Through the legal process of bankruptcy, qualified people and organizations can discharge their prior non-exempt debt or restructure their debt to better suit their requirements and financial situation. If a debtor is trying to discharge their debt honestly, they may be allowed to do so.
In other words, whether a person is not hiding assets that may be used to pay off their debts or seeking a debt discharge for fraudulent purposes. However, some debts are either non-dischargeable or cannot be discharged. Support obligations, such as alimony and child support obligations, student loans, taxes, and fines, are a few among them.
The bankruptcy court will immediately impose a stay after a person files for bankruptcy, preventing creditors from making collection efforts on debts that are covered by the bankruptcy but are not otherwise free from discharge.
What Sorts of Court Cases Involve Bankruptcy?
Both individuals and businesses can file for bankruptcy under various circumstances. Chapter 7, usually known as liquidation bankruptcy, and Chapter 13, also known as a reconstruction or payback bankruptcy, are the two that individual consumers most frequently use.
The most popular bankruptcy option for people who want to wipe out their debt is Chapter 7. For people who want to maintain some of their property but have too much income for a Chapter 7 bankruptcy, there is a Chapter 13 bankruptcy option. A Chapter 13 bankruptcy enables the debtor to maintain their property with manageable payments.
Non-exempt property in a Chapter 7 bankruptcy can be sold or liquidated to pay off debts. A creditor cannot collect any obligations discharged during the bankruptcy procedure once the bankruptcy process is over.
A debtor will offer a repayment plan in a Chapter 13 bankruptcy. The debtor can pay creditors over a longer time if the court approves that plan.
A debtor may maintain some assets or property even after filing for bankruptcy, thanks to an exemption. Exempt property cannot be confiscated or sold to pay the debts of the individual filing for bankruptcy, and the exemptions are outlined in the statute.
In both Chapter 7 and Chapter 13 bankruptcy, exemptions are crucial.
- Chapter 7: Exemptions in Chapter 7 bankruptcy assist in determining which property you are allowed to keep after receiving a bankruptcy discharge. This is how bankruptcy exemptions assist in defending your possessions during bankruptcy.
- Chapter 13: Exemptions in Chapter 13 bankruptcy help determine how much you will have to pay to your unsecured creditors, which might mean the difference between your plan being approved and being rejected.
Who May File an Exemption in Bankruptcy?
Anyone who declares bankruptcy is eligible to request bankruptcy exemptions. Both chapter 7 and chapter 13 bankruptcy files are eligible for these exemptions, although the specific exemptions that may be requested differ from state to state.
Make an inventory of your possessions and note their replacement values to calculate what property you will be allowed to keep if you file for Chapter 7 bankruptcy. The value should be compared to the exemption for that property in your state.
State bankruptcy exemptions rather than federal ones are used in Iowa law. The following list includes several of the significant Iowa exemptions. The sums listed may be larger if you file for bankruptcy jointly as a married couple. For more information on filing for bankruptcy in Iowa, please get in touch with a bankruptcy lawyer.
Equity in an automobile is defined as up to $7,000 in value for any motor vehicle. Homestead is defined as the full worth of a homestead up to 12 an acre in a city or town or 40 acres.
- Personal property: $2,000 in jewels, an engagement ring, and $7,000 in furniture, clothing, and storage items (value limited if purchased in last two years)
- $1,000 worth of bibles, books, photos, paintings, and portraits
- Prescribed medical supplies
- One-acre burial sites and cemeteries
- One shotgun, one rifle, or one musket
- Liquor permit
- Wages and cash: Wages are withheld based on income and range from $250 per year for those making less than $12,000 per year to 10% of income for those making more than $50,000
- Tools of the Trade: up to $10,000 in trade tools; tools and equipment for regular farming; livestock and feed for regular farming;
- Insurance: Public employee group insurance; proceeds from life insurance where the spouse, child, or dependent is the beneficiary; proceeds from health, accident, or disability insurance
- Pensions and Retirement: public employee pensions (includes firefighters, police, etc.)
- Additional pensions, if required, for support
- A share of IRAs and retirement plans
- Public aid, workers’ compensation, unemployment benefits, and public benefits
- Compensation for crime victims
- Social Security.
- Benefits for veterans
- Wild card: Up to $1,000 in personal property, which can include cash
- Child support/alimony: Alimony and child support to the amount required for support
What’s the Process for the Wildcard Exemption?
The debtor may invoke the wildcard exemption to protect any property, including those items not covered by the other exemptions. However, the debtor can only save up to $1,000, including cash.
What Is an Exemption Limit for Bankruptcy?
Any equity in a piece of property is subject to an exemption limit, which restricts how much equity is exempt. Equity is the difference between a property’s fair market value and any outstanding debt. A home with a loan of $450,000 and a valuation of $500,000 has equity worth $50,000. The debtor would not be required to sell the $50,000 worth of equity in the home to settle the obligations if the state’s homestead exemption was $50,000 or more.
Depending on where you live, other things could have an impact on what your limit is. In some areas, marriage may allow couples to increase their exemption amounts. Some exemption amounts may also increase if you file as the “head of household” or if you have several dependents.
Senior citizens may be eligible for higher homestead, personal property, or other exemption limits in some states. Your exemption threshold may be increased by a disability, particularly for motor vehicles.
Why Declare Bankruptcy?
Bankruptcy filings are typically a final resort for people. It is frequently the greatest option left after someone has looked into all other possibilities, such as negotiating with creditors, getting credit counseling, and making a strict budget to pay bills.
A person may declare bankruptcy for a variety of reasons:
- Their financial problems are not short-term;
- They have lost a reliable source of income, such as long-term unemployment;
- Their house is about to go into foreclosure;
- They have significant medical debts;
- Their wages are being garnished;
- They are paying one credit card with another;
- They are putting necessities on credit cards;
- They are paying bills out of retirement accounts; or
- Having many jobs but remaining stretched financially.
An adverse social stigma could be connected to declaring bankruptcy. However, bankruptcy has the beneficial goal of giving a person a new financial start. Many people who declare bankruptcy discover that the benefits far outweigh the drawbacks.
But it’s crucial to remember that bankruptcy is not a quick and painless way to get out of debt. In many circumstances, people will have to give up their possessions and may have trouble getting credit or loans for years after filing for bankruptcy.
Do I Need a Bankruptcy Attorney?
A knowledgeable Iowa bankruptcy attorney may be able to assist you in navigating the system because Iowa’s bankruptcy regulations are complicated. Additionally, a lawyer can assist you in obtaining all of the exemptions you are entitled to and avoiding typical filing errors.