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Is Chapter 7 Bankruptcy The Right Debt Relief Choice For You?

Last updated on June 17, 2024

Chapter 7 bankruptcy, often called “liquidation bankruptcy” or “discharge bankruptcy,” offers relief for many debtors facing large credit card or medical bills. This form of bankruptcy allows qualifying debtors to get a fresh start and discharge many debts. A mandatory means test can help determine whether Chapter 7 bankruptcy is an option for you.

In most situations, you can still keep your house and motor vehicles if you are a private individual filing for bankruptcy. We also help businesses that need to completely liquidate their assets through Chapter 7 bankruptcy, when appropriate. Whether you file as an individual or as a representative of your company, our attorneys at Telpner Peterson Law Firm, LLP, are prepared to explain the applicable exemption laws and help you retain as many assets as possible.

Assets And Income When Considering Chapter 7

Chapter 7 bankruptcy is a type of bankruptcy that allows you to discharge most of your debts. In Iowa, some assets are exempt from Chapter 7 bankruptcy, such as your home, car and personal belongings. Income that is considered “countable” for Chapter 7 bankruptcy in Iowa includes your wages, self-employment income and rental income.

What To Know About Unsecured Debt And Chapter 7 Bankruptcy In Iowa

There are many factors to consider when filing for bankruptcy. There is no minimum or maximum for unsecured debt in order to file Chapter 7 bankruptcy. The amount of debt will not affect eligibility when filing this type of bankruptcy. Due to this, Chapter 7 allows you to clear away the largest amount of unsecured debt.

When filing Chapter 7, your creditors may get paid. If you have nonexempt property, the proceeds of the property will go toward paying your creditors. In most cases, there is no nonexempt property. It is highly likely that you will be allowed to keep your house when filing Chapter 7, but it depends if you can claim it as exempt. An unsecured debt attorney from our firm in Iowa can more properly examine your situation.

Types of unsecured debts eligible for discharge in Chapter 7 bankruptcy include, but are not limited to:

  1. Credit card debts: This includes debts from department store cards and other general credit cards, which are among the most common forms of unsecured debt.
  2. Medical bills: Often substantial in amount, medical bills can be fully discharged in Chapter 7 bankruptcy, offering a fresh start to individuals burdened by health care expenses.
  3. Utility bills: Outstanding balances on telephone, electric and other utility services can be discharged. However, any required deposits to initiate services may not be covered.
  4. Personal loans: Debts from personal loans that did not require collateral can be discharged.
  5. Court judgments: Unenforced court judgments, which are not yet secured through garnishment or attachment, are dischargeable.
  6. Income taxes: Certain income taxes may be discharged.
  7. Back rent: Rent that is overdue can be discharged, except in states where landlords may impose liens for unpaid rent.
  8. Repossession deficiencies: If a repossessed item does not cover the full amount of the debt through sale, the remaining deficiency is considered unsecured.
  9. Payday loans: These high-interest, short-term loans can also be discharged, providing relief from their typically onerous repayment terms.

It’s important to note that not all unsecured debts can be easily discharged in bankruptcy. For example, student loans require a demonstration of undue hardship to be considered for discharge, which is a high bar to meet. Credit card debt has seen an uptick in delinquency rates recently, signaling potential financial distress for many individuals.

As these debts accrue high interest, the burden can quickly become overwhelming. Debt relief, particularly through Chapter 7 bankruptcy, can serve as a viable solution to this problem. By discharging credit card debts, Chapter 7 offers a fresh start, allowing debtors to reset their financial standing without the ongoing strain of accumulated interest and penalties. At Telpner Peterson Law Firm, LLP, our attorneys are ready to assist in navigating these challenges and achieving much-needed financial relief.

Pros And Cons Of Filing For Chapter 7 Bankruptcy

Filing for bankruptcy can be an invaluable resource for many people struggling with debt. Chapter 7 bankruptcy is a relatively efficient, straightforward process that can discharge certain debts within six months. It allows people to clear away unsecured debts, like medical and credit card debts. Another benefit of Chapter 7 is that repayment is not part of the process. After filing, you are free of your debt and able to use your income to rebuild your finances and pay for your necessities. Attorney fees for Chapter 7 are also typically lower than for Chapter 13 bankruptcy.

However, this method of bankruptcy is not suited for everyone. Filing Chapter 7 bankruptcy will require you to sell any nonexempt property you own and other luxury possessions. Chapter 7 bankruptcy does not wipe out all of your debt, either. It will not discharge all tax debt or student loans (without the filing of a separate adversary proceeding), and you may still have to pay other debts like mortgage liens and auto loans.

These are just a few of the potential advantages and disadvantages of filing Chapter 7 bankruptcy. An unsecured debt attorney can give you a better idea about your situation and advise you on the most favorable course of action for tackling your debt.

Discharging Tax Debts With Chapter 7 Bankruptcy

In Chapter 7 bankruptcy, certain tax debts may be discharged, offering a respite for both individuals and small businesses overwhelmed by financial obligations. Specifically, Chapter 7 allows for the discharge of federal income tax debts under strict conditions: The taxes must be income-related, associated with a legitimately filed return from at least two years prior to the bankruptcy filing, pertain to a tax period of at least three years old and have been assessed by the IRS at least 240 days before filing. Importantly, this discharge does not apply to payroll taxes, penalties related to fraud or taxes from unfiled returns.

While Chapter 7 can provide significant relief by discharging eligible tax debts, it’s crucial to note that federal tax liens on property will survive the bankruptcy. For those facing complicated tax issues, consulting with an experienced bankruptcy attorney, like those at Telpner Peterson Law Firm, LLP, can clarify options and navigate the nuances of tax and bankruptcy laws to achieve the outcome that works for you.

We Handle Complex Liquidation Bankruptcy Filings

The attorneys at our Council Bluffs law firm often handle complex and challenging bankruptcy cases, including adversary proceedings. Because of the extraordinary debts that many Iowa farmers, students and other individuals face, even high-income people sometimes qualify for Chapter 7 bankruptcy.

An experienced lawyer is a vitally important ally for debtors facing difficult issues, problems and questions demanding detailed answers. The principal bankruptcy attorneys at Telpner Peterson Law Firm, LLP, are Charles L. Smith and Nicole Hughes. Mr. Smith has served as the chair of The Iowa State Bar Association’s Commercial and Bankruptcy Law Section. Nicole Hughes has served as the state chair of the National Association of Consumer Bankruptcy Attorneys.

Our bankruptcy attorneys are skilled at covering a wide spectrum of debt relief options for consumers and businesses, from individual financial counseling and negotiating settlements with creditors to very complex commercial bankruptcies.

Call Or Email Our Law Firm To Request A Free Case Review

We strive to bring you friendly, professional and compassionate legal representation. We welcome email inquiries and phone requests for no-obligation consultations in our Council Bluffs office. Call 712-309-3738 or complete this online form to begin the process of getting the debt relief you need.

We are a debt relief agency. We help people file for bankruptcy relief under the Bankruptcy Code.