Chapter 7 (Liquidation)

A chapter 7 bankruptcy, sometimes called a straight bankruptcy or liquidation, is the most common type of bankruptcy filing. Chapter 7 bankruptcy allows individuals to discharge or eliminate most types of debt, without making payments to creditors or the bankruptcy trustee, while retaining certain property which is exempt or protected by law. In general, Iowa law allows each individual to claim as exempt the individual’s homestead, retirement accounts, life insurance, one vehicle (up to $7,000 in equity), household goods, wedding/engagement ring, accrued wages and tax refunds, and other assets. In many cases, clients are able to keep all of their property. In those instances where certain property is not exempt, those non-exempt assets are liquidated and the proceeds distributed to creditors. Chapter 7 bankruptcy is available to individuals meeting certain income requirements – known as the means test – and who have not filed another chapter 7 bankruptcy in the last 8 years. Alimony, child support, property settlement awards, certain tax debts, and student loans (except in cases of undue hardship) are not dischargeable in a chapter 7 bankruptcy.