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Iowa Collection Laws

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Bills.com Team
UpdatedDec 1, 2022
Key Takeaways:
  • Iowa wage garnishment rules are intricate.
  • It is possible for a judgment-creditor to levy a bank account in Iowa.
What are the collection laws for wage garnishment, levy and lien in Iowa? What is the statute of limitations on Iowa judgments?

I'm writing to find information regarding the laws in Iowa regarding garnishment. I recently went with a credit card consolidation company and all my accounts have gone into collections from no longer making the minimum payments and just paying this consolidation comp. I have been sued by one company and the total due is around $2700 and a judgment has been set. How can they collect that money?? I tried to set up arrangements with them thru the consolidation comp and they will not except any offer I'm able to make. If they garnish my wages how much can they take?? Will I know that they are going to do this? What is a bank levy? Can they do that in Iowa? How much can they take? Any information would be greatly appreciated. I'm just not sure what to do. Do I take all my money out of the bank for fear they'll take it. How long can they continue to try to collect?

A collection agent or law firm that owns a collection account is a creditor. A creditor has several legal means of collecting a debt. But before the creditor can start, the creditor must go to court to receive a judgment. See the Bills.com resource Served Summons and Complaint to learn more about this process.

The court may decide to grant a judgment to the creditor. A judgment is a declaration by a court that the creditor has the legal right to demand a wage garnishment, a levy on the debtor’s bank accounts, and a lien on the debtor’s property. A creditor that is granted a judgment is called a "judgment-creditor." Which of these tools the creditor will use depends on the circumstances. We discuss each of these remedies below.

Iowa Wage Garnishment

The most common method used by judgment-creditors to enforce judgments is wage garnishment, in which a judgment creditor would contact the debtor’s employer and require the employer to deduct a certain portion of the debtor’s wages each pay period and send the money to the creditor.

Protect Yourself Against Wage Garnishment

In most states, creditors may garnish between 10% and 25% of your wages, with the percentage allowed determined by state law. Garnishment of Social Security benefits or pensions for consumer debt is not allowed under federal or Iowa law (Iowa Title XV Subtitle 3 Chapter 627.6(8), 627.8, 97A.12, 411.13, 410.11), but may be allowed for child support (Iowa Code sections 410.11, 97A.12, 411.13). See the Bills.com Wage Garnishment article to learn more.

In Iowa, wage garnishment is allowed under Iowa Title XV Subtitle 5 Chapter 642, 537.5105 and federal law 15 U.S.C. 1673(a). If the judgment-creditor is aware of the debtor's place of employment, it may seek wage garnishment. Under federal law, the garnishment applies to 25% of the debtor's net take home pay, (i.e. gross pay less statutorily mandated deductions). Garnishment can occur only after the person being garnished has received a 10-day’s notice.

However, under Iowa 642.21, the maximum amount of employee’s earnings that may be garnished during one calendar year is $250 for each judgment creditor (regardless of the number of judgments) except as provided in 252D and 598.22, 598.23, and 627.12 (involve collecting delinquent court-ordered support, which are not subject to annual restrictions), or if earnings are greater than $12,000 for the calendar year, or if the garnishment is for a tax lien:

IncomeAmount Garnished
$12,000-$15,999$400
$16,000-$23,999$800
$24,000-$34,999$1,500
$35,000-$49,999$2,000
$50,000 or moreNot more than 10% of earnings

Source: Iowa Code § 642.21

Iowa Bank Account Levy

A levy means that the creditor has the right to take whatever money in a debtor’s account and apply the funds to the balance of the judgment. Again, the procedure for levying bank accounts, as well as what amount, if any, a debtor can claim as exempt from the levy, is governed by state law. Many states exempt certain amounts and certain types of funds from bank levies, so a debtor should review his or her state’s laws to find if a bank account can be levied. In some states levy is called attachment or account garnishment. The names may vary but the concept is the same.

Levy is allowed under Iowa Title XV Subtitle 3 Chapter 626, and specifically 626.22, 626.24, and 626.50. General exemptions for bankruptcy, garnishment, attachment, and execution can be found in Chapter 627. Under section 522(n) the maximum aggregate value of assets in individual retirement accounts that is exempted is $1,095,000 ($1,171,650 after April 1, 2010).

If you reside in another state, see the Bills.com Account Levy resource to learn more about the general rules for this remedy.

Lien in Iowa

A lien is an encumbrance — a claim — on a property. For example, if the debtor owns a home, a creditor with a judgment has the right to place a lien on the home, meaning that if the debtor sells or refinance the home, the debtor will be required to pay the judgment out of the proceeds of the sale or refinance. If the amount of the judgment is more than the amount of equity in your home, then the lien may prevent the debtor from selling or refinancing until the debtor can pay off the judgment.

Under Iowa Code 648.1, “Lien; means a charge against or an interest in property to secure payment of a debt or performance of an obligation, and includes a security interest created by agreement, a judicial lien obtained by legal or equitable process or proceedings, a common-law lien, or a statutory lien.” Iowa allows judgment-creditors to place a lien on property, as per Iowa Code 626.33.

If you reside in another state, see the Bills.com Liens & How to Resolve Them article to learn more.

Iowa Statute of Limitations

Each state or commonwealth has its own statute of limitations on civil matters. Here are some of Iowa’s statutes of limitations for consumer-related issues:

Account/TypeYearsStatute
Credit card5 or 10*Gemini Capital Group v. New, No. 1-521/10-1096 (Iowa Ct. App. Sep. 8, 2011)
Spoken contract5Iowa Code § 614.1(4)
Written contract10Iowa Code § 614.1(5)
Judgment Lien10Iowa Code § 624.23
Judgment9Iowa Code § 614.3
* Credit card contracts are considered non-written. The Gemini court implied it would find a credit card contract as written if the plaintiff produced a contract signed by the defendant/consumer.

Iowa statutes of limitations. Source: Bills.com

When the statute of limitations clock starts depends on the circumstances and the particular statute. Generally, it starts when the action accrues, which means the date of breach. For credit card debt, this means the date the payment was missed.

Know Your Rights - Collection Agents

Collection agents violate the FDCPA if they file a debt collection lawsuit against a consumer after the statute of limitation expired (Kimber v. Federal Financial Corp. 668 F.Supp. 1480 (1987) and Basile v. Blatt, Hasenmiller, Liebsker & Moore LLC, 632 F. Supp. 2d 842, 845 (2009)). Unscrupulous collection agents sue in hopes the consumer will not know this rule.

Iowa Payday Loan Law

Payday loans are legal in Iowa. It is not a crime to default on a payday loan. See the Iowa Attorney General’s office Informal Advisory # 87 dated February 18, 1999 (PDF) to learn how the attorney general views Iowa Title XIII Subtitle 3 Chapters 535 and 537.7103.

See the Bills.com Payday Loan Laws resource to learn more about payday loans in all states.

Iowa Small Claims Court

To learn how to file a small claims case in Iowa, please see the Iowa Legal Aid Society's Small Claims Court Legal Information page and the Iowa Judicial Branch's Representing Yourself Web page. Consult with a lawyer if your case is complex, or the Iowa civil procedure rules don't make sense to you.

Iowa Debt Collection Practices Act (DCPA) and the Iowa Consumer Credit Code (ICCC)

Collection agents must file a notification with the Iowa attorney general to collect debt in the state. Iowa Debt Collection Practices Act (DCPA) mirrors the federal FDCPA in most respects. It applies to original creditors and collection agents. Like the FDCPA, the DCPA gives consumers a legal remedy (a reason to file a lawsuit) against collection agents and original creditors. However, you cannot be awarded double damages by proving a violation of both the FDCPA and the DCPA.

The Iowa Consumer Credit Code prohibits extortionate and unconscionable debt collection practices by creditors in credit transactions less than $25,000. A credit agreement is unconscionable when:

  • The creditor knew there was no reasonable probability of repayment in full by the debtor
  • The creditor knew the consumer would be unable to receive substantial benefits from the property or services
  • There is a gross disparity between the price paid and the price at which the property or services could be obtained by similarly situated customers
  • The creditor takes advantage of a debtor's inability to understand the language of the agreement

Violation of the DCPA and ICCC are not criminal matters. If you have been victimized by a collection agency, file a report of the violation with the Iowa attorney general and FTC. Consult with a lawyer to discuss filing a civil lawsuit against the collection agent. Some lawyers take these cases on a contingency basis, which means no out-of-pocket costs to you.

Learn more about the Iowa Debt Collection Practices Act at Iowa Code § 537.7101 to 537.7103, and the Iowa Consumer Credit Code at Iowa Code § 537.5107 to 537.5108.

Recommendation

Consult with an Iowa attorney experienced in civil litigation to get precise answers to your questions about liens, levies, and garnishment in Iowa.

I hope this information helps you Find. Learn & Save.

Best,

Bill

Bills.com

Debt statistics

Mortgages, credit cards, student loans, personal loans, and auto loans are common types of debts. According to the NY Federal Reserve total household debt as of Q2 2022 was $16.15 trillion. Housing debt totaled $11.71 trillion and non-housing debt was $4.45 trillion.

According to data gathered by Urban.org from a sample of credit reports, about 26% of people in the US have some kind of debt in collections. The median debt in collections is $1,739. Student loans and auto loans are common types of debt. Of people holding student debt, approximately 8% had student loans in collections. The national Auto/Retail debt delinquency rate was 4%.

Each state has its rate of delinquency and share of debts in collections. For example, in Tennessee credit card delinquency rate was 4%, and the median credit card debt was $394.

Avoiding collections isn’t always possible. A sudden loss of employment, death in the family, or sickness can lead to financial hardship. Fortunately, there are many ways to deal with debt including an aggressive payment plan, debt consolidation loan, or a negotiated settlement.

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10 Comments

JJoshua, Mar, 2021

A local community college that I attended for a semester is trying to freeze my state taxes for a supposed debt that has not been paid since 2005. I thought I had paid in full. They say a check bounced which led to it staying open. I have not had any notices in all this time. Should a statute of limitations apply to this case?

JJoshua Abreu-Rosa, Aug, 2021

Hello Joshua, 

Thank you for reaching out to us. Please, do not take my answer to be legal advice as I am not an attorney. Only attorneys can offer legal advice. 

According to this article, the Creditor should file a suit in order to obtain a judgment. The judgment should be some form of Garnishment. 

You mentioned you received no notice, are you able to provide any records of your check and confirmation of the check. Does your ledger show the check was processed or bounced? 

Please also look into https://www.bills.com/debt/debt-advice/served-summons-and-complaint

To get further information. 

Regards, Josh 

SSteph, Mar, 2020

Can a creditor levy my bank or garnish my wages if I am on a payment plan making payments?

DDaniel Cohen, Mar, 2020

Steph, it depends on whether you can prove that there is an established payment plan. The fact that they are accepting a monthly payment from you is not enough to prove a plan is in place. If they told you that they would accept $X as a payment plan, versus just cashing your check, then you have grounds though proving they said it is difficult. If you had in writing that they would take $50 a month on $3,000 debt and you paid as agreed, then you would have solid grounds to keep that agreement in place.

SSteve, Feb, 2020

I got a car loan. Car got repossessed. Now creditor trying to garnish wages, again, but I already paid the max wage garnishment cap. Can they get in trouble?

DDaniel Cohen, Feb, 2020

Steve, why would they be in trouble for trying to collect on a debt? The cap on the amount garnished is enforced by the payroll department of the company paying you, but they can let them know they have claim to the debt and are in line if you have income that exceeds the cap.

AAnonymous, Sep, 2019

I received a call from a women saying she works for a bank where I had a loan in 1995 for $9700 and I didn’t pay the loan back and unless I talked to her and set up a payment that I was going to be served papers to go to court to be sued. I told her I didn’t recall this loan 24 years ago and I wanted more info before I agreed to pay anything she got moody with me and basically hung up on me. Thought it was a scam then today I got a call from a dispatch service wanting to deliver me court papers. Can this even happen first just because it’s been so long and second why wasn’t I notified till now certified mail something?

DDaniel Cohen, Sep, 2019

I can't give legal advice, as only an attorney can properly do so. Here are a couple of thoughts, with the understanding that I am not giving you legal advice.

First, good for you for not agreeing to anything on the phone. The statute of limitations on debt starts running when you default on the debt. For a written contract in Iowa the SOL is 10  years. The creditor would almost certainly have already sued you and obtained a judgment against you in order to collect on the debt today.

I agree with your gut assessment that it is an effort to panic you into paying. The second call was along the same lines. If they were going to serve you court papers, they would simply do so. If that does happen, answer the summons or complaint, then go to court and assert the SOL as a defense. Of course, if you are actually sued, confirming what I said with an attorney is prudent.

AAnonymous, May, 2019

I cosigned on my wife's private student loan in 2006. She became disabled and the loan was discharged due to her disability. We filed Chapter 7 bankruptcy and this loan was included and we thought was discharged, they say it was not. It is now in default since 2017. We live on SS and pensions totaling $44k per year, no other income or wages. We own no homes and property is minimized. All our income goes to my wife's medical bills and medications, rent food insurance, etc... Total debt is $10k if they were to win a judgment could they levy our bank account? Is there a total of what they can take if they do. No lawsuit has been filed et. Just trying to get an idea of what is ahead.

DDaniel Cohen, May, 2019

I can't give legal advice, as only an attorney may properly do so, but I will share some information with the understanding that it is not legal advice.

First, it is not clear to me when the default took place. Your question says 2017, but were payments being made until then? If not, it is worth looking into the statute of limitations on debt in Iowa, which is 10-years for a written contract. The clock wasn't running during the bankruptcy, so add the amount of time from the filing date to the discharge date to the 10-years.

Regarding the ability of a creditor to collect from you, it first needs to sue you and obtain a judgment against you. The SSI can't be garnished by this kind of creditor. A judgment-creditor for this kind of debt generally can't garnish private pensions set up under the Employee Retirement Income Security Act (ERISA). Check with the pension administrator for any private pension to find out if it is an ERISA account.

Things get tricky regarding the money in the bank account. Iowa exempts only $100 in a bank account from collections. However, your SSI has extra protection; two months of your benefits are protected IF your income is directly deposited into your account (or loaded onto a prepaid card). If it is a paper check that you deposit, the funds are not protected. The level of protection for private pension monies is less clear and co-mingling the money you and your wife receive complicate things.

If you have more than two months of benefits in your bank account, the surplus funds can be taken in a bank levy. I have read that it is possible to go to court and show that the income itself is protected, even in cases where a person had more than two months of benefits and had money taken. I just don't know if that is successful in all cases.

I think it prudent, at least at any point tht the creditor sues you, to get legal advice. For sure you would want the SSI directly deposited or paid on prepaid card. The questions are if you should have separate bank accounts or separate accounts for SSI and pension income, or keep any other funds separate.