Iowa Bankruptcy: An Alternative To Explore

As of September 2021, the total state government debt in Iowa was $8.4 billion. This includes both general obligation debt, which is backed by the state’s full faith and credit, as well as revenue debt, which is supported by specific revenue streams such as taxes or fees. In addition to state government debt, Iowa residents also have personal debt, such as mortgages, credit card balances, and student loans. According to recent data from Experian, the average debt per capita in Iowa was $50,964, which is slightly lower than the national average of $53,850. According to data from the United States Courts, in the 12-month period ending September 30, 2021, there were 5,173 bankruptcy filings in Iowa. Of these, 4,724 were Chapter 7 bankruptcies, which is the most common type of bankruptcy that individuals file. The remaining filings were Chapter 13 bankruptcies (437), Chapter 12 bankruptcies (8), and Chapter 11 bankruptcies (4). Compared to other states, Iowa has a relatively low bankruptcy filing rate. In fact, Iowa had the fifth-lowest bankruptcy filing rate per capita in the country in 2020, according to data from the American Bankruptcy Institute.

Bankruptcy Laws in Iowa

Bankruptcy laws in Iowa are primarily governed by federal law, specifically the United States Bankruptcy Code. However, there are also state-specific exemptions and rules that may apply in Iowa bankruptcy cases. Here are some key points about bankruptcy laws in Iowa:

• Chapter 7 and Chapter 13 bankruptcies are the most common types of bankruptcies filed by individuals in Iowa.
• Iowa has its own set of bankruptcy exemptions that may be used in a bankruptcy case. These exemptions allow individuals to protect certain types of property from creditors, such as a homestead, personal property, and retirement accounts.
• In Iowa, individuals must complete a credit counseling course before they can file for bankruptcy.
• Iowa has a bankruptcy court that is part of the federal court system. Bankruptcy cases are typically filed in the district court for the district in which the individual resides or where their principal place of business is located.
• In Iowa, individuals who file for bankruptcy may be required to attend a meeting of creditors, where they will be questioned under oath by a bankruptcy trustee. The trustee is responsible for reviewing the individual’s assets and debts and making sure that the bankruptcy process is fair to all parties involved.

What Types of Bankruptcy Are There For You Personally and For Your Business?

In the United States, there are several types of bankruptcy that individuals and businesses can file for. The most common types of bankruptcy are:

For individuals:

• Chapter 7 bankruptcy: This type of bankruptcy is also known as “liquidation” bankruptcy. It involves selling off all of the debtor’s non-exempt assets in order to pay off their debts. Most unsecured debts, such as credit card debt and medical bills, are discharged, meaning the debtor is no longer responsible for paying them.
• Chapter 13 bankruptcy: This type of bankruptcy is also known as “reorganization” bankruptcy. It allows the debtor to keep their property and repay their debts over a period of three to five years. The debtor’s disposable income is used to make payments to their creditors.

For businesses:

• Chapter 7 bankruptcy: This type of bankruptcy is the same as the one for individuals. A business that files for Chapter 7 bankruptcy must sell off all of its non-exempt assets in order to pay off its debts.
• Chapter 11 bankruptcy: This type of bankruptcy is also known as “reorganization” bankruptcy for businesses. It allows the business to continue operating while it restructures its debts and operations. The business creates a plan to repay its debts over time, and the plan must be approved by the bankruptcy court.
• Chapter 13 bankruptcy: This type of bankruptcy is also available to some small businesses that are structured as sole proprietorships. The business owner can use their personal income to repay their business debts over a period of three to five years.

Learn More about the 3 main types of bankruptcy

What To Keep in Mind When Considering Business Bankruptcy

If you are considering filing for business bankruptcy in Iowa, there are several things you should keep in mind. Here are a few:

• Bankruptcy may not be your only option: Before filing for bankruptcy, it’s important to explore all of your options. This might include negotiating with your creditors, restructuring your debt, or selling off assets to pay down your debts.
• Understand the different types of bankruptcy: As mentioned earlier, there are different types of bankruptcy that businesses can file for. Each type has its own benefits and drawbacks, so it’s important to understand which type is right for your situation.
• Work with an experienced bankruptcy attorney: Filing for bankruptcy can be a complex process, and it’s important to work with an attorney who has experience with bankruptcy law in Iowa. They can help you navigate the process and ensure that your rights are protected.
• Keep good records: Throughout the bankruptcy process, you will need to provide detailed information about your business’s finances, assets, and debts. Keeping good records can make this process easier and help ensure that everything is accurate.
• Be prepared for the impact on your credit score: Filing for bankruptcy will have a negative impact on your credit score, and it can stay on your credit report for up to 10 years. This can make it difficult to obtain credit in the future, so it’s important to be prepared for this impact.
• Keep your employees in mind: If you have employees, filing for bankruptcy can have a significant impact on their livelihoods. It’s important to consider the impact on your employees and work with them to minimize the impact as much as possible.

What Debts Are Not Discharged in Bankruptcy?

While filing for bankruptcy can help discharge many types of debts, there are certain debts that are not discharged in bankruptcy. Here are some common examples:

• Student loans: In most cases, student loans cannot be discharged in bankruptcy unless the debtor can demonstrate undue hardship.
• Taxes: In some cases, taxes owed to the government cannot be discharged in bankruptcy. This includes income taxes that are less than three years old, property taxes, and payroll taxes.
• Child support and alimony: Debts related to child support and alimony cannot be discharged in bankruptcy.
• Debts incurred through fraud or malicious acts: If a debt was incurred through fraud or malicious acts, it may not be discharged in bankruptcy.
• Fines and penalties: Fines and penalties owed to government agencies cannot be discharged in bankruptcy.
• Debts owed to retirement accounts: Debts owed to retirement accounts, such as 401(k) loans, cannot be discharged in bankruptcy.
• Debts not listed in the bankruptcy petition: If a debt is not listed in the bankruptcy petition, it may not be discharged in bankruptcy.

How Bankruptcy in Iowa Affects Your Credit Score and Ability to Get a Loan in the Future

Filing for bankruptcy in Iowa can have a significant impact on your credit score and ability to obtain credit in the future. When you file for bankruptcy, it will be listed on your credit report and will stay there for up to 10 years. This can make it difficult to obtain credit in the future, as lenders may view you as a higher risk borrower. In addition to the impact on your credit score, filing for bankruptcy may also limit your ability to obtain certain types of loans, such as mortgages and car loans, for several years after the bankruptcy is discharged.

Will You Lose Your Home or Car in Bankruptcy in Iowa?

Whether or not you will lose your home or car in bankruptcy in Iowa depends on several factors, including the type of bankruptcy you file, the value of your assets, and the amount of equity you have in your home or car. In Chapter 7 bankruptcy, also known as “liquidation” bankruptcy, the trustee may sell non-exempt assets to pay off your creditors. However, Iowa law provides exemptions for certain assets, including your home and car, which means that you may be able to keep them if they are within the allowed exemption amounts. In Iowa, the homestead exemption allows you to exempt up to $31,000 in equity in your primary residence. This means that if you have less than $31,000 in equity in your home, you may be able to keep it in a Chapter 7 bankruptcy. If you have more than $31,000 in equity, the trustee may sell your home to pay off your creditors. Similarly, Iowa law allows you to exempt up to $7,000 in equity in one motor vehicle. This means that if you have a car with less than $7,000 in equity, you may be able to keep it in a Chapter 7 bankruptcy. In Chapter 13 bankruptcy, also known as “reorganization” bankruptcy, you may be able to keep your home and car by restructuring your debt and making payments over a period of three to five years.

How Does Bankruptcy in Iowa Affect Tax Debt?

Bankruptcy can affect tax debts in Iowa, but the specific impact will depend on several factors, including the type of tax debt and the type of bankruptcy being filed. In general, income tax debts can be discharged in Chapter 7 bankruptcy if they meet certain criteria. To be eligible for discharge, the tax debt must meet the following requirements:

• The tax debt must be for income taxes only. Other types of taxes, such as payroll taxes, cannot be discharged in bankruptcy.
• The tax return must have been filed at least two years prior to the bankruptcy filing.
• The tax assessment must have been made at least 240 days prior to the bankruptcy filing.
• The tax debt cannot be the result of fraud or willful evasion.

If the tax debt meets these requirements, it may be eligible for discharge in Chapter 7 bankruptcy. In Chapter 13 bankruptcy, tax debts can be included in the repayment plan and paid off over a period of three to five years.

Statute of Limitations for Collections in Iowa

In Iowa, the statute of limitations for collections depends on the type of debt. Here are the time frames for some common types of debts:

• Oral contracts: 5 years
• Written contracts: 10 years
• Promissory notes: 10 years
• Open accounts (such as credit cards): 5 years

It’s important to note that the statute of limitations refers to the amount of time a creditor has to file a lawsuit against a debtor to collect a debt. If the statute of limitations has expired, the creditor cannot legally sue the debtor to collect the debt. However, the debt may still appear on the debtor’s credit report and the creditor may still attempt to collect the debt through other means, such as phone calls and letters.

Cons of Bankruptcy in Iowa

Filing for bankruptcy in Iowa can have several negative consequences, including:

• Damage to credit score: Bankruptcy can significantly damage a person’s credit score, which can make it more difficult to get approved for credit, such as loans or credit cards, in the future.
• Loss of assets: Depending on the type of bankruptcy filing, a person may have to sell some of their assets to pay off creditors. This can include their home, car, and other valuable possessions.
• Public record: Bankruptcy is a matter of public record, which means that anyone can access information about the bankruptcy filing, including creditors, employers, and landlords.
• Difficulty obtaining certain jobs: Some employers may view bankruptcy as a negative reflection on a person’s financial responsibility, and may be hesitant to hire them as a result.
• Limited options for future credit: Even after the bankruptcy is discharged, a person may have limited options for obtaining credit, and may be subject to higher interest rates and fees.

Compare the Pros and Cons of Bankruptcy: Pros and Cons of Filing Bankruptcy

Why People Regret Filing Bankruptcy

People may regret filing for bankruptcy for several reasons, including:

• Damage to credit score: As mentioned before, bankruptcy can significantly damage a person’s credit score, making it more difficult to obtain credit in the future. This can be a major concern for people who rely on credit for everyday expenses or for making major purchases, such as a home or a car.
• Loss of assets: Depending on the type of bankruptcy filing, a person may have to sell some of their assets to pay off creditors. This can be a major concern for people who have invested a lot of time and money into their assets, such as a home or a business.
• Stigma: Despite the fact that bankruptcy is a legal and legitimate way to discharge debts, there is still a stigma attached to it. Some people may feel ashamed or embarrassed about having to file for bankruptcy, which can affect their self-esteem and their relationships with others.
• Long-term impact: Bankruptcy can have long-term consequences on a person’s financial and personal life. For example, a bankruptcy filing can remain on a person’s credit report for up to 10 years, which can make it difficult to obtain credit or even to rent an apartment.
• Unanticipated expenses: Filing for bankruptcy can be expensive, with filing fees, attorney fees, and other costs. Additionally, unexpected expenses can arise during the bankruptcy process, which can add to a person’s financial stress.

What Are The Alternatives To Bankruptcy?

If you do not qualify for bankruptcy in Indiana, there may be other options available to you to help address your debt issues. One of which is debt settlement. Debt settlement involves negotiating with creditors to settle debts for less than the full amount owed. There are some potential benefits to debt settlement over bankruptcy that may make it a more favorable option for some individuals.

• No BK on your credit report: Filing for bankruptcy shows on your credit report for up to 10 years. On the other hand, debt settlement does not show as a bankruptcy.
• Cost: Filing for bankruptcy can be expensive, with filing fees, attorney fees, and other costs adding up quickly.
• Emotional Impact: People report horror stories of the negative emotional impact of BK.
• With a bankruptcy for the rest of their life: Employers or lenders can ask if someone has filed BK for the rest of their life. It is much less likely to be asked if one ever used debt settlement to pay back an agreed to amount.
• Control: With debt settlement, you may have more control over the process and negotiations with your creditors, whereas with bankruptcy, a court will make the final decision.
• Less severe consequences: Filing for bankruptcy can have significant consequences, such as the liquidation of your assets, whereas debt settlement may allow you to negotiate a more manageable repayment plan while keeping your assets.

Bankruptcy vs. Debt Relief: What’s Right For You and How We May Be Able To Help

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