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New Bankruptcy Law
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The New Iowa Bankruptcy Law
The new Iowa Bankruptcy law was enacted in October 2005 after much lobbying on the part of the Banking industry. The banks apparently convinced Congress that debtors with the ability to pay their debt were getting an easy Chapter 7 discharge and should be forced into repayment under Chapter 13. Since October 2005 it appears that the banking industry overstated the case. Few debtors are actually being kept from filing Chapter 7 although the process is considerably more burdensome and expensive now for everyone. Some suspect the true aim of the new law was to make it more difficult for everyone who needs to file bankruptcy.
Changes under the new Iowa Bankruptcy Law:
Income Restrictions (means test)
If your household income exceeds state the median income (see chart below) your expenses are limited. In some cases you will not be eligible for Chapter 7. Your attorney can probably give you a pretty good idea of whether you are eligible for a full discharge under Chapter 7.
Pre-Bankruptcy Credit Counseling
The new Iowa bankruptcy law requires completion of pre-bankruptcy credit counseling from an approved agency. These classes are available online or by telephone and cost about $50.
Exemption Planning
If you have not lived in Iowa for the last 730 days you may not be able to use Iowa exemptions and may have to use exemptions from a prior state of residence.
Notice to Creditors
You must provide notice to creditors at the correct address. Your best bet is to use the address provided on billing statements you receive from the creditor. If you do not properly notify creditors, the debt may not be discharged.
Fictitious Income Standard
Under the new Iowa bankruptcy law your income for bankruptcy purposes is your average income over the past six months. Hence, if you lose a good paying job and need to file bankruptcy it may be difficult to do so right away.
More Document Requirements
Under the new bankruptcy law you do have to provide tax returns, wage and bank statements and more proof of valuation on your home and so forth. In some cases if the correct documents are not provided your case is automatically dismissed.
Financial Management Class
After your bankruptcy is filed you must attend a Financial Management Class, also available online or by telephone for around $50.
Miscellaneous
Debt ordered paid in a divorce decree cannot be discharged. If you owe back child support, your exempt assets can be sold to satisfy that debt. Principal payments made on your home in the past 10 years can be recovered by the estate.
Most can still file bankruptcy
Despite these changes, with a lot of diligence on both of our parts, I am still successfully guiding my bankruptcy clients to a successful discharge, especially where income does not exceed the state median. I think most of my clients simply do not have another realistic alternative. They do not have a rich uncle or the winning lottery ticket and are willing to "jump through the hoops" if it means they can get a fresh start and look forward to a brighter financial future.
Median Income Chart
The chart below indicates the state median incomes in Iowa. The new bankruptcy law considers all household income. So if your mother lives with you and receives social security, that is part of your median income.
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Iowa Annual Median Income |
| 1 Person |
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$34,321 |
| 2 People |
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$45,518 |
| 3 People |
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$54,099 |
| 4 People |
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$61,951 |
| 5 People |
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$74,551 |
| (add $6300 for each additional household member) |
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