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Jeff Mathias, Iowa Bankruptcy Attorney 4800 Mills Civic Parkway, Suite 218
West Des Moines, Iowa 50265
Tel. 515-261-7526
Toll Free 1-800-997-1395 jeff.mathias@gmail.com

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Iowa Bankruptcy Guide:
Chapter II - Iowa Chapter 7 vs. Chapter 13 Bankruptcy

Chapter 7 and Chapter 13 are the two primary parts of the bankruptcy code designed from consumers. A few high profile debtors will file under Chapter 11, but it is expensive and rarely well suited for an individual. There is also a farm bankruptcy chapter that some farmers will utilize, although farmers with limited farm assets often file under Chapter 7 and some use Chapter 13. If you do have a farm bankruptcy you are well advised to seek out an attorney who specializes in farm cases.

A. Iowa Chapter 7 "Liquidation" - Full Discharge/No Repayment

Chapter 7 "Liquidation", it sounds like something Tony Soprano does to his enemies. In fact, in the vast majority of Chapter 7 cases nothing is liquidated at all. Theoretically when you file Chapter 7, your property goes into a bankruptcy estate. The estate is then sold (liquidated) and the proceeds are paid over to your creditors. However, in the real world, unless your name is Trump, you are going to have little or no non-exempt property to liquidate. Also, pre-bankruptcy planning is perfectly legal, so long as it is all disclosed. So your experienced attorney may advise you to liquidate any non-exempt assets you may have before filing, instead of giving them to your creditors. See Chapter 4, "Iowa Bankruptcy Exemptions" for more information on Iowa exemptions in Chapter 7.

However, if you think you have an asset that will not be exempt, you should talk to a bankruptcy attorney before drawing any conclusions. You may be surprised to find that you can manage to keep it after all. A common example is a motorcycle with a lien. If there is little or no equity, then the bike will be of little interest to the trustee since he would have to satisfy the lien if he wanted to take the (otherwise non-exempt) boat. Around 90% of all people file Chapter 7 here in Iowa.

Iowa Median Income - Since 2005, if you are under the Iowa Median Income you are eligible for Chapter 7, period. If you are over median, you still may be eligible if you pass the bankruptcy means test. It helps if you have secured payments like home and car, child support or day care expenses.

With Chapter 7 Bankruptcy, you can discharge:

  • Credit Cards, Medical, Most other Consumer debt, even if it is a judgment

With Chapter 7 Bankruptcy, you can't discharge:

  • Child Support, Back Taxes (unless they are old and meet certain criteria), Criminal Fines & Penalties, Student Loans

You can keep your home and keep your car as long as you make the payments. You can keep furniture, appliances, most personal property. Tax Refunds - If you are filing your Chapter 7 between about October 1st and when tax refunds are received, do ask your attorney how much of the refunds you will get to keep. Beware - Creditors often garnish wages starting late in the year. They know some people will file bankruptcy to stop the garnishment even if it means losing part of their tax refunds. Most people do not lose property when filing Iowa Bankruptcy. U.S. Courts Chapter 7 Bankruptcy Information.

Paper Chase - These days, filing bankruptcy is all about documents. Keep your pay stubs so you will have them available, you will need the last 60 days worth, tax returns, W2's, Credit Counseling Certificates are all required. See Getting Started.

B. Iowa Chapter 13 - Five Year Repayment of Debt

While the vast majority of clients will file under Chapter 7, some may be in-eligible due to high income. Others may want to include overdue home payments in their plan payments. In some cases back taxes can be better managed in a Chapter 13. In any case, if you choose to file under Chapter 13 you will repay based on your ability over 5 years. But beware, many Chapter 13 plans fail because the debtor is unable to make the payments, in part because your allowed expenses are unreasonably low. If your Chapter 13 plan is dismissed you are once more "fair game" for creditors who can come after you with lawsuits, garnishment of your bank accounts and wages, judgments and liens. In that case, most debtors will "convert" to a Chapter 7 if they can, doing what many should have done in the first place. Of course if you are not eligible for Chapter 7 you may have to file Chapter 13 anyway and just hope for the best. U.S. Courts Chapter 13 Bankruptcy Information.

Need an Iowa Chapter 13?

Contact Iowa Chapter 13 Bankruptcy Attorney Deanna Bachman. She is terrific at Iowa Chapter 13 cases. Deanna handles cases from throughout Iowa from her Des Moines office.

C. Chapter 13 to "Save the Home"

Be careful about your budget if you file a Chapter 13 to try and save a home your behind on. If someone is unable to make their house payment before adding past due payments to the Chapter 13 plan, it is even less likely they will be able to make the new, larger payments. Sometimes it is best to get real early, surrender the house and file a Chapter 7. Otherwise, you are just throwing good money after bad. Of course, if you have equity in the home, you could sell it yourself before filing your Iowa bankruptcy. U.S. Courts on Chapter 13 Bankruptcy.

D. Chapter 7 Bankruptcy Attorney Fees

Iowan's will find Chapter 7 attorney fees are pretty affordable, especially in Des Moines which tends to be more competitive due to having so many bankruptcy attorneys in one place. There is a lot more care and feeding required by your attorney in a Chapter 13 than in a Chapter 7. While a Chapter 7 can usually be completed in 3-4 months, a Chapter 13 will go on for five years. Hence, attorneys must charge more for Chapter 13. Jeff charges a fixed attorney fee.

Jeff's Iowa Chapter 7 Bankruptcy Details Nearly 90% of Iowan's
file Chapter 7 Full Discharge when they file Bankruptcy

Married? You can choose to file Joint of Single Chapter 7

If you are married, you can file bankruptcy by yourself, or with your spouse, your choice. Often, one spouse is at wits end and the other just can't pull the trigger on bankruptcy. If your spouse does not want to file now, there is a good chance they will come in and file after they see how smoothly your case goes with Jeff. So Jeff encourages couples to file together from the start if they are both on the debt. If you file jointly, you still pay the same one attorney fee, one filing fee. Same sex marriage is fine for joint filing.

Bankruptcy is a Financial Planning Tool

Courts consider bankruptcy the responsible approach if we can no longer pay our old debt. Better to "draw a line in the sand", discharge old debt and take responsibility for future obligations than to continue to acquire debt we can never repay. Bankruptcy, best utilized, is a financial planning tool that helps us manage future expenses like home purchase, college tuition and retirement.

Judgements/Garnishments? You can discharge even though it is a judgement. Garnishments have to stop once you file your Chapter 7, although long payroll lag times can be trouble, so file your bankruptcy before you are garnished.

Keeping Property - With Chapter 7 Bankruptcy, you can:

Keep your Home

The only way to lose your home when filing Chapter 7 is to stop making payments. Iowa has an unlimited exemption for your homestead. This means you could keep it even if it is worth a million dollars.

Surrender your Home (if you choose)

If you wish, you can surrender your home and discharge the debt. Even if the bank sells your home for less than what you owe, you still discharge it. It is best to stay in the home until the bank actually forecloses. Otherwise you may be harassed by utility bills or letters/bills from code enforcement or teh homeowners association. During this time, you do not make payments. You can save a bunch of money! Just discipline yourself to save it in a separate account. Otherwise, when you finally move out, it will be a big shock on your finances. You can also file a Demand for Delay of Sale in state court once the foreclosure is filed to add six months. This is a big advantage for you. However, if the foreclosure is your only debt, don't file your Chapter 7 just for that. Most lenders do not pursue deficiencies in Iowa, so you would want to wait. If they ever did come after you, you could file your bankruptcy then. But most people have other debt, so they come see Jeff right away.

Keep your Car

You get to exempt up to $7,000 in equity.

  • Example: The KBB Private Party Value of your car/truck is $10,000. You owe $5,000. In this case, your equity is $5,000 and your vehicle is exempt, meaning you get to keep it.
  • Example: Your vehicle is worth up to $7,000 with no loan. Your equity is $7,000 and you get to keep it, no problem.
  • Teen Cars: If you have a teen car, we can talk about when it was purchased, who paid for it and how much it is worth.
  • Old Junkers: If you have an old car that is not worth much, we can often exempt that one using your wild card, allowing you to keep it in addition.
  • Note: You must be on the title to exempt a car. So if you are married, you may want to review your car titles and see who is listed.

Surrender your Car (if you choose)

If you just want to walk away, you can surrender your vehicle and be done with it. Most of my clients drop them off if it is a local lender. Be sure to remove the plates and take them in for a partial refund. If delivery is not convenient, you can wait for the lender to pick up. You discharge all the debt on the vehicle, even if the bank sells it for less than what you owe.

Redeem your Car

If you owe more than your car is worth, check with 722Redemption.com to see if you are eligible. If you are, U.S. Bank will fund a new loan. The new loan is for your current market value and goes to your old lender, paying them off. They take a loss on the remainder. Then you pay U.S. Bank going forward. The interest rate is higher, but you normally can save quite a bit.

Keep other Property

You also get to keep your furniture, appliances, household goods, clothing, your retirement accounts, a rifle and shotgun, most people do not lose any property. If you have questions about keeping your property, email Jeff.

Tax Refunds

Tax Refunds can be an issue from the Fall until your refunds are received and spent, so if you get more than $1,000 back/$2,000 joint, it is best to avoid filing late in the year. BEWARE - Creditors start garnishments in the Fall because they know some people will feel they have to file bankruptcy to stop the wage garnishment. Then you end up having to turn over your tax refunds. It is super important not to wait until you are being sued/garnished to file your bankruptcy. There is always a flurry of wage garnishments late in the year because creditors know they will get tax refunds when people file to stop the wage garnishment. See Iowa Bankruptcy Mistakes.

Repayments to Family

Money repaid to family within 1 year of filing your Chapter 7 can be taken back by the Judge as a preference payment. So if you are considering bankruptcy, do not repay money to family.

Whole Life Insurance

If you have whole life insurance with cash value, it is fine so long as the beneficiary is your spouse or child. If someone else is the beneficiary, we need to discuss how to handle it before we file your case.

Discharging Debt - With Chapter 7, you can:

Discharge Credit Card Debt

You discharge your credit card debt even if it is a judgment after lawsuit. Even if it has been sold or is being collected by an outside agency. After your bankruptcy, just rely on debit cards. Some people try to keep one credit card. The problem is, lenders often subscribe to third party companies that vacuum up filings nationwide and push it in to their database in digestible form. This means big banks are going to know you filed and close the account anyway. Under Murphy's Law, that would normally be right after you make your first post-bankruptcy payments. Debit cards rock! To discharge means you are no longer responsible for repayment of debt. In Chapter 7, co-signers are still responsible. Hence, married couples will both file bankruptcy together if you are both on the debt.

Discharge Medical Debt

This is one of the most common reasons we file bankruptcy,high medical debt. Be sure to list both the original medical provider and collection agencies. Otherwise, the original creditor may resume collections or sell your debt, unaware you have filed.

Discharge Most Consumer Debt

Most other consumer debt is discharged; old foreclosure and repossessions, rent, utilities, cell phone bills, misc. collections

Not Discharged:

Child Support

Student Loans. The "unduly burdensome" exception is so narrowly construed in the 8th Circuit that few Iowa attorneys even attempt student loan discharge cases. In order to prove undue hardship you need expert witnesses and the trial costs normally exceed $5,000, after which most requests are denied. You are much more likely to get an administrative discharge through the U.S. Department of Education than to discharge student loans here in Iowa unfortunately. There is small comfort - Federal law limits wage garnishment for student loans to 10%.

Back Taxes. Unless they are income taxes, with the return due more than 3 years ago, with the return filed more than 2 years ago and the tax assessment having occurred more than 240 days ago. So if you have recent income taxes due, you should consider getting all returns filed and waiting until they can be discharged before filing your Chapter 7. Chapter 13 is also a good alternative in some cases to manage back taxes because it helps with interest and penalties.

Criminal Fines, Penalties & Restitution

Ready to go? Get Started.

After Bankruptcy

More people file bankruptcy than divorce. If banks wrote off everyone that filed bankruptcy, there would not be many people left. Many people purchase a home with a good interest rate two years after bankruptcy. It is best to avoid credit cards and just use your debit cards instead. If you have regular income and a good income to debt ratio you don't need to rush out and get a secured credit card, with a clean history post-bankruptcy, in time, lenders will want to lend to you. U.S. Courts Chapter 7 Bankruptcy Information.

Note: There is an 8 year wait between Chapter 7 bankruptcy filings. One more reason to avoid credit cards. Way too many people run in to trouble again within 8 years and can't file.

Famous Architect Frank Loyd Wright lost his home, Taliesin in Wisconsin and was thrown on the street when business dried up in 1922. During the following decade, he designed some of his most famous projects.

Des Moines, Iowa bankruptcy attorney Jeff Mathias. All Iowa Counties. Jeff's Linkedin.

Jeff Mathias
Iowa Bankruptcy Attorney
Statewide Practice, All 99 Iowa Counties

4800 Mills Civic Parkway, Suite 218
West Des Moines, Iowa 50265
Tel. 515-261-7526
Toll Free 1-800-997-1395
jeff.mathias@gmail.com