Each bankruptcy district has local rules, procedures, and local bankruptcy forms that it uses.
Filing bankruptcy is a major decision that many individuals consider when facing financial hardship. Chapter 13 bankruptcy in Iowa can help you get out of debt and back on your feet after a financial crisis. One of the most important things about an Iowa Chapter 13 bankruptcy is understanding whether you can afford the Chapter 13 plan payment.
Through a Chapter 13 bankruptcy case, you can catch up on mortgage payments, keep your car, and get rid of debts you cannot pay. Let’s dig into what we will cover:
- Chapter 7 vs. Chapter 13 Bankruptcy in Iowa
- Calculating Chapter 13 Plan Payments in Iowa
- Means Testing in Iowa
- Iowa Credit Counseling and Debtor Education Courses
- Iowa Bankruptcy Exemptions
- Bankruptcy Courts and Trustees for Iowa
- Alternatives to Filing Bankruptcy in Iowa
Comparing Chapter 7 to Chapter 13 Bankruptcy in Iowa
Filing a Chapter 7 bankruptcy case can get rid of debts in four to six months. However, you can risk losing property in Chapter 7 if they you have a property with substantial net equity over the bankruptcy exemption.
Furthermore, some Chapter 7 bankruptcy filed in Iowa may not result in the loss of property. Regardless, you will want to research the Chapter 7 bankruptcy process in detail before filing a bankruptcy case under Chapter 7. On the other hand, debtors who file under Chapter 13 can keep all their property. If they have net equity in assets above the allowed bankruptcy exemptions, they can pay a little more each month to keep those assets.
Chapter 13 bankruptcy in Iowa has several benefits that Chapter 7 cases do not offer. For example, you can stop repossessions and foreclosures by filing Chapter 13. While a Chapter 7 case stops those processes, you don’t have very long to catch up on the past due payments to keep the property. In a Chapter 13 case, you can take up to five years to catch up on the payments for your mortgage loan, if necessary. You might also be able to stretch out your car loan and lower the interest rate in a Chapter 13 case.
The Chapter 13 process allows you to restructure your debts into an affordable monthly plan. In many cases, you pay a small percentage to get rid of unsecured debts, including credit card debts, medical bills, old utility bills, personal loans, judgment debts, and some old tax debt. Many debtors are debt-free except for their mortgage payments when they complete a Chapter 13 bankruptcy in Iowa.
Calculating Chapter 13 Plan Payments in Iowa
For example, the amount of your Chapter 13 bankruptcy payment is based on a variety of factors. Factors that can impact your plan payment include your disposable income, non-exempt equity, debts, and recent financial transactions. We discuss how to calculate your disposable income and non-exempt equity in assets in the following sections.
Priority unsecured debts must be paid in full through a Chapter 13 plan. When calculating your Chapter 13 plan, you must pay most tax debts, back child support, and past spousal support in full. You must also pay administrative fees in full through the bankruptcy plan.
General unsecured creditors are paid a percentage of their debts through the Chapter 13 plan. When you complete your Chapter 13 cases, any remaining amounts owed to general unsecured creditors, except for student loans, are discharged (forgiven). Unsecured debts that are generally eligible for a discharge in Chapter 13 include, but are not limited to:
- Medical bills and debts
- Credit card debts
- Personal loans
- Old utility bills
- Most judgment liens
- Personal loans
- Old rent or lease payments
If you face other hardships such as an unemployment in Iowa, you may look to take an Iowa unemployment calculator to estimate your benefit amount
Means Testing in Iowa
The Means Test is a common topic in Chapter 7 cases because it is the bankruptcy form used to determine if a debtor meets the income requirements for a bankruptcy discharge under Chapter 7. However, the Chapter 13 Iowa bankruptcy means test is also important. The results of the Means Test can impact the length of your Chapter 13 case and your Chapter 13 plan payment.
Calculating Currently Monthly Income
The first part of the Means Test calculates your current monthly income. The current monthly income is used to calculate annual median income. Currently, monthly income is based on your household income for the past six months. Add income from all sources and divide by six to calculate your average monthly income. If your spouse is not filing, but contributes to household income, you must include your spouse’s income in your figures.
Median income is calculated by multiplying your current monthly income by 12. Compare your median income to the median income of a household of the same size in Iowa. If your median income is above the state’s median income, you must file a 60-month Chapter 13 plan.
The median income levels in Iowa are adjusted every few months based on Census Bureau and IRS data.
Calculating Disposable Income for a Chapter 13 Plan
Disposable income is calculated in the second section of the Means Test. Deduct allowable expenses from your current monthly income to calculate disposable income. Some living expenses are limited, such as deductions for food, clothing, household supplies, travel, and personal care items. You can review a list of standard living expenses on the website for the United States Trustee’s Office. Additionally, you can deduct expenses related to mortgage/rent payments, childcare expenses, some charitable donations, car loan payments, alimony, child support, and life insurance premiums.
Your disposable income is included in your Chapter 13 plan. Therefore, it is important to take all allowable deductions to reduce disposable income as much as possible.
Also, it’s important to understand the cost to file bankruptcy in Iowa. The cost is $313 for a Chapter 13 bankruptcy, but does not include attorney fees. So a bankruptcy attorney in Des Moines may charge a different Chapter 7 fee than in another city, but Chapter 13 attorney fees may abide by a no look fee, which is the reasonable cost to cover a specific service.
Iowa Credit Counseling and Debtor Education Courses
Before filing a Chapter 13 bankruptcy in Iowa, you need to complete a Credit Counseling Course. After your Chapter 13 case is filed, you need to complete a Debtor Education Course.
Both bankruptcy courses are available online for a small fee. However, you must use a company that is approved by the United States Trustee’s Office. A list of approved credit counseling and debtor education companies for Iowa are listed on the UST’s website.
Iowa Bankruptcy Exemptions
Debtors are permitted to keep certain property when they file for bankruptcy relief. Bankruptcy exemptions protect a certain amount of equity in specific items of property. The federal bankruptcy exemptions are found in 11 U.S.C. §562.
However, Iowa has opted out of the federal bankruptcy exemptions. If you have lived in Iowa for at least 730 days before you file a Chapter 13 bankruptcy in Iowa, you must use Iowa bankruptcy exemptions. If you have not resided in Iowa for two years before filing bankruptcy, you may be able to claim federal bankruptcy exemptions. The exemptions that apply in your case depend on your state of residence during the greater portion of 180 days before the 730-day residency requirement to use Iowa bankruptcy exemptions.
Understanding the Bankruptcy Exemptions
Fortunately, Iowa has a generous homestead exemption. Whereas the federal exemptions limit the amount of equity in a home, the Iowa homestead exemption is unlimited, provided that you meet the land restrictions. Additionally, you must have resided in Iowa at least 40 months to qualify for the unlimited homestead exemption. Otherwise, your homestead exemption is limited to $160,375 by federal law.
Other Iowa bankruptcy exemptions are limited, but protect a certain amount of equity in a variety of properties, such as clothing, vehicles, household goods, retirement benefits, and other personal property.
How Do Bankruptcy Exemptions Impact My Chapter 13 Plan Payments?
If you have equity in property that is not covered by exemptions, your Chapter 13 plan payment may increase. To calculate net equity, subtract any valid liens and the allowable bankruptcy exemption from the fair market value of the property. If the result is anything above zero, your plan payment may need to be higher to keep the property.
Bankruptcy Courts and Trustees for Iowa
Iowa is divided into two districts for bankruptcy cases. The Northern District of Iowa has bankruptcy courts located in Cedar Rapids and Sioux City. However, there are several court hearing locations throughout northern Iowa for convenience. The Southern District of Iowa has one bankruptcy court located in Des Moines. However, there are several hearing locations throughout southern Iowa for convenience.
Each bankruptcy district has local rules, procedures, and local bankruptcy forms that it uses. Before filing a Chapter 13 bankruptcy in Iowa, you need to review the information for your bankruptcy district, especially if you choose to file bankruptcy without an attorney.
Chapter 13 trustees are assigned to cases based on the district. A Chapter 13 trustee is responsible for administering the bankruptcy estate, including receiving payments, reviewing claims, and paying creditors
When considering Chapter 7 vs Chapter 13 bankruptcy, understand the costs, alternatives and pros and cons. Hopefully this article will help you make the most informed decision about Chapter 13 bankruptcy in Iowa.