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Iowa Bankruptcy Basics

Bankruptcy involves a variety of forms, procedures, requirements and paperwork. This is all standard. It assures that the laws are obeyed, and that your rights and the rights of the people you owe money to are protected.

Failure to follow the rules or to give complete and honest information may cause your case to be dismissed. This could endanger your right to file bankruptcy, cause delays, and end up costing you more money.

Discharge of Debts

Getting relief from the burden of your debts by having them canceled is one of the most important benefits of bankruptcy. When a debt is canceled, this is called a discharge. Will ALL of your debts be discharged? This depends on several factors.

There are certain debts that are generally NOT discharged. These include taxes, school loans, child support, maintenance, and traffic fines. There are some rare exceptions in these cases. Also, there are certain debts that are dischargeable in Chapter 13 but not in Chapter 7.

The discharge of debts is a complex issue. Your attorney will advise you about your situation.

Secured v. Unsecured

Your debts fall into two major categories; treated differently in bankruptcy. One type of debt is called secured debt. It is called secured because it is backed up by some property, such as a house, motorcycle, trailer, boat, truck or car.

Before the lender gave you the loan, you had to sign documents that gave the lender a security interest in your property. That is, you gave the lender some rights to the house, motorcycle, etc. that you were buying with the loan. These documents guarantee you’ll repay the full loan amount plus interest. They also prohibit you from selling the property without repaying the debt.

In general, after bankruptcy, the lender’s security interest (lien/mortgage) in your property still remains.
The second type of debt is called unsecured debt. Such debts are usually for consumer goods and services, such as what you owe to local stores, credit cards, medical bills and utilities. These debts are often discharged in bankruptcy.

CHAPTER 7 BANKRUPTCY

A Chapter 7 bankruptcy is commonly known as a straight or liquidation bankruptcy. Its goal is to relieve you of indebtedness.

An individual known as a trustee is appointed to oversee your bankruptcy. The trustee is usually a local attorney or a federal employee. The trustee in a Chapter 7 bankruptcy must make sure all the procedures are being followed according to the law. They review the information in all the documents filed with the court.

Will Property Be Liquidated?
The trustee takes possession of any of your non-exempt property or assets, and may liquidate them to raise money. This money is then used to pay certain creditors who are eligible under the law. Does that mean you’ll lose everything in this process? No. In most cases, you’ll lose little, if any, of your property or assets. Most of your property is secured or exempt, so little, or sometimes nothing, may be left to pay your creditors.

How Long Does It Take?
The entire Chapter 7 bankruptcy procedure generally takes about four months. In the end, it results in the cancellation of many of the debts you owe. Free from harassment by your creditors, you get a fresh start.
You can only file a Chapter 7 bankruptcy once every eight years.

CHAPTER 13 BANKRUPTCY

A Chapter 13 bankruptcy is also known as a wage earners or repayment bankruptcy. It provides a way to repay all, or at least some, of the money you owe to your creditors from the income or wages you earn.

Developing a Repayment Plan
In a Chapter 13, you develop a repayment plan with the help of your attorney, and submit it to the court within 14 days after you file for bankruptcy. Your plan lets you pay back the money you owe at a rate that you can afford. This repayment plan usually takes five years. You prepare a budget showing all your necessary living expenses, including your house payments. These types of expenses are paid before any payments are made to the plan for your creditors.

How Much of Your Debt Do You Pay?
It is common in a repayment plan to pay less than the full amount you owe, and still receive a discharge of the full amount at the end of the plan. But only if you’ve met all of the requirements of your plan.
The money that you pay to your plan goes to a court appointed bankruptcy trustee, who distributes the money to your creditors according to the terms of the plan.

Property Exemptions
In a Chapter 13 bankruptcy, you’re allowed to claim or declare exemptions, although the effect of the exemptions on your property may be different in a Chapter 13 than in a Chapter 7. Your attorney can advise you based on your specific situation.

Your Section 341 Hearing
You will have to prepare the necessary paperwork and attend a Section 341 hearing. At this meeting, the bankruptcy trustee will review your proposed plan. You may be asked questions so the trustee can determine if you are really paying your creditors as much as you can afford. If the trustee believes that your plan meets all the necessary requirements, they will recommend the bankruptcy court accept or confirm your plan.

Automatic Stay
A Chapter 13 (like Chapter 7) gives you an automatic stay that stops any of your creditors from suing you, garnishing your wages and harassing you in any manner. In both Chapters 7 and 13, the automatic stay is not unlimited.

You may file a Chapter 13 more often than once every eight years.

CHAPTER 7 OR CHAPTER 13?

How do you decide whether a Chapter 7 or a Chapter 13 is best for you? The answer to this comes through the consultation and advice of someone who has studied and understands the bankruptcy laws, knows the rules, and also fully understands your situation.

Provide All Necessary Information
Before your attorney can give you advice, you’ll have to provide complete information, such as employment information, including the wages you and your spouse earn; a list of all creditors with their addresses, the amount you owe, your schedule of payments, and any collateral or papers you signed for the debt. You also need to list money you owe and intend to pay back, even if it’s to a relative.

You will also need to provide a list and description of all your property and assets, including boats, automobiles, furniture, jewelry, checking and savings accounts; a legal description of all real estate; and a list of your monthly expenses including mortgage or rent, food, transportation, utilities, child support, income tax returns, real estate tax, and other regular expenses.

Complete information is essential, so don’t hold back information because you think it may not be important. Let your attorney decide if the information is important. Only by reviewing all the information you provide will your attorney be able to fully understand your particular situation and your determination or ability to repay debts. Only then can they advise whether you should declare bankruptcy, and if so, which kind to file.

ADDITIONAL INFORMATION

Can You Ever Borrow Again?
Yes. Bankruptcy may be on your credit record for awhile, but that does not mean that it is negatively affecting your credit score during that time.  How you use credit following your bankruptcy will determine your credit score and whether you can obtain credit.

Co-Signers
Co-signers of any of your debts are treated differently in Chapter 7s and 13s. Generally, in a Chapter 7 liquidation bankruptcy, creditors can pursue co-signers of your loans if you default, but in a Chapter 13, your co-signers have more protection if you follow your plan.

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