- Determine if you qualify for Chapter 7 bankruptcy and how much it will cost to file in Iowa.
- Explore alternatives to Chapter 7 bankruptcy so you can weigh your options before deciding.
- Lastly, you'll want to know all the specifics of Chapter 7 bankruptcy.
Chapter 7 bankruptcy is expected in the United States, and Iowa is no exception. I wouldn't be surprised if most of the 3,148 bankruptcies filed in Iowa in the year ending June 2021 were of Chapter 7.
To get a quick estimate of your qualifications and costs, you can use the Chapter 7 Calculator below.
Let's dive in and discover why Chapter 7 is such a popular choice in Iowa.
1) How Chapter 7 Bankruptcy Works
There are two primary questions to keep in mind when looking into a Chapter 7 bankruptcy:
- What is the time frame for Chapter 7 to discharge the debt?
- How much is it going to cost?
When comparing different ways to get out of debt, Chapter 7 bankruptcy is usually the cheapest and fastest option compared to Chapter 13 bankruptcy, debt negotiation, debt management, and debt payoff planning.
How Fast Do You Get Relief in A Chapter 7 Bankruptcy?
In Iowa, you can usually get a Chapter 7 bankruptcy discharge in as little as 120 days or four months.
When deciding to file a Chapter 7, you may hear the term "no-asset" in the Chapter 7 case. You may not have a house or other valuable assets exceeding Iowa's bankruptcy exemptions. So, if you don't own any assets, this can be beneficial in Chapter 7, making it less complex. Remember that every case is unique, so consulting with an attorney can sometimes be helpful if you are considering filing.
How Much Does It Cost To File Chapter 7 Bankruptcy in Iowa?
Filing for Chapter 7 bankruptcy nationwide usually costs between $500 and $3000. However, this price is going to depend on where you file.
For instance, if you're filing in Davenport, it might cost over $1,125 for a Chapter 7 bankruptcy attorney fee. But if you're in Cedar Rapids, you could pay $1,170.
Sometimes, you can reduce the bankruptcy filing cost through a fee waiver. If interested, check out this link for the Iowa filing fee waiver.
How To Qualify For Chapter 7 Bankruptcy in Iowa
A Chapter 7 bankruptcy is designed for those who cannot repay some debts. However, before you can file, you must go through an income evaluation to see if you qualify for a Chapter 7 bankruptcy. This evaluation is called the means test.
Unsecured debts are debts that don't have any collateral attached to them. So, if you file a Chapter 7 bankruptcy, you can discharge medical bills, personal loans, particular old income tax debts, old utility bills, credit card debts, and most personal judgments. A Chapter 7 bankruptcy is like a fresh start, allowing you to get back on your feet.
What about secured debts in Chapter 7?
If you're looking to wipe out secured debts, such as car loans and mortgages, Chapter 7 may be able to help. However, you'll have to give up the asset to your creditor, and they will have to consider it payment in full for what you owe.
IMPORTANT: Chapter 7 Qualification via Iowa Means Test
The Bankruptcy Means Test calculates your average monthly and annual income. It compares your income against the median income of other households in Iowa.
If your average or median income is below the Iowa median, you might qualify for a bankruptcy discharge under Chapter 7. That means you could be on your way to financial freedom! But how can you find out if you're eligible? Try out this Iowa Chapter 7 Bankruptcy Means Test Calculator below to see.
What if My Income Exceeds The Chapter 7 Means Test Allowable?
If your income is higher than the average income in your state, you might need to take a closer look at part 2 of the means test or explore other options. The Means Test is not a straightforward pass-or-fail situation. It's a two-part test that requires some extra consideration. So, even if you "fail" the first section, you still have a chance to "pass" the second section and qualify for Chapter 7 bankruptcy.
Chapter 7 Iowa Income Limits
Let's talk about the Iowa median income figures for the Means Test. These numbers are adjusted now and then based on IRS and Census Bureau data. So, if you're filing for bankruptcy in Iowa on or after November 1st, 2024, here's what you need to know:
- For more than nine members, you need to add $9,000 for each additional family member.
It's essential to stay updated on the latest figures, so check out the U.S. Trustees website for the most current information when calculating the Means Test.
Will I lose my belongings if I file Chapter 7 bankruptcy?
Let's talk about bankruptcy exemptions and how they can protect your property in a bankruptcy case. Exemptions protect certain assets from being sold in a Chapter 7 liquidation case. So, if you have a property that's not covered by these exemptions, it might be able to be sold.
To compare, in a Chapter 13 case, if you have non-exempt equity in your property, it could increase the amount you have to pay in your bankruptcy plan.
When protecting assets, most people are concerned about their homes. In Iowa, specific homestead exemptions determine how much equity in your home is protected based on your age and marital status. Let's break it down:
- Your homestead exemption is infinite if you're single, under, or over 65.
- Your homestead exemption is endless for married, under, or over 65.
Iowa Code Ann. § 561.16 governs the Iowa bankruptcy homestead exemption. According to this law, you have unlimited protection for up to 40 acres of rural land or half an acre in urban areas. Even if your homestead gets annexed, it still retains its prior protection.
If you're curious about federal bankruptcy exemptions, they're outlined in 11 U.S. Code §522. But Iowa doesn't allow you to use these federal exemptions.
Be sure to review additional Iowa bankruptcy exemptions; staying updated with the latest information is crucial. Laws can change, and you want to be on top of things.
Chapter 7 Bankruptcy Pros and Cons
Like any debt relief option, Chapter 7 has its upsides and downsides. In a Chapter 7 bankruptcy, there's a chance you might end up losing your home. Now, let's dive into the pros and cons.
Pros
- Affordable debt relief solution
- You can receive a discharge in about 120 days.
- Fresh start that allows you to discharge the debt.
- You may be able to keep your home and belongings due to exemptions.
- It can put a stop to debt collection lawsuits. No more constant phone calls, threatening letters, or fear of legal action.
- No more deficiency. This is when you owe more on a loan than what your collateral is worth, and the difference is called a deficiency, but a Chapter 7 can wipe it away.
- Provides relief for unaffordable, unsecured debts.
Cons
- You need to meet income requirements for qualifications.
- You may lose your home and other belongings if your assets exceed the exemption limit.
- It'll have a negative credit report impact for ten years.
- It may hurt credit scores.
- If you have non-dischargeable debt, it may not be able to be wiped away. These are debts such as student loans and taxes that may not be able to be included.
- Difficult to prevent foreclosure
Now that we've covered the pros and cons of Chapter 7 bankruptcy let's dive into the alternatives available in Iowa.
Alternatives to Chapter 7 Bankruptcy in Iowa
We all know that Chapter 7 bankruptcy is a popular option for those struggling with debt. But what if you don't qualify for Chapter 7? Or maybe you've got too many assets to protect? Or perhaps you don't want to go down that road. Well, there are alternatives to Chapter 7 bankruptcy that you can explore.
Other options include Chapter 13 bankruptcy, debt settlement, debt management, consolidation loans, and debt payoff planning.
A debt consolidation loan combines all your debts into one payment. This allows you to take out a loan to pay off your various creditors, leaving you with just one monthly payment. It makes tracking your payments more accessible, but remember that you still pay off the total amount.
a) Chapter 13 Bankruptcy
With a Chapter 13 bankruptcy, you can restructure your debts into a more manageable monthly plan. This means you may be able to afford your house and car payments easier.
There are many benefits to a Chapter 13 bankruptcy. First off, it can put a stop to foreclosures, repossessions, and even wage garnishments. Through the bankruptcy plan, you can also catch up on mortgage payments, past-due car payments, and tax debt over three to five years. Chapter 13 bankruptcy might also allow you to reduce unpaid child support and alimony. However, it's important to note that you must continue making regular domestic support payments to stay in Chapter 13. In a Chapter 13 plan, some people may be able to lower their car loan payments and potentially get rid of second mortgages as long as they meet specific requirements.
Can you afford Chapter 13 bankruptcy?
A Chapter 13 repayment plan can be complex, so you may want to ask an attorney about it. There are the attorney fees and a repayment plan that looks at non-exempt equity and disposable income to determine how much, if any, of the debt you may pay back.
b) Debt Relief
If you're considering going the debt settlement route, there are a few things to remember. First off, consider the impact it might have on your credit score.
When you partner with a debt settlement firm, they will make you fall behind on the accounts you choose to include by about six months. They will then negotiate with your creditors on a lower overall amount you pay back over 2-4 years. This may hurt your credit score since you have to fall behind.
Ultimately, it is up to your creditors if they want to agree or deny negotiations, so there is quite a bit of risk involved. If they agree, then you pay the lower amount through an escrow account, but they will expect you to keep up on all the payments. However, if the creditors disagree, they may try to sue you. However, you can choose which accounts to include in the program. There may also be potential taxes on the forgiven debt, so estimating whether that would have an impact can sometimes be helpful.
c) Debt Management
Debt management companies focus on negotiating lower interest rates, and the program usually lasts about 3 to 5 years. Credit counseling is generally a more expensive option compared to the others. Some creditors, like personal loan lenders, may not want to work with a debt management company. There is also a potential impact on your credit score.
Debt management can be a good option for those with high-interest credit card debt. The firm will work to lower those so you can pay the principal significantly.
Debt management in Iowa may be a suitable option if you have significant high-interest credit card debt. You can make your debt more affordable by reducing your interest rate from 22-30% to a more manageable 10%. This can be a beneficial solution for individuals in this particular situation.
d) Debt Payoff Planning
Debt can feel like a never-ending cycle, with interest piling up faster than you can say "financial hardship." But don't worry; you have options, such as debt payoff planning.
Debt payoff planning involves cutting down on expenses and putting any cash flow you have toward your debts to avoid interest charges. This isn't a one-size-fits-all solution. Depending on the size of your financial hardship, it may not be feasible for everyone. Payoff planning means you are paying the total amount back, so it's helpful if you can afford your debt but want to pay it off more efficiently.
An app called the Savvy debt payoff planner will help you prioritize your debts by combining efficient methods to create a plan to pay things off as quickly as possible. On average, it saves folks around $2,000 in interest.
3) Specific Iowa Chapter 7 Bankruptcy Information:
If you're wondering if Chapter 7 bankruptcy is the way to go, it's essential to understand these critical points before filing.
Chapter 7 bankruptcy is a legal process that allows individuals to wipe out their debts and start fresh. One of the significant benefits of Chapter 7 bankruptcy is that it provides immediate relief from creditors coming after you.
However, not all debts can be wiped out through Chapter 7 bankruptcy. Certain debts, like student loans and child support payments, are generally not dischargeable. It may also significantly impact your credit score, making it harder for you to get approved for loans or credit cards in the future. But, with some time and responsible financial behavior, you can rebuild your credit score and get back on track.
Credit Counseling and Debtor Education Courses
When you're going through the bankruptcy process, there are a couple of courses you need to take which are required if you want a discharge.
The first course you need to take is a credit counseling course. This has to be done before you file your bankruptcy case. It's designed to guide and help you better understand your financial situation.
The second course is called a debtor education course. It's meant to educate you on financial management and give you the tools you need to make better financial decisions in the future and get back on your feet after the bankruptcy.
The United States Trustee's Office has approved certain companies in Iowa that offer these bankruptcy courses. You can find a list of these companies on the UST website, and these courses can be completed online. A small fee is involved, but they're designed to help you navigate bankruptcy and improve your financial future.
Iowa Chapter 7 Bankruptcy Court Locations
When filing for bankruptcy, you must attend the 341 creditors' meetings. Many of these meetings have been happening over the phone or through Zoom. But, if you have a meeting that needs to happen in person, it's essential to know where the courthouse is.
Here are the court locations for filing bankruptcy in Iowa, based on the bankruptcy district.
Northern District
The U.S. District Courthouses in Northern Iowa are located at two different addresses:
- 111 Seventh Avenue SE, Cedar Rapids, IA 52401-2101.
- 320 6th Street, Sioux City, IA 51101.
- Phone: (712) 233-3900
Southern
The U.S. District Courthouses in Southern Iowa are located at three different addresses:
- 123 East Walnut Street, Des Moines, IA 50309
- 131 East 4th Street, Davenport, IA 52801
- 8 South 6th Street, Council Bluffs, IA 51501
Iowa Bankruptcy Trustees
Here are the trustees for Iowa in each bankruptcy district. You can find the official list here.
Be sure to check out the local rules for Iowa because they may differ from the Federal Bankruptcy Rules.
Conclusion
So, now you're well-versed in the ins and outs of Chapter 7 bankruptcy in Iowa. If you're curious about whether you qualify and want to get an estimate of the cost, you can try out the Chapter 7 bankruptcy means test calculator below. It'll give you a rough idea of where you stand.
Most people work with a bankruptcy attorney when filing for Chapter 7 or Chapter 13 bankruptcy. However, you also have the option to file without one. If interested, you can learn more about filing for bankruptcy without an attorney.