If you’re considering Chapter 7 bankruptcy in Iowa, the means test determines if your income is low enough to qualify for this type of debt relief. The test helps prevent those with higher incomes from filing for Chapter 7, which typically involves liquidating nonexempt assets to pay off creditors.
In Iowa, you may bypass the means test if your debts are not primarily consumer-related or if you’re a disabled veteran who incurred debts during active duty. Essentially, the means test helps ensure that Chapter 7 bankruptcy is accessible to those who truly need it.
Eligibility rules for Chapter 7
Before filing for Chapter 7 – also called liquidation bankruptcy – you must meet several requirements, including:
- Credit counseling: Complete a credit counseling course from an approved agency within 180 days before filing.
- Income limits: Your monthly income over the past six months must be below your state’s median for a similar-sized household, or you must pass the means test.
- No recent bankruptcies: You are not eligible if you’ve filed for Chapter 7 in the last eight years or Chapter 13 in the past six years.
- No fraud: A bankruptcy judge can dismiss your case if they believe you’re attempting to defraud creditors.
Meeting these criteria is essential for your Chapter 7 filing to proceed. If you don’t qualify, Chapter 13 might be an alternative.
Debts that can be dismissed
In a Chapter 7 bankruptcy, not all debts can be discharged, but many unsecured debts can be. Those typically included are:
- Credit card debt
- Unsecured personal loans
- Medical bills
- Payday loans
However, some debts generally cannot be discharged, including:
- Child support and alimony
- Certain tax debts
- Student loans (with rare exceptions)
- Court fees and fines
- Debts from personal injury caused by intoxicated driving
Understanding which debts can and cannot be discharged is crucial in deciding whether Chapter 7 bankruptcy is right for you.
Property exempt from Chapter 7
The means test applies to individuals with primarily consumer debts. Its purpose is to assess whether you have enough disposable income to repay a portion of your debts. If not, you might qualify for Chapter 7. Under the process, certain Items may be exempt from liquidation, including:
- Personal property: Up to $7,000 in clothing, furniture and household goods
- Jewelry: Up to $2,000, excluding wedding and engagement rings
- Motor vehicle: Up to $7,000 in equity or $14,000 for a married couple filing jointly
- Tools of the trade: Up to $10,000 for farming equipment and tools
- Retirement accounts: Tax-exempt accounts like 401(k)s
- Public assistance: Social Security and other benefits
The bankruptcy process can be complex. Consulting a skilled bankruptcy attorney can provide valuable guidance, help you understand your exemptions and ensure your path to financial independence.