Chapter 7 bankruptcy is a filing which allows some individual persons to wipe out many debts. It is designed to eliminate most debts, while selling some assets to compensate creditors. Many assets are exempt under Iowa and federal law. A trustee will be appointed by the court to collect the debtor’s non-exempt assets and to sell them to the creditors to repay debts.
In this article we cover Iowa Chapter 7 Bankruptcy including What is the process for filing Chapter 7 Bankruptcy?, Exempt Income and Property from Chapter 7 Bankruptcy, First Meeting of Creditors, and Are There Debts That Cannot Be Discharged?
What is the process for filing Chapter 7 Bankruptcy?
First, the debtor will have to pay for credit counseling within six months prior to filing for bankruptcy. This class is online and must be Court-approved, and the debtor receives a certificate of completion.
Then, if debts are consumer debts (as opposed to business debts), the debtor will undergo a Means Test. Only certain debtors can discharge debts through a Chapter 7 bankruptcy. The debtor’s income is calculated to determine whether a debtor’s income is low enough for Chapter 7 bankruptcy. If a debtor’s income is too high, greater than the state’s median income, the debtor will be forced to file Chapter 13 bankruptcy.
There will then be a test to determine whether the debtor has enough income left over, after paying certain monthly expenses to pay off at least a portion of the unsecured debts (like credit card bills). Income that is left over is called disposable income. If a debtor has a high enough amount of disposable income, the debtor will not be able to discharge debts through Chapter 7 bankruptcy.
If the debtor’s income is below the state median, he or she can move forward with the Chapter 7 petition. The petition is filed with accompanying documents, called schedules, which include lists of assets, liabilities, income, expenses, tax information, and loan documentation.
Exempt Income and Property
Certain items are exempted by Iowa Law from being sold by the trustee to pay off debts. These include:
- Real property or an apartment, provided the debtor owns this property and it is treated as a “homestead” under the law. (note, this does not include property which is secured by a mortgage)
- Certain types of insurance, including accident, disability, health, illness, or life proceeds to $15,000 paid to surviving spouse or other dependent, employee group insurance proceeds, and life insurance proceeds to $10,000 if acquired within 2 years of filing bankruptcy (life insurance policy can include a clause which prohibits proceeds from being used to pay creditors)
- Domestic payments, alimony, child support
- Liquor licenses
- Property of a business or partnership
- Certain pensions and wages
- Household goods up to $2,000
- Books, portraits, pictures, and paintings to $1,000
- Burial plot
- Clothing to $1,000
- Health aids
- Motor vehicles, musical instruments, and tax refund to $5,000 (no more than $1,000) from tax refund
- Rifle, musket, shotgun
- Wedding or engagement rings
- Most public benefits including social security, unemployment, veterans benefits, workers comp
- Farming equipment (including livestock and feed) to $10,000
- $100 of any personal property, including cash.
- Minimum of 75% earned but unpaid wages or pension payments.
- Covid-19 support payments under the CARES Act
First Meeting of Creditors
Once a petition is filed, there is a “First Meeting of Creditors,” of which attendance is required. This meeting will be between the debtor, the appointed Chapter 7 trustee, and the debtor’s attorney. The trustee manages the bankruptcy case, determines if there are any non-exempt assets to collect, and collects and liquidates to generate proceeds for the creditors.
Provided the schedules have been filled out accurately with all the debtor’s assets, and there are no significant non-exempt assets, the trustee will recommend a discharge and close the meeting.
The debtor then must take a second online course regarding financial management, of which a second certificate of completion will be awarded. Creditors will have 60 days after the First Meeting of Creditors to object to the discharge of the debt, which rarely occurs. If there is not an objection, the case is closed and debts discharged.
Are There Debts That Cannot Be Discharged?
Yes, certain debts cannot be discharged. The most common debts which are not dischargeable include:
- Domestic support obligations, including child support and alimony;
- Student loans, unless it would be an undue hardship to repay them;
- Fines or penalties for violating the law, including certain debts for prisoners;
- For any duties to repay tax debt incurred within the past three years;
- Credit obtained by fraud;
- Debts arising from willful and malicious injury by debtor to another entity or property of another entity;
- Debts which are not listed in a previous bankruptcy filing, unless the creditor learns of the case;
- Debt for personal injury or death caused by operating while intoxicated;
- Some other debts owed to state or federal governments.
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