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Deciding whether to file for bankruptcy can be a difficult and complex decision. The attorneys at Orsborn, Milani, Mitchell, Goedken, Larson & Cox, LLP, can help you navigate this decision and also to assist you in filing for bankruptcy should you choose to do so. A vast majority of consumers that file will either file under chapter 7 or chapter 13 of the bankruptcy code. This article will provide an overview of both.


Chapter 7 bankruptcy is sometimes called “liquidation” bankruptcy, because the bankruptcy trustee will liquidate, or sell, all non-exempt assets and use the proceeds to pay creditors. Some common examples of exempt property in Iowa includes your house, vehicle, household furnishings and appliances, and more. Many individuals that file for chapter 7 bankruptcy have no non-exempt assets, meaning that they do not actually lose any property or money to creditors after filing. After going through the bankruptcy process, the debtor’s debts will be discharged and they are granted a financial fresh start.


To be eligible for chapter 7 bankruptcy, your income must not be high enough that you can pay your creditors bank. The “means test” is used to make this determination. As long as your income for your family size is below your state’s median income for your state, you will pass the means test, and are presumed to be eligible. Additionally, you must not have had a recent dismissal of a bankruptcy case, and have not filed for bankruptcy within the previous eight years. Lastly, you must not intentionally defraud your creditors prior to filing for bankruptcy by incurring debt that you knew you would not be able to pay back or by improperly transferring assets.


In addition to the fresh start, another benefit of chapter 7 bankruptcy is the automatic stay. The automatic stay prevents most creditors from collection efforts while the bankruptcy case is pending, including phone calls, garnishment of income or bank accounts, or execution on property that you own. Typically, bankruptcy cases take around four to six months to complete.


Chapter 13 bankruptcy is generally best for individuals with a high income, or who wish to protect assets that are not exempt in chapter 7. In this case, the debtor proposes a repayment plan that typically is in effect for five years. The bankruptcy trustee accepts the monthly payment, and then distributes the proceeds to creditors. If the debtor follows the payment plan for the required time, the balance on any remaining debt is discharged. To be eligible for chapter 13 bankruptcy, you generally must have a steady income and your debt cannot exceed $394,725 and $1,184,200 for unsecured and secured debt, respectively.


If you are even considering bankruptcy, contact the attorneys at Orsborn, Milani, Mitchell, Goedken, Larson & Cox, LLP for a consultation.