Bankruptcy
The purpose of bankruptcy is to give debtors a fresh start. The U.S. Bankruptcy Code is divided into chapters.Thompson Law Office is able to assist debtors in Iowa bankruptcy law in the three primary bankruptcy options available to consumers and farmers: Chapters 7, 12, and 13. Which option is right for you depends on your goals and needs, the type and amount of your assets and liabilities, and your available income. In brief, you might expect each of these bankruptcy options to achieve the following (these descriptions are designed for educational purposes only and are not intended to provide individual legal advice):Chapter 7: Often referred to as a "straight" bankruptcy, Chapter 7 involves a discharge of debts and a "fresh start." A Chapter 7 bankruptcy is fairly quick and, if you're unable to pay your creditors anything, often the most effective. In most cases, once you file your case, an "automatic stay" immediately goes into effect. The automatic stay means that a bankruptcy filing automatically stops, or "stays" most lawsuits, repossessions, foreclosures, evictions, garnishments, utility shut-offs, and debt collection harassment. Generally, creditors cannot take any further action against you or your property without permission from the Bankruptcy Court. You can usually qualify for a Chapter 7 if your gross income for the last six months is below your state's median income or you can show "special circumstances" that would allow you to qualify for Chapter 7.
Even under Chapter 7 you can usually exempt, or keep, most or all of your assets. Most retirement accounts and pensions are exempt. Normally your homestead is exempt. Other secured property, such as your car, may not have any net equity, in which case you can keep it as well. The Trustee appointed to administer your case may liquidate non-exempt proeprty and use the proceeds to pay your creditors according to priorities of the Bankruptcy Code. However, most of the time, you can negotiate with the trustee to even keep non-exempt property by paying its value to the trustee. Once your Chapter 7 case is over you receive a Discharge. The discharge prevents your creditors from taking any steps to try to collect their unsecured debt. They cannot call you, write you, sue you, or take any steps that could be considered an attempt to collect the debt. If you want to keep property that has a lien on it you must keep your payments current, and you may be asked to reaffirm your debt. Some debts cannot be discharged. Typical examples are child support and alimony, some taxes, student loans, criminal restitution, and debts for death or personal injury caused by operating a vehicle while intoxicated.
Chapter 12: The "family farmer bankruptcy," Chapter 12 is available for most farmers seeking to reorganize their debts. Chapter 12 allows farmers to restructure their loans, perhaps by lowering interest rates, stretching out the term of the loans, or writing off unsecured debt. In general, the plan of reorganization proposed in a Chapter 12 must provide all creditors with the same amount of money they would receive in a Chapter 7 bankruptcy. Secured creditors are paid over a period of years, perhaps less than the current debt and over a longer period of time and at a lower interest rate, depending on current loan terms. If a creditor is fully secured, no write-down of debt is usually possible but it might be possible to restructure the loan with a longer amortization or a lower interest rate. Unsecured creditors might receive payments if the farmer has "disposable income" (gross income minus all living and operating expenses) during the 3-5 years following the filing of the bankruptcy. The timing of a Chapter 12 bankruptcy may be critical to making reorganization successful so it's important to seek legal advice as soon as debt problems arise. Chapter 12 is available to family farmers with less than $3,237,000 in debt. A family farmer is defined as a debtor who has received either 50% of his or her income from farming in the prior year or 50% of his or her income from farming in the second and third years before the filing.
Chapter 13: Available to any individual debtor, including farmers, Chapter 13 allows debtors to repay their creditors under the supervision of a bankruptcy trustee. Debtors typically submit a plan of repayment that will pay their secured creditors in full or pay the value of the collateral securing the loan. Unsecured creditors are often paid a portion of the debtors' "disposable income" over a 3-5 year period. Disposable income is generally considered net income after living and any business operating expenses are deducted. Catching up past due mortgage payments, taxes and domestic support obligations like alimony or child support are often the main uses of a Chapter 13. Debtors with substantial disposable income may also need to file a Chapter 13 bankruptcy to obtain a discharge of debts because they are not eligible to file under Chapter 7. You must have less than $307,675 in unsecured debt (such as credit cards and medical bills) and less than $922,975 in secured debts (such as mortgages and car loans) to qualify for Chapter 13.
On our web site, we will provide you with some additional information about bankruptcy to familiarize you with the process. Please click on these topics to learn more.
Learn more about the bankruptcy process.
Find answers to some of the most common questions.
How do you know if you should consider bankruptcy?
