You may have heard about federal exemptions before, but you won’t need to worry about them when filing bankruptcy in Iowa. State law only allows Iowa residents to claim Iowa exemptions and doesn’t give filers the choice to apply federal bankruptcy exemptions to their property instead. This Iowa law isn’t an unusual approach, as only 17 states in the U.S. allow residents to choose between state-specific bankruptcy exemptions and exemption laws provided by the federal Bankruptcy Code. Note however that if you moved to Iowa within 2 years of filing for bankruptcy, you may be subject to a different set of exemption standards than long-time Iowa residents are.
Written by Attorney Kassandra Kuehl.
Updated July 28, 2020
What are the Iowa bankruptcy exemptions and why are they important in a Chapter 7 bankruptcy?
If you’ve passed the Chapter 7 bankruptcy means test, you’re eligible to have many of your debts eliminated by the Bankruptcy Court. Therefore, the act of filing bankruptcy will place you squarely on a path towards a financial “fresh start.” However, this debt relief path is not without twists and turns. For example, Chapter 7 bankruptcy filers are at risk of having their nonexempt personal property sold by the bankruptcy trustee assigned to their case (so that their debts can be partially repaid from the sale profits). Thankfully, most or all of your assets will be protected from this risk when you apply Iowa bankruptcy exemptions to your property. Exempt property can’t be sold by the trustee assigned to your bankruptcy case, so it’s important to claim as manybankruptcy exemptions as you’re allowed per the Iowa Code.
Does Iowa allow the use of federal bankruptcy exemptions?
You may have heard aboutfederal exemptions before, but you won’t need to worry about them when filing bankruptcy in Iowa. State law only allows Iowa residents to claim Iowa exemptions and doesn’t give filers the choice to apply federal bankruptcy exemptions to their property instead. This Iowa law isn’t an unusual approach, as only 17 states in the U.S. allow residents to choose between state-specific bankruptcy exemptions and exemption laws provided by the federal Bankruptcy Code. Note however that if youmoved to Iowa within 2 years of filing for bankruptcy, you may be subject to a different set of exemption standards than long-time Iowa residents are.
Iowa Bankruptcy Exemptions
Note that if you are married and filing bankruptcy jointly with your spouse (unless otherwise noted), you are entitled to double the exemption values listed below. Essentially, Iowa law allows each spouse to claim a full set of exemptions, which means that the values listed for a single filer double for those married couples who choose to file for bankruptcy jointly. Keep in mind however, that if a particular asset is only owned by one spouse, the “doubling” exemption value calculus will not apply. For any property owned by a single individual, you may only apply the exemption value allowed for single filers, even though your general bankruptcy petition has been filed jointly with your spouse.
Real Property - the Iowa Homestead Exemption
Iowa boasts the most generous homestead exemption in the nation. Essentially, if you are a homeowner (whether you are filing as a single individual or as a married couple filing jointly), Iowa law exempts the value of your primary residence, regardless of how valuable that homestead is. This “unlimited value” approach to the homestead exemption is very rare. The only real limitations applied to this exemption involve size. If you live in a city, you can only exempt property up to one-half acre in size. If you live in a rural community, you can only exempt up to 40 acres worth of property upon which your primary residence sits.
Personal Property Exemptions
Before you claim your personal property exemptions, you may want to catalog your possessions. Having a list of what you own and how much this property is worth (the value of most personal property is calculated using garage sale pricing) readily available as you work through these exemptions can make the process faster and less stressful. Unless otherwise noted, the following personal property is exempt under Iowa law up to its full value:
Books, pictures, and paintings – up to $1,000 in aggregate value
Cemeteries and burial property – up to 1 acre
Clothing, entertainment devices, household furnishings, household goods, and musical instruments – up to $7,000 in aggregate value
Guns – 1 shotgun, in addition to either 1 rifle or 1 musket
Jewelry (other than wedding and engagement rings) – up to $2,000 in value
Tools of trade (farming) – equipment, feed, implements, livestock for normal farming operations - up to $10,000 in total value
Tools of the trade (non-farming) – implements, tools, and/or books used for one’s occupation – up to $10,000 in total value
Wedding and engagement rings – total value unless the ring(s) in question was acquired after the marriage began and during the 24 months prior to filing for bankruptcy; in this case, exemption limit is $7,000 minus the amount claimed for other jewelry
Additionally, the equity in a motor vehicle can be claimed up to $7,000 in value. A married couple filing jointly can claim up to $14,000 in equity in a shared vehicle. In bankruptcy law, equity in a vehicle is the amount a filer has already paid against the loan amount (or total cost) of an asset. Say that before you file bankruptcy, you have already paid $5,000 for your car and you have $10,000 remaining in debt to a creditor who originally loaned you $15,000. Your equity in your car is $5,000. If the amount of equity in your car doesn’t exceed the exemption limit, you can ask the Bankruptcy Court for permission to keep paying off the loan, if you’d like to keep the asset. If your equity isn’t covered by the exemption, you’ll likely need to decide whether you want to surrender the vehicle to your creditor, sell the vehicle, or keep paying off the loan while reimbursing your trustee for the nonexempt portion of your car’s value. If you already own the car outright, you’ll likely be “stuck” deciding between the final two options.
Some of the most valuable assets that many people own are not objects but intangible monetary benefits. You may understandably be concerned about safeguarding insurance proceeds, Social Security benefits, spousal support, and other money-related assets that help to ensure that you can make ends meet. Thankfully, Iowa law allows filers to exempt many different kinds of money benefits, often at their full value. Unless otherwise noted (or qualified by “fine print” state or federal law exceptions), the following money-related benefits are exempt without limitations:
Accrued wages and state and federal tax refunds (up to $1,000 total)
Alimony or spousal support
Disposable earnings – Either 75% of these earnings or 40 times the federal minimum wage, whichever is greater (this exemption is different than the accrued wages exemption explained above)
Earned income and child tax credits – total value; not subject to tax refund exemption limit noted above
Fraternal benefit society benefits
Health and disability insurance
Interest in a life insurance policy if the filer’s spouse or dependent is the beneficiary
Life insurance proceeds – up to $15,000
Pensions (if contributions made within the 12 months before filing exceed the filer’s normal and customary contribution amount, these specific funds will be considered nonexempt)
Public employee’s group insurance benefits
Retirement accounts (if contributions made within the 12 months before filing exceed the filer’s normal and customary contribution amount, these specific funds will be considered nonexempt)
Social Security benefits
Other Iowa Exemptions
Iowa allows filers to take advantage of a modest “wildcard exemption.” Essentially, after claiming every other exemption available to you, you can use the wildcard exemption to safeguard property that you couldn’t protect elsewhere due to the type of property in question or the significant value of assets that exceed the limits allowed under the law. In Iowa, single filers benefit from a $1,000 wildcard exemption that covers cash and any kind of personal property excluding real estate. Married couples filing jointly are permitted to exempt up to $2,000 in cash and personal property value under the wildcard exemption.
Filing Chapter 7 Bankruptcy?
If all of this information seems a little overwhelming, know that you don’t have to sort through it all on your own. Most law firms offer free consultations for anyone interested in learning about their debt relief options. Upsolve can help you to find a qualified bankruptcy attorney in your area so that you can ask them any questions you may have. For example, you may be wondering whether you qualify to file for Chapter 7 bankruptcy or if you shouldfile Chapter 13 bankruptcy instead. A bankruptcy lawyer can help to clarify your options for you during a consultation, even if you can’t afford any additional legal advice going forward. If you are worried about how much filing for bankruptcy is going to cost, know that Upsolve offers many free “filing on your own” resources on our website. Additionally, our team may even be able to help you file for Chapter 7 bankruptcy for free.