Are You Facing Bankruptcy?

Consumers can be fraught with financial difficulties including stress in the time they seek out help to file for bankruptcy relief. Many times unanticipated medical debt due to unanticipated health issues, housing costs or transportation issues can put a consumer over the limits in terms of being able to pay the monthly bills. It is important to remember that although bankruptcy is not the first resort, it is best not to wait too long to understand your options and to take action. If you are facing what seems to be insurmountable debt, contact an attorney at once in order the make the best of a bad situation. Witherwax Law, P.C. will expertly guide you through the process of an Iowa Bankruptcy procedure.

What is Chapter 7 Bankruptcy?

This type of bankruptcy is most generally a voluntary way to file and consists of a debtor liquidating their assets to ensure creditors are paid. Chapter 7 is available for both individuals and businesses, but have slight variations in the way they are handled.


As an individual consumer, the debtor’s estate is liquidated and the assets are distributed to creditors.


While still able to file under Chapter 7, partnerships, sole proprietorships, and corporations are required to sell assets and divide the proceeds between the company’s creditors. Companies are also not eligible to receive a discharge. 11 U.S.C. § 727(a)(1). After liquidation and distribution, businesses no longer exist, however, corporations and partnerships that want to continue their business are not required to choose Chapter 7.

Determine Exempt from Non-Exempt Property

In a bankruptcy case that involves liquidation, debtors must give up property to a bankruptcy trustee so the proceeds can be used to pay off debts. So it is no secret that the first thing a person thinks of when going through bankruptcy is, what property will I be allowed to keep and what do I have to give up?

Non-Exempt Property

Items that most often have to be given up include:

Exempt Property

To protect property from liquidation, you must file a schedule of exempt property with the court. Consult with your attorney to determine whether your state exemption law or the federal exemption law will work better for you. Exempt property can often include:

Navigate Through the Bankruptcy Process

Debtor Files a Petition

Once a debtor files a petition with the bankruptcy court, an automatic stay is triggered. An automatic stay means that all debt collector activity will be terminated. As long as the stay is in place, creditors cannot start or continue lawsuits against the debtor, garnish wages, or contact the debtor demanding payments.

If a debtor’s current monthly income is less than the state median, the debtor automatically qualifies for Chapter 7. If a debtor’s current monthly income is more than the average state income, the means test will be applied to determine if filing for Chapter 7 is presumptively abusive. If you are an individual with primarily consumer debts (primarily for a family, personal, or household purpose), the means test is applicable to you.

Debtor Files Additional Schedules

Along with a petition, a debtor must also file a schedule of assets and liabilities, a schedule of current income and expenditures, a statement of financial affairs, and a schedule of executory contracts and unexpired leases. Fed. R. Bankr. P. 1007. If you are an individual debtor with primarily consumer debts, you will be required to file a certificate of credit counseling and a copy of any debt repayment plan, evidence of payments from employers made 60 days prior to filing, a statement of monthly net income, an any foreseeable increases in income or expenses  after filing, and a record of any interest in state or federal qualified education or tuition accounts. 11 U.S.C. § 521.

Court Appoints a Trustee

This trustee oversees the Chapter 7 case and is responsible for liquidating the debtor’s assets in order to pay off the debts. If there are assets, the trustee collects the sales proceeds and the debts are paid to the extent possible. Under § 726 of the Bankruptcy Code, the property is distributed according to six classes of claims, and each must be paid in full before creditors in the class below receive any payment.

If there are no assets to liquidate due to assets being exempt or subject to valid liens, the trustee can try to recover money by using avoiding powers, which give trustees the ability to set aside preferential transfers to creditors within 90 days of filing, undo security interests and pre-petition transfer that were not properly perfected, and pursue fraudulent conveyance and bulk transfer claims under state law. If there are assets, the trustee collects the sale proceeds in a fund from which the debts are paid tot he extent possible.

Trustee Holds Meeting of Creditors

During this meeting, the trustee and creditors are allowed to ask the debtor questions while under oath. The debtor is required to attend this meeting and answer any questions concerning their property and financial matters.

Debtor Completes a Reaffirmation Agreement

This is done when a debtor wants to keep some type of property (like a car) after a bankruptcy. The debtor and creditor must agree that the debtor will pay a part of or all of an otherwise dischargeable debt after bankruptcy. As long as the debtor continues to pay the debt, the creditor is not allowed to repossess the property.

Remaining Unpaid Debts are Discharged

To be discharged during a bankruptcy proceeding means to clean the debtor’s slate of virtually all, or most, previous debts. Once all of the proceeds are distributed among the creditors, the majority of remaining unpaid debts are discharged. Debts that are non-dischargeable include student loans, debts accumulated from giving false financial information, damages from willful or malicious acts, domestic support obligations, and occasionally some debts gained prior to filing for bankruptcy. A court is able to deny a discharge if the debtor failed to be compliant during the bankruptcy process and provide all necessary documents and information.

Helpful Chapter 7 Bankruptcy Information

Bankruptcy: An Overview

Review the topic of bankruptcy, along with state and federal materials, from Cornell University

Bankruptcy Basics: Chapter 7

Receive information on liquidation under Chapter 7 of the Bankruptcy Code


See consumer information about credit reports, establishing credit, risk scores and more

National Foundation for Credit Counseling

Find credit facts, budget calculators and more

Official Bankruptcy Forms

Find forms from the Administrative Office of the U.S. Courts

Trans Union LLC

View consumer FAQs on credit reports

U.S. Bankruptcy Courts

Understand the structure and function of bankruptcy courts

Alternatives to Chapter 7 Bankruptcy

It is possible to conduct an out-of-court agreement between a debtor and his/her creditors for debt repayment between them all, and this is referred to as a workout. This agreement is voluntary for both the debtor and the creditor and often removes the stigma of bankruptcy and simplifies the complications during a standard bankruptcy procedure. Lawyers at Witherwax Law, P.C. are experienced in debtor-creditor law and bankruptcy, and will help advise both debtors and creditors to determine the best course of action.

Speak to Experienced Bankruptcy Lawyers

The bankruptcy process can be daunting and confusing. Schedule a meeting with one of Witherwax Law P.C.’s lawyers, and we will help you navigate through this legal matter and help you get a fresh start.