Iowa Bankruptcy Laws: The Ultimate Guide
Learn about the intricacies of Iowa Bankruptcy Laws, understand eligibility criteria, filing procedures, and why you need professional legal assistance.
Bankruptcy Laws in Iowa
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.
Who Can File Bankruptcy?
If you are considering bankruptcy, you may be wondering what type to file under and if you are eligible. Choosing the appropriate type of bankruptcy hinges on your individual circumstances and objectives.
The most common categories for personal bankruptcy are Chapter 7 and Chapter 13.
Chapter 7 Bankruptcy
A Chapter 7 bankruptcy is also known as a liquidation bankruptcy. Chapter 7 bankruptcy wipes debt by selling nonexempt property to repay creditors. This option suits individuals with minimal income and assets seeking to swiftly eliminate unsecured debts, like medical bills and credit card debt. Remaining unsecured debts can be discharged at the end of the process.
You can expect the Chapter 7 process to take four to six months.
Chapter 13 Bankruptcy
A Chapter 13 bankruptcy is also known as a wage earner’s plan and is for individuals with disposable income. During Chapter 13 bankruptcy, the bankruptcy trustee will work with you and your creditors to craft a repayment plan to settle your debts over time. This allows you to retain your property and settle secured debts like mortgages or car loans.
The Chapter 13 bankruptcy repayment plan generally spans three to five years.
Eligibility for Bankruptcy in Iowa
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.
Iowa Bankruptcy Exemptions
Exemptions dictate what assets you can retain and what property may be relinquished during Chapter 7 bankruptcy to repay your debts. Each state can choose to use the federal exemptions, enact their own exemptions, or allow the debtor to choose between state and federal exemptions.
Iowa state law mandates the use of state exemptions. These exemptions are generally more generous than federal ones and can safeguard a larger portion of your assets from creditors. Moreover, married individuals filing bankruptcy in Iowa are entitled to double the exemption limit.
Understanding what assets are at risk during bankruptcy and what property is exempt can be critical when choosing to pursue bankruptcy under Chapter 7. Our bankruptcy attorneys in Iowa at Henkels & Baker, PC, can help you settle your debts without giving up too much. Our clients have never lost a property they didn’t want to surrender.
Pros and Cons of Bankruptcy
Filing for bankruptcy has a variety of advantages and disadvantages. The pros and cons of bankruptcy will ultimately depend on your circumstances and objectives.
Some advantages include:
- Discharging most or all unsecured debts like credit cards, medical bills, personal loans, and specific taxes
- Halting collection actions such as lawsuits, wage garnishment, foreclosure proceedings, and repossessions
- Retaining certain or all personal property based on asset type, value, claimed exemptions, and more
- Having the opportunity, through Chapter 13 bankruptcy, to restructure finances and gradually repay debts
- Long-term potential to improve your financial situation
Some disadvantages include:
- Losing nonexempt property, such as luxury items, secondary homes, and vehicles, in Chapter 7 bankruptcy
- Repaying debts, possibly with interest and fees, over three to five years in Chapter 13 bankruptcy
- Enduring negative impact on credit reports and scores, lasting up to a decade
- Facing challenges in securing new credit cards, loans, or mortgages. You may also have higher interest rates post-bankruptcy
- Obligation to disclose bankruptcy status to certain individuals like landlords or lenders, potentially affecting relationships and opportunities
Can you Discharge Student Loan Debt Through Bankruptcy in Iowa?
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
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.
Contact a Bankruptcy Attorney at Henkels & Baker, PC, Today
If you find yourself in a difficult financial situation, trying to understand complex bankruptcy laws can be overwhelming. A seasoned bankruptcy lawyer can handle the process for you and represent your interests.
At Henkels & Baker, PC, we have been handling Iowa bankruptcy cases for 50 years. Our dedicated bankruptcy attorneys will evaluate your financial situation, determine a suitable course of action, and advocate for your interests throughout the bankruptcy process.
Are you contemplating filing bankruptcy in Iowa? Contact Henkels & Baker, PC, today for a free consultation.
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