When the Bill of Rights amending the U.S. Constitution went into effect in late 1791, the Seventh Amendment stated in part that “the right of trial by jury shall be preserved” for “the value of controversy” over $20. This meant that anyone could demand a civil jury trial for a dispute involving something exceeding that value.

That $20 in 1791 is worth about $700 today. But since the Seventh Amendment isn’t indexed for inflation, anyone can still demand a jury trial for a dispute of over $20.

Indexing just means adjusting for inflation over time. One place most of us see this in action is when completing our federal tax returns each year. You may notice the “standard deduction” that applies if you do not itemize your deductions throughout the year (as most individuals don’t). This, coupled with shifts in income brackets from year to year, aims to fairly adjust the taxes you owe so you’re not penalized with a higher tax rate if your income only rises at the same rate as the cost of goods and services. Your buying power isn’t increasing — so your tax rate shouldn’t, either.

So how does indexing apply to bankruptcy and debt collection?

Personal property exemptions

By and large, the legislators who write bankruptcy and debt collection laws recognize that while it’s important for filers to repay debts, it’s also vital that they not be left destitute with no belongings. Federal and state bankruptcy laws contain exemptions from debt collection for things like homes, vehicles, clothing, household goods and furnishings, some cash, retirement accounts, and more.

There are several reasons for this. Stripping someone of all assets to satisfy debts, including tools of their trade, a means of travel, a place to live, everyday supplies, and all cash could make it difficult for them to reasonably support themselves, which in turn costs society in public assistance and reduced economic productivity. It’s in our collective interest for debtors to be able to live their lives even after creditors have collected their debts. The law also recognizes the dignity of keeping certain possessions, with exemptions for valuables such as wedding rings, books, and similar things with a sentimental value greatly exceeding their typically marginal market value.

This article will focus on personal property exemptions, or everything that’s not real estate. Iowa generally offers robust personal exemptions — in addition to the categories above, the state allows debtors to protect their interest in disability income, veterans’ benefits, alimony, firearms, 529 college savings accounts, structured personal injury settlements, federal pensions, medical aids (why take someone’s CPAP or walker?), and internment spaces from creditors. In many cases, however, Iowa has not kept up with the times, and decades of inflation have eroded the value of the exemptions the state legislature granted to debtors.

Inflation indexing: Not new, but not common

The federal Bankruptcy Code and at least eight states index personal property exemption values for inflation, but as in most states, Iowa has not done this. When they have been updated, Iowa lawmakers have generally set fixed dollar amounts that remain unchanged until the next legislative update. The most recent update to any Iowa personal property exemption values was nearly 20 years ago, and others go back even further.

One exemption, for a bankruptcy debtor’s interest in accrued wages and tax refunds, has not been updated since 1981 — the Iowa legislature set that exemption at $1,000 and it remains the same today. Had it been indexed for inflation according to the U.S. Department of Labor’s Consumer Price Index (CPI), that exemption would now be more than $3,600!

For a more concrete example, consider Iowa’s motor vehicle exemption. In 2006, lawmakers updated the exemption for a motor vehicle to $7,000; with a CPI-indexed update, that amount would be close to $11,150 today. Inflation’s effects on this exemption are real — in researching Iowa’s exemption history, I found a Cedar Rapids Gazette classified ad from 2006 that listed a 2001 Grand Caravan with 103,000 miles for $7,000. Right now, Kelley Blue Book states a 2020 Grand Caravan with 103,000 is worth around $11,230 — not far off from an inflation-indexed exemption of $11,150.

Because of inflation and the fixed value of Iowa’s motor vehicle exemption, the vehicle a debtor could exempt today is likely to be in significantly worse shape than the vehicle they could have exempted when the law was passed, since $7,000 doesn’t buy the same used car it did in 2006.

Inflation devalues other exemptions too

Other categories last updated in 2006 were post-marriage wedding/engagement rings, $7,000 (which would index in 2025 to $11,150); jewelry other than wedding/engagement rings, $2,000 ($3,175); household goods and furnishings, $7,000 ($11,150); and “wildcard” or otherwise uncategorized items often used for cash, $1,000 ($1,600).

The residential rental or utility deposits or prepaid rent exemption of $500 was last updated in 1996 — this allows a debtor to keep up to $500 of cash deposits or paid-ahead rent on an unexpired lease. This is the amount they do not have to turn over to a bankruptcy trustee or a creditor’s garnishment. However, if the law had included CPI indexing, that exemption would now be $1,025. Other Iowa exemptions include:

• Private libraries, Bibles, portraits, pictures, and paintings, set in 1988 at $1,000 (equivalent to $2,725 in 2025)
• Cash value of life insurance obtained in the last two years, set in 1988 at $10,000 ($27,275)
• Beneficiary interest in a decedent’s life insurance policy, set in 1988 at $15,000 ($40,925)
• Farming tools of the trade or livestock, updated in 1986 to $10,000 ($28,800)
• Tools of the trade for occupations other than farming, updated in 1986 to $10,000 ($28,800)

The last two are particularly relevant to farmers. The farming tools exemption is obviously a benefit to them, but many also work on the side in construction, trucking, manure hauling, or another job. Farmers with a side business can use the non-farming tools of the trade exemption in addition to the farming tools of the trade exemption. I recently had a bankruptcy client who was both a farmer and did construction, so he was able to take advantage of the $10,000 for what he used in each category.

If Iowa law indexed exemptions for inflation, my client could today exempt up to $28,800 each for farming tools of the trade, and non-farming tools. See what a difference indexing makes?

Indexing for inflation makes sense

While nobody likes to think about it, life can throw anyone a curveball and leave them in a bind. Anyone could find themselves needing the benefits of debt collection exemptions, especially given the current uncertain economic times. Exemptions:

• Protect debtors’ inherent dignity
• Reduce the chance that debtors will become dependent on charity or public assistance even if they suffer losses
• Help debtors get back on their feet and become productive members of society
• Prevent creditors from selling items that have low economic value but significant sentimental value, just to recover a few more dollars

Indexing exemptions for inflation is an easy choice to prevent the inflation inherent in our economic system from slowly overriding the legislature’s intent with respect to the appropriate balance between allowing creditors to collect debts and protecting debtors.

Seeking change through the General Assembly

Ag & Business Legal Strategies is always looking for ways to better assist farmers and other small business owners seeking debt solutions, including bankruptcy — not just for individuals in court, but through systemic changes and updates to state and federal laws that govern the entire process. Our firm has a history of lobbying legislators for change, as well as providing advice and even helping author some of those changes for debate and vote.

When I recently reviewed Iowa’s personal property exemptions and realized the most recent dollar value updates were 19 years ago, I knew we could do better. I did my research, drafted a proposal to incorporate automatic inflation adjustments into Iowa’s exemption values, and now plan to lobby the state legislature to implement this common-sense change.

And, as we covered in last month’s article about contacting lawmakers, you can help make this happen! Call, email, or write your legislature and ask why they tolerate inflation eating away at the benefits of the exemptions they and their predecessors provided debtors.

While there are no guarantees in legislation, I hope that Iowa’s General Assembly will debate and pass a bill soon to adjust exemptions for inflation. As always, our firm is glad to work with lawmakers as needed to improve the legal system, especially for farm and small business debtors.

In the meantime, Ag & Business Legal Strategies will continue working to achieve favorable outcomes for our clients under existing laws. If you are facing overwhelming debt and need help setting up a debt restructuring plan or filing for bankruptcy, or you could just use help reviewing your farm or small business enterprise for potential weaknesses — give us a call.

(319) 363-1641

At Ag & Business Legal Strategies, we want our clients to be honest with themselves and have a solid business plan. Our team will help you create and execute that business plan, and, if necessary, assist you with the legal, tax, and practical aspects of debt restructuring or bankruptcy.

Don’t wait for the problems to become insurmountable. Connect with someone you can trust today, not tomorrow. https://www.ablsonline.com/contact/