Does filing bankruptcy in Iowa mean that you have to kiss your car goodbye? Not necessarily. One of the most common myths associated with filing for bankruptcy is that you will lose all of your property through the process. Pursuant to Iowa bankruptcy laws, debtors in Iowa can protect $7,000 of value in a car through the bankruptcy process.

How does this work? Let’s say, Joe from Iowa City, owns a car free and clear worth $6,000. If Joe elects to file for chapter 7 bankruptcy, he will be able to exempt or protect his car. Iowa bankruptcy laws allow $7,000 of exempt value and Joe only has $6,000. He gets by with $1,000 to spare.

What result if Joe’s car was worth $16,000 with a loan of $15,000? The car would still be exempt. Exemption laws focus on equity. In this example, Joe has only $1,000 of equity built up in his car. Assuming he could afford to continue with payments after bankruptcy, Joe would be able to retain ownership of his car while shedding burdensome debt.

Be aware that even with non-exempt equity in a car, most trustees will entertain cash offers to “buy-out” value that exceeds the exemption limits. While they will if need be, trustees don’t really want to go through with the hassle of selling property.

See Also:

What Is the Rule With Cars and Bankruptcy?