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Can I File Bankruptcy Even if I am Current with My Credit Card Debts?

On Behalf of | Apr 14, 2017 | Bankruptcy

Filing for bankruptcy in Council Bluffs, Iowa is not a process that should be taken lightly. There are some negative consequences to filing for bankruptcy, and for this reason, among others, only individuals who are in serious financial debt should consider bankruptcy. Oftentimes, this excludes people who have been able to stay current on their credit card payments.

Yet, overall individual debt and credit card debt are very different matters. Therefore, while the two concepts normally accompany one another, they are exclusive in some respects. A person can have no credit card debt at all and still be eligible for bankruptcy because of other debts.

Why the Question of Credit Card Debt Does Matter?

Bankruptcy in Iowa considers your debts in total, not in isolation. Therefore, medical bills, repaying cost of property damage or to a third party, secured parties, such as lenders, car payments, student loans, and all other financial obligations are debt under bankruptcy. So, why does this matter?

There are two types of bankruptcy for individuals in Iowa. The most commonly filed is Chapter 7 bankruptcy. The Chapter 7 bankruptcy process acts as a reset button. Through the court mandated bankruptcy process, an individual can alleviate substantial debt. However, in the process, an individual in Council Bluffs can also lose secured property and valuable or important assets.  Therefore, a lot of consideration should be given to whether or not you want to file Chapter 7 bankruptcy.

Requirements for Filing Chapter 7 Bankruptcy in Iowa

Under Iowa’s law there is no requirement of substantial or significant debt to file Chapter 7 bankruptcy. Instead, Iowa’s law provides for a means test to determine if an individual qualifies for Chapter 7 bankruptcy.

Under this test the individual’s income over a six-month period is compared to the median income for households in Iowa of the same size. If the individual falls below Iowa’s median income, this person is eligible for Chapter 7 bankruptcy.

What Procedures Are Necessary to File Bankruptcy?

In Council Bluffs, Iowa there are a few necessary steps that must be taken prior to filing bankruptcy. These requirements are true whether you are filing under Chapter 7 or Chapter 13 of the bankruptcy code. The first, is within six months of your bankruptcy filing you must participate in credit counseling from an agency approved by the U.S. Trustee in Iowa. Anyone who files with the Bankruptcy Court will have to provide evidence of this counseling.

If throughout the credit counseling process you feel it is still a good idea to file for bankruptcy, the next step is determining which chapter of the federal Bankruptcy Code you should file under. There are two bankruptcy processes that apply to individuals, Chapter 7 and Chapter 13.

Within 45 days after filing for bankruptcy with the appropriate district court in Iowa, an individual most collect certain documents and evidence. This includes proof of credit counseling, paystubs covering 60 days, a tax return for the most recent tax year, and a statement of monthly net income and anticipated increase in income or expenses after filing. Without this documentation, your bankruptcy case could be dismissed.

What Does Happen to Credit Card Debt in Bankruptcy?

This, again, depends on how you file for bankruptcy. Under Chapter 7, the trustee assigned to your bankruptcy case can sell most of your assets to pay back creditors. Sometimes these assets are valuable or personally important. The only assets the trustee cannot touch are those under Iowa’s exemption law. The sale of all non-exempt items will go towards the paying off the debt you owe creditors. The debt that is not covered by the sale of these assets is discharged through the bankruptcy court procedures, which a lawyer can help you navigate.

Questions on Credit Card Debt and Bankruptcy

If you still have questions regarding your credit card debt, or lack of credit card debt, and the possibility of filing bankruptcy, contact a lawyer in Council Bluffs. Charles L. Smith, and Nicole Hughes at the office of Telpner Peterson Law Firm, LLC are experienced bankruptcy attorneys ready to answer your questions. Our office in Council Bluffs can be reached by phone at 712-309-3738.