Chapter 7 Vs. Chapter 13 in Iowa
Filing for bankruptcy is often a last-resort option for people who have no other way of dealing with their debt. The two most common types of personal bankruptcy are Chapter 7 and Chapter 13. The federal bankruptcy code establishes the process for filing these two types of bankruptcy petitions. In addition, each state may enact local rules for filing. If you're considering filing bankruptcy in Iowa, it's important to understand the difference between Chapter 7 and Chapter 13.
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Function
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Chapter 7 and Chapter 13 each serve a very different purpose. In a Chapter 7 bankruptcy, your debts are eliminated and any nonexempt assets you may have are seized, liquidated and distributed to your creditors. In a Chapter 13 bankruptcy, your debts are reorganized and you agree to repay a portion of what is owed over a three-to-five-year period. A Chapter 13 bankruptcy allows you to retain your assets and repay debt out of future income.
Eligibility
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Different criteria are used to establish eligibility to file Chapter 7 and Chapter 13 in Iowa. To file Chapter 13, you must have a regular source of income that is greater than your monthly expenses. As of 2010, the federal bankruptcy code limits Chapter 13 filers to no more than $360,475 in unsecured debt and $1,081,400 in secured debt. There is no limit on the amount of debt you can claim in a Chapter 7 bankruptcy, but there is a limit on how much income you may have.
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Means Testing
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The means test is a measure of your median income against the median income for your family size. The means test serves two functions. If you plan to file Chapter 7, the means test determines your eligibility to do so. If you're filing Chapter 13, the means test determines the length of your repayment plan. As of 2010, a single filer in Iowa is allowed a median income of $39,918, according to the U.S. Trustee Program.
For Chapter 7 filers, your median income must be at or below the corresponding median to qualify. If you file Chapter 13 and your income is less than the median, your repayment plan will last three years. If it's higher, your repayment plan will last five years.
Exemptions
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In a Chapter 7 bankruptcy, you are allowed to claim certain assets as exempt from seizure. Exemptions typically do not apply to Chapter 13 cases, since your income is used to repay debt. As of 2010, there is no limit on homestead exemptions, according to the Iowa Bankruptcy Guide. You are also allowed to exempt up to $2,000 in clothing and/or wedding rings; up to $4,000 in household furnishings; one vehicle up to $5,000; up to $1,000 in cash; and any funds held in retirement, health savings or education savings accounts.
Filing Fees
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The filing fees vary for Chapter 7 and Chapter 13 cases. As of 2010, the filing fee for a Chapter 7 case is $299. The filing fee for a Chapter 13 case is $274. In Iowa, you may petition the court to waive the fees or to allow you to pay them in installments.
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References
- United States Bankruptcy Court Northern District of Iowa: Chapter 7 Pro Se Filer
- United States Bankruptcy Court Northern District of Iowa: Chapter 13 Pro Se Filer
- Iowa Bankruptcy Guide: Iowa Bankruptcy Law
- U.S. Trustee Program: Median Income Table
- Iowa Bankruptcy Guide: The Iowa Bankruptcy Estate and Exemptions
- Lawyers: Bankruptcy in Iowa
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