Iowa Chapter 7 Bankruptcy


UNDERSTANDING CHAPTER 7 BANKRUPTCY

Chapter 7 Bankruptcy offers the debtor a clean slate and is sometimes called liquidation bankruptcy or straight bankruptcy. The term "liquidation" in reference to Chapter 7 Bankruptcy, denotes the fact that the Trustee in the bankruptcy proceeding is free to liquidate unprotected or non-exempt assets in order to repay creditors. Chapter 7 Bankruptcy allows most debts to be wiped out with the individual retaining most of their possessions except for those that are non-exempt. Although Chapter 7 Bankruptcy can be referred to as "liquidation bankruptcy" this is actually a rare occurrence. The majority of the property is protected under State Law by exemption. When it is protected, a creditor is not at liberty to seize the property and the debtor retains all rights of ownership. The main goal of filing Chapter 7 is to eradicate debtor obligations and discharge existing debt. One of the benefits inherent in this type of bankruptcy is that the debtor does not need to make payments to their creditors from their future income. Some debts are not eligible for discharge in a bankruptcy proceeding, however in exchange for giving up some of your property, there are debts that can be erased permanently.

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WHAT HAPPENS AFTER CHAPTER 7 IS FILED?

After your Chapter 7 bankruptcy has been filed you will be immediately protected against attempts by your creditors to collect the debts. Approximately one month after your case has been filed, you will have to attend a proceeding which is called “The Meeting of Creditors”. This is generally a routine matter and your attorney will be there with you. The Meeting of Creditors will be conducted by an official appointed by the court called a trustee. The Trustee will ask you a series of questions. These questions usually only take a few minutes. After you have attended this proceeding, your case will usually conclude approximately two more months after that.

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CAN BANKRUPTCY AID DRIVER'S LICENSE REINSTATEMENT?

A driver's license may be suspended if an accident or fines are not paid for. Damages from intentional acts and accidents caused by drunk driving are usually not dischargeable in Chapter 7 bankruptcy, but other damages usually are. Non-dischargeable damages and fines may be paid over time in a Chapter 13. By filing the appropriate proceeding, a suspended license may be reinstated upon the filing of a bankruptcy. Typically, it takes some time and effort to work with the licensing people to see that this occurs.

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CAN TAXES BE DISCHARGED IN BANKRUPTCY?

Yes, certain taxes can be discharged in bankruptcy. Some taxes are dischargeable in bankruptcy in spite of what many accounting and legal practitioners believe and inform their clients. You cannot discharge taxes that are less than three years old in a Chapter 7 bankruptcy proceeding. You can only discharge these taxes in a Chapter 13 if paying them in full through the plan. You cannot discharge taxes which have been assessed within the last two hundred forty days. This same rule applies to both Chapter 7 and Chapter 13. You cannot discharge taxes if the IRS has filed a lien on property you own and there is equity in that property. Under these circumstances, they become a secured creditor and are entitled to retain their liens until paid in full. In a Chapter 7 bankruptcy, you cannot discharge taxes for unfiled tax returns, tax returns filed late within the last two years, or for which there was any intent to evade or defeat the tax. In a Chapter 13 proceeding, these last three rules are inapplicable. You can never discharge taxes that relate to any employer's fiduciary responsibility. For example, if you owned a business and withheld FICA, federal income tax, or state income tax from your employees and failed to pay that over to the government, such will always be what is called a priority tax and will be non-dischargeable in bankruptcy. You can discharge taxes that are more than three years old, that have been assessed more than two hundred forty days ago, and for which there are no liens filed by the IRS or the Iowa Department of Revenue.

If there is a lien filed on property for which there is no equity, the taxes still may be discharged in bankruptcy. Discharge of taxes is a very complicated area of bankruptcy law. If you have tax obligations, it is critical that you consult with a bankruptcy attorney to determine whether or not the Bankruptcy Code will provide relief from tax obligations.

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WHAT IS A REAFFIRMATION AGREEMENT?

A reaffirmation agreement is essentially a contract which is signed in the course of the bankruptcy proceedings where a person agrees to pay a debt which has been listed in the bankruptcy. These can be signed for any debt, however, they are typically signed for secured debts. The most common situation where a person signs a reaffirmation agreement would be in the case of a home loan, motor vehicle loan or a loan for furniture. By signing a reaffirmation agreement, a person will continue to be legally responsible for the debt after the bankruptcy.

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