Bankruptcy gives people in debt a fresh start. Nancy L. Thompson Law Office, P.C. can represent individuals and small businesses throughout Iowa with the four bankruptcy options: Chapters 7, 11, 12 and 13. Which of these options is right for you depends on your goals, the type and amount of your property and debts and the amount of your income.
Chapter 7 Bankruptcy
Often referred to as a “straight” bankruptcy, Chapter 7 is the type of bankruptcy most people think of when they consider filing bankruptcy. It’s fairly quick and, if you’re unable to pay your creditors anything and have little property, often the best choice. 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 most lawsuits, repossessions, foreclosures, evictions, garnishments, utility shut-offs and other debt collection. Creditors can’t take any further action against you or your property without permission from the bankruptcy court. If your income is below median income for your household size or your expenses allow you to pass a “means test”, you’re likely going to be able to file a Chapter 7 bankruptcy.
In Iowa, even under Chapter 7 you can usually exempt or keep most or all of your property. Most retirement accounts, pensions and homesteads are exempt. Other secured property, such as your car, may not have any equity, in which case you can keep it also. The trustee appointed to administer your case may liquidate non-exempt property and use the proceeds to pay your creditors. But most of the time in Iowa, you can negotiate with the trustee to even keep non-exempt property by paying some portion of the non-exempt amount. 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. Creditors can’t call, write, sue or take any other 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. Some debts like child support, alimony and criminal restitution can’t be discharged. Some taxes and student loans also can’t be discharged but there are exceptions to that rule so if you have taxes or student loans that are causing problems be sure to contact us about your options.
Chapter 11 Bankruptcy
Most people think of Chapter 11 as the bankruptcy option for big corporations like General Motors or United Airlines. But individuals can file Chapter 11 also, and for some it may be their only or best choice. For example, some individuals may have debt that exceeds the amount of debt possible to qualify for a Chapter 13 bankruptcy. Chapter 11, while more complex and more expensive than other bankruptcy options, also includes some additional features that might benefit consumers, such as the ability to stretch arrearages on secured debt payments beyond what is possible in Chapter 13. Trustee fees might also be lower in a Chapter 11. If you need to restructure debt but don’t qualify for Chapter 13 be sure to contact us about how Chapter 11 might help.
Chapter 12 Bankruptcy
The “family farmer bankruptcy,” Chapter 12 is available for most farmers seeking to restructure their debts. Filing Chapter 12 might allow farmers to lower interest rates, stretch out loan terms or write off unsecured debt. In general, the plan of reorganization proposed in a Chapter 12 must provide all creditors 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 the 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 contact us as soon as debt problems arise.
Chapter 13 Bankruptcy
Available to any individual, including farmers (but not to corporations or LLCs), Chapter 13 allows debtors to repay their creditors a portion or all of the debt owed. Secured creditors are paid in full or the value of the collateral securing a loan. Unsecured creditors are often paid just a small portion of the debtors’ “disposable income” over a 3 to 5 year period (depending on whether a debtor is above or below median income). Disposable income is your net income after living and any business operating expenses are deducted.
Catching up past due mortgage payments, taxes and child support obligations are often the main reason people file Chapter 13 bankruptcy. It may also be possible to strip off mortgages on real estate if there’s no equity. These stripped off mortgages are then treated as an unsecured debt. Debtors with substantial disposable income may also need to file a Chapter 13 bankruptcy to receive a discharge of debts. For more information about Chapter 13 click here.