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Posted by: Joshua McCloud
Known most across the nation for the Iowa caucuses that launch the presidential nominating process every four years, the world-renowned Iowa State Fair, and being the future birthplace of Captain James T. Kirk, Iowa’s robust economy often comes as a surprise to people.
Unsurprisingly, Iowa is number one in the nation in producing eggs, corn, and pork. But its largest industry is actually finance, insurance, real estate, rental, and leasing. In fact, according to the Iowa Economic Development Authority, more than 6,400 finance and insurance companies call Iowa home. Other major Iowa industries include advanced manufacturing and bioscience.
But Iowa’s robust economy hasn’t led to financial success for everyone who lives there. Each year, thousands of Iowans find themselves turning to bankruptcy to help them manage insurmountable debt. Among those who do so, the most popular form of bankruptcy is under Chapter 7 of the U.S. Bankruptcy Code.
This post provides a basic overview of Chapter 7 bankruptcy in Iowa, including what exemptions are available for Iowans who seek bankruptcy relief. However, it cannot provide a detailed analysis of how the bankruptcy rules would apply to your situation. If you are considering bankruptcy in Iowa, you should consult an experienced Iowa bankruptcy attorney before filing.
What is Chapter 7 bankruptcy?
The Bankruptcy Code defines several different types of bankruptcy, dividing them into different “chapters” of the Code. Bankruptcy under Chapter 7 is known as a liquidation bankruptcy. In a liquidation bankruptcy, a case trustee gathers all of a debtor’s property that isn’t protected by a bankruptcy exemption.
After gathering a debtor’s non-exempt assets, the trustee will sell (that is, “liquidate”) them, applying the proceeds from those sales to pay off as much of the debtor’s unsecured debts as possible. At the end of the case, the bankruptcy court discharges the debtor from further liability on most such debts.
Bankruptcy exemptions are determined under state law, although some states allow their residents to use the exemptions listed in the Bankruptcy Code instead. However, Iowa is an “opt out” state, meaning residents can only use the exemptions defined in Iowa state law. The most important bankruptcy exemptions in Iowa are summarized below.
Who can file for Chapter 7 bankruptcy in Iowa?
A debtor can only file for Chapter 7 bankruptcy in Iowa if venue is proper there. Venue is proper in Iowa only if the debtor has lived there for most of the six months prior to filing. Otherwise, he or she will have to wait to file or file in the state where he or she lived for most of that six-month period.
However, which state’s exemptions will apply in a case is determined under a separate test. That is, filing for bankruptcy in Iowa doesn’t necessarily mean Iowa’s exemptions will be used. Instead, the bankruptcy court will use the exemptions defined by the state where:
- The debtor has lived for the entire two-year period prior to filing; or
- The debtor lived for most of the six months just before that two-year period, if the debtor lived in multiple states during the last two years.
Example: Joseph files for Chapter 7 bankruptcy in Iowa on August 1, 2017. He has lived in Iowa since January 1, 2017, after having lived in Hawaii his whole life. Because he has lived in Iowa for the entire six-month period prior to filing, venue is proper there. However, because he has not lived in Iowa for two years, the court will use Hawaii’s bankruptcy exemptions in his case.
What are Iowa’s bankruptcy exemptions?
As mentioned earlier, Iowa has opted out of the federal bankruptcy exemptions defined in the U.S. Bankruptcy Code. Consequently, when Iowa’s law applies in a bankruptcy case, debtors can only use Iowa’s state-law exemptions. They cannot choose to apply the federal exemptions.
Some of the most common bankruptcy exemptions in Iowa are summarized below. Importantly, many of Iowa’s exemptions include a limit on value. Those limits actually refer to a debtor’s equity in exempt property, not the property’s market value. Equity means the difference between property’s market value and any debts secured by the property.
Example: Margot owns a car worth $10,000, but she owes $4,000 on it. Because her equity in the car is $6,000, she can exempt it from liquidation in a Chapter 7 bankruptcy in Iowa.
When a debtor’s equity in property is greater than the exemption limit for that property, the case trustee can sell it. However, the debtor will be entitled to a portion of the proceeds from that sale equal to the exemption limit.
Example: Consider Margot again, but this time, she owns her car outright. Because her equity in the car ($10,000 – $0 = $10,000) is greater than the exemption limit of $7,000, her car can be sold to pay off her unsecured debts. However, she will be entitled to receive $7,000 from that sale.
Married couples who jointly file for bankruptcy can usually double their exemptions. That is, each spouse can claim the full amount of exemptions allowed under Iowa law. This ability is subject to some limitations, however, as noted below.
Iowa Bankruptcy ExemptionsThe top 5 exemptions under Iowa state law.
|Type of exemption||Iowa law|
|Homestead||Exempt regardless of value, but only up to a half acre in the city or 40 acres otherwise|
|Personal property||$7,000 in clothing, furniture, and household goods; $2,000 in jewelry (plus wedding and engagement rings); $1,000 in books and paintings, $1,000 in cash and bank deposits|
|Vehicle||$7,000 for one vehicle|
|Wages||Accrued up to $1,000, plus 75% of disposable earnings and state/federal income tax refunds|
|Pension/retirement||Contributions made within one year of filing for bankruptcy are not exempt if they exceed the normal/customary amount|
Iowa law exempts a debtor’s homestead, regardless of value. A homestead is the debtor’s house or cooperative apartment used as a home. However, this exemption is only available for a home of up to a half acre if located in a city, and up to 40 acres otherwise.
A married couple filing jointly can only claim the homestead exemption for one home.
Under Iowa Code § 627.6(9), a debtor can exempt one motor vehicle up to a value of $7,000.
Other Personal Property
Iowa provides an exemption for various items of personal property. Included among the personal property exempted from liquidation are:
- Wedding or engagement rings. If the ring was acquired after marriage, and within two years of filing for bankruptcy, its value cannot exceed $7,000 minus the amount claimed for other jewelry.
- Other jewelry, to a value of $2,000.
- One shotgun, plus one rifle or musket.
- Private libraries, family Bibles, portraits, pictures, and paintings, up to a combined value of $1,000.
- Clothing, musical instruments, household furnishings, and household goods (including entertainment devices), up to an aggregate value of $7,000.
- The implements, professional books, or tools of the trade used in an occupation other than farming, to a total value of $10,000.
- For farmers, the implements and equipment, livestock, and livestock feed reasonably related to a normal farming operation, to a total value of $10,000.
- Any other personal property, including cash on hand and bank deposits, to a limit of $1,000.
A debtor’s accrued wages are exempt up to $1,000. This exemption can also be used to exempt state or federal tax refunds as of the date when the debtor files for bankruptcy. A separate exemption can be used for at least 75% of a debtor’s disposable earnings.
Pensions and retirement accounts are exempt under Iowa law. However, contributions made within one year of filing for bankruptcy are not exempt if they exceed the normal and customary amount of contributions.
Federal law also protects retirement accounts, even in states that opt out of the federal bankruptcy exemptions. However, under federal law, IRAs and Roth IRAs are exempt only to a value of $1,283,025.
Iowa Bankruptcy Court Locations
Chapter 7 bankruptcy cases in southern counties in Iowa are filed with the U.S. Bankruptcy Court for the Southern District of Iowa. It has three locations:
Des Moines: 110 E. Court Ave., Ste. 300, Des Moines, IA 50309, (515) 284-6230
Davenport: 131 E. Fourth St., Davenport, IA 52801, (563) 884-7607
Council Bluffs: 8 S. Sixth St., Council Bluffs, IA 51501, (712) 328-0283
Chapter 7 bankruptcy cases in Iowa’s northern half are filed with the U.S. Bankruptcy Court for the Northern District of Iowa. Although it holds hearings in multiple locations, it has only two where bankruptcy cases can be filed:
Cedar Rapids: 111 Seventh Ave. SE, #15, Cedar Rapids, IA 52401, (319) 286-2200
Sioux City: 320 Sixth St., Rm. 126, Sioux City, IA 51101, (712) 233-3939