Iowa Bankruptcy Laws: The Ultimate Guide

Quick Answer: Iowa Bankruptcy Laws at a Glance

Iowa bankruptcy cases are governed by federal law under the U.S. Bankruptcy Code, but Iowa uses its own state exemptions rather than federal ones. The two most common options are Chapter 7 (liquidation, typically resolved in 3–6 months) and Chapter 13 (a 3–5 year repayment plan). Iowa’s exemptions are generally more generous than federal ones and include an unlimited homestead exemption, up to $7,000 in vehicle equity, and full protection of most retirement accounts. To file, you must have lived in Iowa for at least 730 days and complete credit counseling within 180 days before filing.

If you are struggling with debt and seeking a way out, you may be contemplating filing bankruptcy. However, the path to filing bankruptcy is neither straightforward nor effortless. It involves a maze of laws, procedures, and consequences.

There are various types of bankruptcy available to individuals and businesses, each with a set of requirements, eligibility criteria, and purposes. Below, we will cover everything you need to know about Chapter 7 and Chapter 13 bankruptcy, the most common options.

If you want a fresh start free of debts, our team at Henkels & Baker, PC, is here to make that happen.

What Is Bankruptcy?

Bankruptcy is a court-supervised procedure for individuals and businesses struggling to meet their financial obligations. Depending on the type you file under, bankruptcy can either help reorganize or discharge your debts. Either way, it protects you from collection actions by creditors and encourages reaching new agreements.

The U.S. Bankruptcy Code is the primary source of bankruptcy laws in the United States. All bankruptcies are governed by federal law, and all bankruptcy cases are handled by the federal courts. However, the bankruptcy code allows the states to choose between federal or state bankruptcy exemptions. Iowa is one state that has opted to use its own exemptions.

Bankruptcy law requires the debtor to meet certain eligibility criteria. To file for bankruptcy in Iowa, a debtor must meet the following criteria:

• Residency: You must have lived in Iowa for 730 days. If you have not resided in Iowa for the required period, you must file for bankruptcy in the state you lived in for the 180 days preceding your move to Iowa.
• Income: You must pass the means test to be eligible for Chapter 7 bankruptcy. To pass the means test, your monthly income for the last six months is below Iowa’s median income, or your disposable income of five years is either equal to or less than 25% of the unsecured debt or $7,700,000. For Chapter 13, you will need to show sufficient disposable income for a repayment plan.
• Credit counseling: You must complete a credit counseling course from an authorized agency within 180 days before filing for bankruptcy.
• Debtor education course: You must complete a debtor education course from an authorized agency to be eligible for a discharge. The purpose of this course is to provide individuals with financial management skills and knowledge to help them make informed and responsible financial decisions in the future.
• Filing fee: You must pay a court filing fee—$338 for Chapter 7 or $313 for Chapter 13 (as of August 2023). Fee waivers or installment plans are available.
• Documentation: You must submit the required forms and documents, including bankruptcy petitions, financial schedules, and a statement of financial affairs, among others.
• Creditor meeting: You must attend the §341 creditor meeting to respond to trustee and creditor inquiries about your bankruptcy case under oath.

Discharging student loan debt through bankruptcy in Iowa is challenging but not impossible. When people file a bankruptcy petition in Iowa, most focus on alleviating debts like mortgage payments or credit card balances. However, student loans are treated differently under the bankruptcy code.

Typically, under the Iowa Chapter (7 or 13), student loans are not automatically discharged. The process requires an additional step, known as an ‘adversary proceeding’ which is a lawsuit within the bankruptcy case.

The debtor must prove that paying the student loan would cause undue hardship. This is a high bar to meet, often requiring showing that you cannot maintain a minimal standard of living while making student loan payments, that this situation is likely to persist for a significant portion of the loan’s term, and that you’ve made good faith efforts to repay the loan.

While filing for bankruptcy, certain assets can be declared as exempt property, such as retirement accounts, some equity in a homestead exemption, and a portion of the balance in a bank account. These exemptions help individuals maintain a basic standard of living. However, obligations like child support, criminal fines, and missed payments on non-exempt assets are not dischargeable.

Attorney fees for bankruptcy can vary, and the cost of filing an adversary proceeding to discharge student loans can add to this. Moreover, even if the student loans are not discharged, a successful bankruptcy can restructure other debts, potentially freeing up funds to manage student loan payments more effectively. For instance, under Chapter 13, the debtor can propose a repayment plan consolidating debts into a single monthly payment, which may make managing student loan payments more feasible.

Iowa Bankruptcy Courts

If you file bankruptcy in Iowa, your bankruptcy will be handled by one of the two federal bankruptcy courts: the Northern District of Iowa or the Southern District of Iowa.

An Iowa bankruptcy court judge will oversee the process and appoint a bankruptcy trustee to manage your bankruptcy case. The trustee’s job is to work with the debtor and creditors to make a plan to repay outstanding debts or, in the case of a Chapter 7 bankruptcy, sell nonexempt assets.