In many ways the bankruptcy process involves issues of accounting and finance. One particular aspect of bankruptcy that requires accounting knowledge is an understanding what is and what is not an asset.
An asset is anything that is owned by a person and can be used to pay off debts or meet commitments. Assets by definition have value. However, in some regard what is an asset under accounting principles will not fully answer the question what is an asset in bankruptcy.
Why the Definition of Asset Matters
Determining what is an asset for bankruptcy matters for two reasons. First, assets, most often personal property, that were transferred within two years of filing bankruptcy must be reported to the court. An example would be transferring title of a car to a family member. If the court determines that a transfer was made with the intention of keeping the property out of bankruptcy proceedings, then the court can unwind the transfer and retrieve the property.
Second, if an asset is considered nonexempt under Iowa’s laws then in a Chapter 7 bankruptcy that asset can be taken by the court to pay creditors. Therefore, you will lose that piece of personal property or other asset in exchange for the discharge of your debts.
In a Chapter 13 bankruptcy assets are protected from liquidation, but the assets you hold at the time of filing will, in large part, determine your payment plan and amount of repayment to creditors.
Defining Exempt Assets in Iowa
Within Iowa’s laws on bankruptcy there are a number of assets that are considered “exempt” from bankruptcy. These assets can range from insurance, to personal property and wages. The significance of each is that the Iowa legislature or court has determined that these assets are essential or needed for day-to-day life.
Each state has a list of assets that are considered exempt, but each state includes in its list different types of property, values, or limitations. In some states it is possible to decide between a list of federal exemptions and the state list, but Iowa does not provide this option.
Within the applicable statute under Iowa law there are specific definitions and limitations of what is considered exempt. For example in Council Bluffs and throughout Iowa, farming equipment is generally exempt, but livestock and feed are only exempt to the value of $10,000 and cars, even if used for farming, are excluded.
Importance of Iowa Bankruptcy Exemptions When Filing for Bankruptcy
So, what does it mean for property to be exempt from bankruptcy? When filing bankruptcy under Chapter 7 of the federal bankruptcy law, exempt property is the assets you can keep. When filing bankruptcy under Chapter 13 of the federal bankruptcy law, exempt property determines how much you will need to pay to creditors during the filing for bankruptcy process.
Some of the most important exemptions in Iowa are certain public benefits, including Social Security, unemployment benefits, and workers’ compensation, alimony and child support, and life insurance proceeds. Specific personal property is exempt, including wedding and engagement rings, vehicles up to $7,000, and household furnishings or storage up to $7,000.
Finally and perhaps most importantly, in Council Bluffs the home is exempt. This includes a house, apartment, or condominium, up to a ½ acre within town limits and up to 40 acres beyond the town lines.
Timing Matters for Assets under Bankruptcy
The assets included in a bankruptcy proceeding are those held by the individual at the time of filing. The court will consider all assets, including those that are exempt. As a court in Iowa will need to determine if that asset meets the specific definition or if an exception applies. However, it is possible that other assets will be added to the bankruptcy proceedings.
As discussed, the bankruptcy court in Iowa will take a close look at transfers and gifts made within two years of filing for bankruptcy. This is because the court needs to verify that any non-exempt assets transferred in this timeframe were not gifted or given in order to keep them from creditors. Any transfers were made in avoidance of bankruptcy are fraudulent, and will be undone.
Find the Right Attorney When Filing or Bankruptcy
An experienced bankruptcy attorney can provide legal counsel and representation when filing for bankruptcy until discharge of your applicable debts. Charles L. Smith, and Nicole Hughes, bankruptcy attorneys at Telpner Peterson Law Firm, LLP in Council Bluffs, Iowa, have extensive experience handling bankruptcies from beginning to end and assisting with the process anywhere in between.