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Iowa Bankruptcy Asset Exemptions

Will I lose everything if I file bankruptcy? Can I keep my car? My home?

Some of the exemptions or protections are available to debtors wishing to protect their assets. You may protect your home, a car (up to $7,000 of equity), household goods and furnishings, musical instruments and clothing (up to $7,000), jewelry (up to $2,000), tools of the trade (up to $10,000), retirement plans and cash value life insurance (if you name a spouse or child as a beneficiary), and a small amount in checking or savings (up to $1,000 in addition to the accrued wages and tax refund). These exemptions are doubled for joint debtors.

If your car or home is secured by a loan, you may keep the asset only if you agree to pay the debt associated with the asset. If you do not want to repay these secured loans, you must surrender the home or car.

Some creditors want you to sign a document called a Reaffirmation Agreement. If your budget does not justify reaffirming a car or other personal property secured by a loan, the bankruptcy court may reject your Reaffirmation Agreement. This could allow the creditor to repossess the item, although this is not likely if you remain current on your monthly payments.

Iowa Bankruptcy Lawyer and Chapter 13 Attorney

Surrendered secured assets, such as cars and homes, can be kept for a few weeks to a few months depending on how vigilant the creditor is. If you are significantly behind in your house payments and you want to keep your house, you may want to discuss the benefits of a Chapter 13 bankruptcy with an Iowa bankruptcy attorney. In these situations, Chapter 13 may be the best alternative for you.

Home, cars, secured debt and Reaffirmation Agreements

You can choose whether to keep your secured assets (home, car) and keep paying back the loans that secure those assets, or you may surrender those assets and discharge the loans. If you wish to keep a secured asset, you must remain current on the monthly payments to the creditor. If you do not, the creditor has the right to repossess or foreclose, even though you have filed bankruptcy.

You will most likely receive a document called a Reaffirmation Agreement, which your lender will encourage you to sign, obligating you to repay the original loan under the same terms and conditions. Creditors will lead you to believe that you are required to sign the document to keep your car or your home. However, very few creditors repossess a secured asset for failure to sign a Reaffirmation Agreement, if you remain current on your monthly payment.

There are advantages to refusing to sign the Reaffirmation Agreement. If you ever decide you do not want the secured asset in the future, for any reason, you can stop paying back the loan at any time with no obligation. You will be required to surrender the asset. Not signing the agreement gives you this flexibility.

For example, in the case of $10,000 car loan on a car worth $5,000, should you get into a car accident, rendering the vehicle worthless, you could walk away from the remaining $10,000 loan if you never signed a Reaffirmation Agreement. If you signed one, you would still be required to repay the remainder, even though you filed bankruptcy. Due to the unforeseen nature of future circumstances we do not advise clients to sign a Reaffirmation Agreement, although most clients do chose to do so. Any work we perform relating to reaffirmation agreements costs on average $100 – $150 per agreement, which we bill at the conclusion of your case.

The benefit of signing a reaffirmation agreement is that you have the security of knowing that the creditor will not repossess, and it may improve your credit score in the future. It may also help you refinance loans in the future, obtain credit, and remain friendly with the particular creditor who may be willing to extend more credit to you in the future.

Your credit report may reflect that you have discharged the debt in bankruptcy, and that you are not repaying the loan if you choose NOT to sign the reaffirmation agreement. This is perhaps the biggest benefit to signing one. There are pros and cons each way, and if you decide you wish to sign a Reaffirmation Agreement, that is fully within your rights. The court will set a hearing, and if the court thinks it is in your best interest, the court will approve the reaffirmation agreement. Read the document carefully to make sure that the amounts, interest rate, and terms of the loan are correct, make sure that you sign the document in all the correct locations, and send it directly to the creditor at their address for filing with the court. It will be up to your creditor to file the document with the court in time.

You also may receive some Reaffirmation Agreements for unsecured debts. Under no circumstances should you sign one of those. Even if you do, the court would probably not approve it.

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