Iowa Debt Relief: Your Guide to State Laws and Managing Debt

Iowa residents fall at the conservative end of the debt spectrum, with one of the lowest per capita credit card debt rates in the country, according to our analysis.

Even still, any amount of debt can become unmanageable. If you lose your job, become seriously ill or need to take time off work to care for family members, you can quickly find yourself overwhelmed by your monthly payments. It’s possible you’ll find yourself turning to credit cards, personal loans or payday loans to bridge the gap until you can increase your income.

Without an exit strategy, those short-term measures become long-term burdens, and your debt load can rise significantly. But if you’re an Iowa resident, there are steps you can take to lower the amount you owe or get the debts discharged under certain circumstances. There are also laws in place in Iowa to protect you from predatory lending and collections practices that can ease the mental toll of carrying significant amounts of debt.

In the following sections, we’ll look at Iowa debt relief options and what you need to know about debt laws in the state.

• Debt in Iowa: At a glance
• Debt collection in Iowa
• Iowa debt relief programs
• Payday lending laws in Iowa
• Tips to tackle debt in Iowa
• Filing for bankruptcy in Iowa
• Coping with debt in Iowa
• The bottom line

Debt in Iowa: At a glance

Debt collection in Iowa

It’s important to know what to expect and what your rights are when it comes to debt collection in Iowa. While creditors are entitled to attempt to collect the money you owe, they are not allowed to engage in abusive practices. Your rights are protected under both the federal Fair Debt Collection Practices Act (FDCPA) and the Iowa Fair Debt Collection Practices Act.

Both laws bar creditors and debt collection companies from harassing or abusing consumers. Harassment includes calling you repeatedly and at inconvenient times, using obscene language, making false claims and threatening you.

The Iowa Fair Debt Collection Practices Act does not prohibit creditors from contacting you if you submit a request to stop collection efforts, and it does not stipulate that they send an initial debt verification document. The FDCPA does provide these protections, though. However, even if creditors may not contact you, they may still pursue the debts through lawsuits and wage garnishments.

Responding to collection letters

If you receive a collection letter from a creditor, the worst thing you can do is ignore it.

Before making any payment arrangements, verify that the collector is legitimate and that the amount being collected is accurate. To validate your debt, ask for the following information:

• The name and address of the original creditor and the debt collector
• The amount owed, including any interest or fees accrued
• What the debt is for and when the account became delinquent

Verification matters because you don’t want to pay unless you are certain you’re responsible for the debt. Additionally, depending on the statute of limitations in your state, you may no longer have to pay.

You have 30 days to send a request for debt validation from the time you receive your first written notice from the collector. The Consumer Financial Protection Bureau (CFPB) website offers sample letters you can use to draft your own correspondence with a third-party collection company.

Iowa does not require debt collectors to be licensed, but if you are concerned about an agency’s validity, you can contact the state attorney general’s office. Sometimes collectors become predatory or abusive in their collection attempts (for example, calling you at work or threatening violence). If that happens, you can file a complaint with the state attorney general’s consumer advisory board through the attorney general’s website or via a printed complaint form. You can also register the complaint through the CFPB’s website.

Understanding your state’s statute of limitations

The statute of limitations refers to the number of years during which a company or the state can take legal action to collect a debt you owe. Once that period ends, the debt becomes time-barred and debt collectors can no longer sue you to recover old debts, though they may still continue to contact you about the debt. Be careful about making any payments on time-barred debt, or even promising to pay, as that can reset the clock on the statute of limitations.

In Iowa, the statute of limitations depends on the type of account and the debt. For some debts incurred through written contracts, including mortgages, collectors may pursue the money for 10 years under Iowa law. Iowa debts incurred through oral contracts, in which the terms are not specified and signed in a written contract, generally have a five-year statute of limitations. However, auto loans are only held to a one-year statute of limitations period. Meanwhile, creditors may pursue credit card debt and medical bills for up to five years.

Iowa debt relief programs

If you’re struggling with debt, the first step is to find seasoned professionals who can help you come up with a plan for managing it. Here are a couple of options for Iowans:

• Consumer Credit of Des Moines is a nonprofit organization that offers consultations and debt management programs.
• Iowa Legal Aid also offers assistance to vulnerable and low-income consumers who need help managing taxes, bankruptcy decisions and other financial issues.

You can also turn to national resources, such as the Financial Counseling Association of America and National Foundation for Credit Counseling. Both organizations provide resources for a range of debt types, including credit cards and student loans, and can connect you with debt counselors. If you work with a local organization such as a credit union or nonprofit, verify that they hold accreditations from the FCAA or NFCC.

Military service members may also be eligible for debt relief and protections under the federal Servicemembers Civil Relief Act. If you have served in the military and face mounting debts and/or the threat of eviction, your local Armed Forces Legal Assistance Office can tell you whether you qualify for assistance under the Act.

When working with any debt relief services, especially if you consider debt relief companies, it’s always important to be wary of scams. Look out for any deals that seem too good to be true and for companies that charge upfront fees.

Payday lending laws in Iowa

Payday lenders offer short-term, high-interest loans of an average of $500 to cover your expenses between paychecks. They’re easier to get than personal loans because you don’t need to submit to a credit check. You simply have to provide ID, proof of income and your bank account details.

But it’s important to understand the risks that come with taking this route. While payday loans may seem like a convenient option when you are struggling financially, they often carry high fees, which makes them very difficult to pay off. Repayment periods are usually two weeks, meaning borrowers often need to extend the repayment terms or take out another loan. These rollovers also come with a fee, and because of the additional costs and finance charges, the total amount owed can quickly become unmanageable.

Because of this, many states have set limits on payday lending amounts and terms. Regulated by the Iowa Division of Banking, payday lenders in the state are held to the following limits:

• Maximum loan amount: $500
• Maximum loan term: 31 days
• Finance charges: $15 on the first $100 borrowed, $10 for every $100 borrowed above that

Payday loans are appealing because of the convenience and lower barriers to entry for borrowing. However, the risks associated with these loans are significant, and you will be better served by looking for other options. These may include “payday alternative” loans from credit unions that function similarly in that they are short-term and provide quick access to cash for borrowers with bad credit but with much lower interest rates. Other options are  low-interest credit cards or taking a short-term loan from friends and family to avoid the pitfalls of payday lending.

We’ll cover some alternative ways to pay down Iowa debt next.

Tips to tackle debt in Iowa

Though your debt may feel all-consuming, especially when you look at the total owed across multiple accounts, there are ways to regain control. Not all of the following options will be suited to your circumstances, but you may find one or more that speak to your needs. Here are some debt consolidation options in Iowa:

Consolidate your debt

Debt consolidation is the process of taking out a new loan to pay off your existing debts. Doing so, if you qualify, simplifies repayment, because you’re paying down one debt rather than managing multiple accounts each month. You may be able to save money as well, if the interest rate on the new loan is lower than what you’re currently paying on your open accounts.

Taking out a debt consolidation loan may be the right choice if you have a good credit score, a low debt-to-income (DTI) ratio and are confident that you will be able to make your new payments on time. A low credit score or high DTI ratio may cause your loan application to be rejected, or you may end up with a high interest rate that cancels out the benefits of consolidation. If you know you will not be able to keep up with the monthly payments on the new loan, you may be better off speaking with a debt counselor about other options.

A debt consolidation loan makes sense if you have high-balance, high-interest accounts such as credit cards and unsecured personal loans. Paying these off with one loan can save you money, provided you are paying less in interest and fees overall.

Refinance

Refinancing your home or auto loan can reduce your overall debt burden and lower your monthly payments. If your credit score, DTI ratio and/or income have improved since you first took out the loan, you may be able to refinance to a lower rate. When you refinance, you usually extend the repayment period, which will lower your monthly installments and make them more manageable.

If you have more than 20% equity in your home, you may be eligible for a cash-out refinance, in which you borrow more than the amount you currently owe on your mortgage. You may take that difference in cash and use it to pay down other debts, such as credit cards or medical debt. This can be an attractive option if the interest rate on the refinanced mortgage is significantly better than what you’re paying on those other accounts.

However, increasing the amount of debt secured by your home can be risky because the house is collateral. This is not a good move if you are not confident you will be able to make the payments on the new loan.

If you’re dealing with student loan debt, you may also be able to refinance through a private lender. The downside of this is that you’ll lose eligibility for loan forgiveness programs and access to more flexible repayment plans.

Use a balance transfer card

If you’re carrying high-interest credit card debt, you might consider applying for a low- or no-interest card that allows you to do a balance transfer. Many cards offer promotional introductory periods of 12 to 21 months with no interest.

If you have good credit and qualify, transferring your existing balances onto those cards can reduce your monthly payments and may enable you to clear the debt entirely before your regular interest rate kicks in. However, if you’re not able to pay it off during that no-interest period, you may find yourself back in the same place once the regular rate begins and interest starts accruing again.

Enroll in a debt management program

A debt management program can help you lower your monthly payments and streamline your Iowa debt. Debt management companies serve as a liaison between you and your creditors, and they will request that the creditors reduce your interest rate and accept new repayment terms.

After negotiating the terms with creditors willing to participate (they are not legally obligated to do so), the debt management company will develop up to a five-year repayment plan with you. You’ll then pay one monthly payment, and the company will disburse that amount to your various creditors.

Eligible debts include credit cards, payday loans, medical debt and personal loans.

Filing for bankruptcy in Iowa

You may find that your debt load is too heavy even after considering debt consolidation options. In that case, you may want to speak with a professional advisor or attorney about whether declaring bankruptcy is the right step for you.

There are two common types of bankruptcy:

• Chapter 7: When you file a Chapter 7 bankruptcy, your assets are either sold or liquidated pay off the debts you can. You must prove that you are unable to pay your debts in order to qualify for Chapter 7 and have your eligible debts discharged.
• Chapter 13: Chapter 13 is an option for consumers who earn income regularly but cannot repay their debts as they currently stand. Under this filing, you’ll commit to a three- to five-year repayment plan based on your financial circumstances and you may keep your assets. Your credit will take less of a hit with a Chapter 13 filing because you will pay at least a portion of what you owe, though it will stay on your credit report for seven years.

Bankruptcies are common in the United States, with more than 700,000 new filings in 2017 alone. Rates in Iowa are relatively low, however. In most counties, there were fewer than 25 filings in 2017, though numbers were much higher in some areas of the state, according to data from the United States Bankruptcy Court for the northern and southern districts of Iowa.

For people in dire situations, bankruptcy can serve as a means of starting over. But you may find that you’ll pay more on loans in the short term because your credit will take a hit. In the long term, you’ll be able to rebuild your credit and recover from the bankruptcy, provided you’ve made changes to your spending and money management habits and have a plan in place for avoiding high-interest debt in the future.

Before deciding whether to file for bankruptcy, consider speaking with a lawyer. Local lawyers may offer free initial consultations to help you understand your options and the consequences and risks associated with each.

The bottom line

If you’re overburdened by debt, know that there are relief options in Iowa. Consult with a professional who can help you navigate Iowa debt relief and consolidation options, and take a hard look at your finances. Once you have a clear picture of your income and what you owe, you’ll be able to determine which path to take to alleviate your debt stress.

The information in this article is accurate as of the date of publishing.