 a month. Co-host Dr. John DeLoney summed up the trade in one line: “All for a 2.8%.”
On paper, her hesitation makes sense. Freddie Mac’s 30-year fixed average hit 7.4% on October 15, 2026. That’s the highest reading in a year, and it’s up 1.1 points from a year earlier. Existing home sales ran at a 3.99 million annual pace in September. That is why so many owners refuse to give up cheap loans. For Kim, that lock-in is what keeps her legally bankrupt.
Ramsey Is Right, and the Math Isn’t Close
Start with the equity. Rental one is worth $275,000 with $186,000 owed, which leaves about $89,000.
Rental two is worth $320,000 with $212,000 owed, which leaves about $108,000.
Selling costs money. As an example, assume 6% goes to agent fees and closing costs. That comes to about $35,700 across both sales and leaves roughly $161,300 in cash. After paying off the debt, she has about $41,300 left before taxes. Capital gains and depreciation recapture will cut into that, but the margin is wide.
Now put a price on the 2.5% loan she’s protecting. Say it’s the larger $212,000 balance. It costs about $5,300 in first-year interest.
The same balance at today’s 7.4% would cost about $10,388 more each year.
That gap is the most the cheap rate could ever be worth, and it only counts if she’d otherwise have to borrow at today’s rates, which she would not need to do. Selling a rental pays the loan off, and she keeps living in her own home. Nothing needs replacing.
Look at what the bankruptcy is holding back. A typical credit card’s APR is 21%. Interest at that pace would add about $25,428 a year to her debt outside of bankruptcy. Chapter 13 blocks much of that, but she pays for it with years of a court-supervised budget and a trustee watching her income.
On a separate episode, Ramsey said 78% of Chapter 13 plans fail because debtors can’t keep up the payments. Every month she stays in the plan is another risk. A vacancy or a slow stretch at the business could knock her out of it.
One Number Decides Whether a Cheap Loan Is Worth Keeping
Here’s the variable: after selling costs, does the equity you can free up cover the debt that’s driving the bankruptcy?
Kim’s answer is yes. About $161,300 in net proceeds covers $120,000 of debt, so a sale can end the plan. Keeping the 2.5% loan buys her about $10,388 a year of rate advantage on paper, and she remains bankrupt the whole time.
Now picture someone else, as an example. Same $120,000 of debt, but only $40,000 of equity after costs. Selling leaves most of the debt in place, and the bankruptcy goes on anyway. For that owner, a 2.5% loan with a tenant paying $1,950 a month is a cheap source of cash for plan payments. Keeping it makes sense.
In both cases, the deciding factor is whether selling actually solves the problem.
Run These Four Numbers Before Defending a Low Rate
- Net equity: Ask a local agent for a comparative market analysis on each property, then subtract the payoff amount from your latest mortgage statement. Use the payoff figure, because it’s higher than the balance printed on the statement.
- Exit costs: Subtract 6% for selling costs as a starting estimate. Then have a CPA estimate capital gains and depreciation recapture so you know the cash you’ll actually walk away with.
- Payoff threshold: Ask your bankruptcy attorney what lump sum would meet your plan and let you exit early. Compare that figure to your net proceeds.
- Lock-in value: Multiply your loan balance by the gap between your rate and the current 7.4% average. That’s the most the low rate is worth to you each year, so compare it against every remaining year in the plan.
If selling the asset pays off the debt, the cheap mortgage is costing you your way out of bankruptcy.
Contact [email protected] for any questions or corrections.
Jake has been been working in financial media for almost 15 years. He focuses on all things personal finance for 24/7 Wall St. with high hopes to educate and entertain. Most recently, Jake spent 12 years working various roles at The Motley Fool. He started copy editing fool.com content, worked on premium and marketing campaigns, and helped launch The Ascent, a personal finance brand.
His work has been featured on platforms like MSN, Yahoo Finance, USA Today, and more. He's written about credit cards, social security, ETFs, savings accounts, and just about anything else you can imagine when thinking about money. Jake love to cook, play golf, and tell people he's never had a cavity. (It's true!)
