Debt Settlement instead of Iowa Bankruptcy
Many of my clients have tried debt relief plans before coming to me. The debt relief firm asks you to stop making monthly payments and put money into a fund from which they will settle your debt for less than what you owe. The problem is banks don?t normally go for big discounts unless you have cash up front to pay them. By the time they can accumulate a decent balance in their debt relief fund my clients often are being sued and garnished by banks angry about not getting monthly payments.
In my experience, debt settlement works when you have quite a bit of cash to settle. You try to get the creditors to take 50%. You would want to use a local firm or attorney. The distant online firms tend to become unresponsive when you are being sued. Often you can?t even get your money back from them. Even the bankruptcy trustees seem to have given up on getting this money back. If you do feel you can repay your debt and want to try that before deciding on bankruptcy I do recommend Consumer Credit of Des Moines. You may feel better about your decision to file bankruptcy if you meet with Consumer Credit first. Other clients know there is no hope of repayment and just prefer to get a fresh start and file.
Non-Filing Spouses & Co-Signers
Many of my clients file bankruptcy solo although they are married, that is fine. Your spouse?s credit is not affected. You would need to list all of your debt including all debt that is joint with your spouse. Your spouse would still be responsible for joint debt. If they do decide to file bankruptcy with you, the fee to Jeff is the same.
Filing Iowa Chapter 7 bankruptcy does not affect your co-signers obligation on the debt, meaning your co-signer is still responsible, even if you file bankruptcy, that is what co-signers are for. But if you are making the payments on the debt, nothing should change. The bank is not going to care much about your bankruptcy and will not hassle your co-signer if you continue making payments. They have plenty of accounts that are not paying to spend their time on.
Publication in the Newspaper
In theory your local newspaper publishes your bankruptcy so people who you owe money can run down to court and make a claim for a portion of your assets. In practice, people who carefully plan their bankruptcy do not normally lose any assets, so there is nothing to be liquidated. So your local newspaper may or may not bother publishing, you may want to watch it to see if they do. The Des Moines Register publishes although I?m not sure how consistent they are and it sometimes appears in the Business Record. So there is no way to keep your name from being published in the paper, but if your local paper does not bother with it, you may not appear anyway. But more people file bankruptcy than divorce, so don?t feel like the Lone Ranger.
30 Days until Hearing, Discharge 9 Weeks Later
Most of the work in your bankruptcy happens before it is filed. Making sure you have your pay stubs, taxes (state & federal), W2?s, all your bills (including those you are keeping), credit counseling certificate, fees etc. takes some prep time before our office meeting. Then you have one office meeting with Jeff at 4800 Mills Civic Parkway, Ste. 218, West Des Moines, Iowa 50265. During the office appointment you will go over all your income, assets, debt etc. and prepare your petition for filing the same week. No packet to fill out! Then there is one hearing at the Federal Building at 210 Walnut in Des Moines about 30 days after filing and discharge about 9 weeks after your hearing. So the entire process takes about 3 ? months total. But once we file your case (normally the Thursday following your appointment with Jeff) creditors are required to stop calling you and stop any garnishments or lawsuits.
Keeping Home & Car(s) when Filing Iowa Bankruptcy
When you file bankruptcy here in Iowa you can keep your home and car and make the payments or surrender them and discharge the debt, even if you owe more than they sell for. If you are behind on your home now you could try to work out a modification with the bank before filing bankruptcy. Many people are defaulting even after modification now so your bank may or may not be willing to do that. Some banks will act like they are cooperating but sabotage your application by claiming they have not received faxes or other information from you.
If your home has little or no equity you may find it easier to simply surrender it in your bankruptcy. It takes about two years to get a decent mortgage rate again after filing. During that time you can save your money and if you want to buy again you can start fresh in another home. Filing a Chapter 13 to try and ?save a home? with no equity makes no sense.
If you owe more than your car is worth you may want to redeem. U.S. Bank funds redemptions through 722Redemption.com. Section 722 of the bankruptcy law allows you to get a new loan for the current value of your car, pay off the original lender and then make payments, in this case to U.S. Bank.
Getting the Creditor Calls & Garnishments Stopped
Since Jeff does not use packets and files every week, as long as you have all your documents together, your creditors will get quick notice. Many get electronic notice the same day you file. It is best to just let your voice mail pick up until the calls stop. You could answer and tell them you are filing bankruptcy, but they tend to continue with the 20 questions about when, will you make a payment first etc. so it is easier to let the machine pick up.
If you are being garnished, the sooner we file your case the quicker we can stop that. It can take 1-2 pay periods since the Sheriff has to get notice from us, notify your payroll person to stop and payroll people don?t like changing anything they have already done. Be sure to bring a copy of the garnishment order if you have it when we meet in the office. Ideally of course you file bankruptcy before garnishment even starts.
Discharging Student Loans in Bankruptcy
Prior to 1998, student loans could be discharged after 7 years in repayment status. Prior to 2005, private student loans were discharged. Under current law, student loans are very rarely discharged and only after a showing of ?undue hardship?.
Unfortunately, the undue hardship rule is very rigidly enforced, especially here in the Eighth Circuit which includes Iowa. If debtors have the ability to pay something under the income contingent plan the court is not going to discharge the loans. It also requires an adversary proceeding to seek discharge. This is a lawsuit initiated by the debtor against the lender(s) and is time consuming and expensive.
The U.S. Department of Education also has an administrative discharge procedure for people who are disabled or otherwise have no hope of repayment. This administrative discharge procedure is way cheaper and more likely to succeed than a discharge in bankruptcy.
Realistically, the best you can do is discharge your other debt so that you can make at least some payments on your student loans. Most student loan lenders also give you a six month grace period after filing your bankruptcy after which you can get a plan set up for repayment.
Bankruptcy & Job Security
Some clients are worried about being fired for filing bankruptcy. The bankruptcy code prohibits discrimination for filing bankruptcy. But it is sort of like the Civil Right Act. Only a completely idiotic employer would say ?I am firing you for being black?. So no employer is likely to admit to firing anyone for a bankruptcy. That said, I have never had a client report being fired either for filing bankruptcy or being fired on a pre-textual basis where they think it was truthfully due to the bankruptcy. Many of the banks my clients work for are so big, the left hand does not know what the right hand is doing anyway. Someone with Wells Fargo Home Mortgage is so far from the Wells Fargo bankruptcy unit that word does not seem to get back to anyone the client actually works with. And if employers did fire people for filing bankruptcy they would be in big trouble since more people file bankruptcy than file for divorce.
Keeping a Credit Card
People often will pay down one credit card to zero, leave it off their petition and try to keep using it after they file the bankruptcy. Worse, they may keep making payments on one card hoping to keep it. The problem with this approach is big lenders don?t rely on notice from each bankruptcy filing. Instead, they pay contractors who collect information on all Chapter 7 filings nationwide every day, compile it in a form easily digested by the creditor?s database. Each day the new list is transmitted to the creditor and all their affected files are marked ?bankruptcy? and pushed off to the bankruptcy unit so they can reduce/eliminate violations of the automatic stay.
So these lenders are going to flag all your accounts ?bankruptcy? and automatically close credit card accounts. In truth, this is better anyway. Your life will be much less stressful if you transition to debit cards going forward. Don?t authorize the bank to cover overdrafts on your debit card so they can?t hit you with a $35 fee for each one. Just have a second account and card handy in case one is declined. Life without monthly credit card bills is wonderful!
Credit After Bankruptcy.
Discharging Taxes in Bankruptcy
Below is a quick way to determine if your taxes can be discharged. Depending on how old they are you may want to order a tax transcript from the IRS before you file, to make sure on dates.
If all four answers are YES the taxes should be dischargeable.
1. Are they income taxes?
2. Was the tax return due more than three years ago? (returns are due on April 15th of the following tax year)
3. Was the return filed more than two years ago?
4. Was the tax assessed by the IRS more than 240 days ago?
(see your tax transcript)
Note- Property taxes assessed before bankruptcy, sales taxes and withholding taxes are never dischargeable.
8 Year Rule for Re-Filing
If you have a prior Chapter 7, the waiting period for re-filing Chapter 7 is 8 years. This runs from the date your prior case was filed, not the date it was discharged. While you are waiting for your 8 years to expire, garnishments are limited to 25% of your income.
8 Years between Chapter 7's
2 Years between 13's
4 Years between a Chapter 7 and 13
6 Years between a Chapter 13 and 7
Iowa Code Section 537.5105 generally limits the Iowa wage garnishment to 25% of disposable earnings per payday. Code section 642.21 addresses how much of your wages can be garnished annually based on your income level.
Student Loan Garnishment
There is some small comfort in the federal regulations which restrict the amount of a student/borrower's wages that can be garnished to repay a student loan to 10% of the borrower's take home pay. 59 Fed. Reg ? 22473. Of course, the lender also has the right to intercept tax refunds and apply them to the loan.