What are the Chapter 7 exemptions in Kentucky?

December 6th, 2018 by Bunch & Brock

Kentucky Bankruptcy Exemptions Help You Get a Fresh Start

The purpose of filing for Chapter 7 bankruptcy is to get a fresh start financially, and Kentucky bankruptcy exemptions are one way to help you do so. These exemptions keep you from being left destitute and allow you to start over with enough essential property to allow you to recover from your debts and get back on your feet again.

While you may have to liquidate and sell off some property in Chapter 7 to pay off your debts, your exemptions protect certain types of property from bankruptcy liquidation (sale), which is standard practice in Chapter 7. Non-exempt (unprotected) property can be sold to repay some of your creditors prior to Chapter 7 debt discharge, when the remaining outstanding debt is wiped away.

Federal vs. State Chapter 7 Exemptions

Each state has very different bankruptcy laws, and Kentucky is one of 20 states that allow bankruptcy filers to choose between state and federal exemptions. This is an important benefit for Kentucky residents, since federal laws are often more generous overall than state statutes. Most Chapter 7 and Chapter 13 bankruptcy filers in Kentucky will be using federal exemptions as federal exemptions are more generous than the states.

So what are the Chapter 7 exemptions in Kentucky? Below, you’ll find an overview of current federal property exemptions used by Kentucky Chapter 7 bankruptcy filers. The exemption amounts shown are applicable to a single bankruptcy filer. If you are married and filing jointly, the amounts will automatically double.

Chapter 7 Bankruptcy Exemptions Permissible in Kentucky

Homestead Exemption — First, of primary interest is the Homestead Exemption. Under federal law 11 U.S.C. � 522 (d)(1), (d)(5)  you can exclude real property, including your home, co-op, or mobile home, or burial plot up to $25,150. You must live in the property or it is reduced by 1/2 and used as a wildcard. The unused portion of the homestead exemption, to $12,575, may be applied to any other property. This benefit allows you to keep your home if the equity is less than the allowed exemption (or twice this amount for a married couple). This benefit allows you to keep your home if the equity is less than the allowed exemption (or twice this amount for a married couple).

Other federal (Kentucky) Chapter 7 bankruptcy exemptions include:

Transportation Exemption — over $4,000 in equity (one vehicle per spouse)

Jewelry Exemption – Up to $1,600.

Other Personal Property – A total of $13,425 in exemptions for general household items, including furniture, electronics, clothing, musical instruments, livestock, crops, and similar goods. There is a maximum exemption amount of $625 per item.

Tools of the Trade – Tools, equipment, and livestock exemption is over $2,525 if used for gainful professional pursuits.

Financial Assets – Up to $12,625 in accrued dividends, life insurance or loan cash values

Legal Recovery Awards – This includes up to $25,150 for personal injury awards (excepting compensation received for pain and suffering or monetary losses). You can keep all legal restitution received as a victim of wrongful death, a criminal act, or a case involving loss of future earnings.

Retirement Accounts – Tax-free retirement savings accounts are fully exempt, and IRAs and Roth IRAs are exempt up to $$1,362,800.

Wildcard Exemption — $1,325 plus you can use half of the unused portion of any homestead exemption you did not use (such as to add to a vehicle exemption).

In addition to the above, federal bankruptcy statutes protect:

  • All prescribed health aids, such as a wheelchair or walker
  • Necessary alimony and/or child support
  • Life insurance pay-outs necessary for your support
  • Social security, unemployment, illness or veteran’s benefits, and other forms of necessary public assistance.

Chapter 7 Exemptions by State

Currently, the federal bankruptcy exemptions apply only if you live in one of the following states: Alaska, Arkansas, Connecticut, the District of Columbia, Hawaii, Kentucky, Massachusetts, Michigan, Minnesota, New Hampshire, New Jersey, New Mexico, New York, Oregon, Pennsylvania, Rhode Island, Texas, Vermont, Washington or Wisconsin. If you live in one of these states, you should compare the federal bankruptcy exemptions to your state’s bankruptcy exemptions to determine which would allow you to keep more of the property you have.

If you choose your state’s bankruptcy exemptions, the Bankruptcy Code also allows you to use certain non-bankruptcy exemptions, which mostly relate to benefits for federal government employees. You may use the federal non-bankruptcy exemptions for Chapter 7 in addition to your state’s exemptions unless you live in a state listed above and you have chosen to use the federal bankruptcy exemptions instead of your state’s exemptions.

While details and amounts vary from state to state, generally, exemptions may be divided into several categories, including:

  1. Real Estate
  2. Personal Property
  3. Wages
  4. Pensions
  5. Public Benefits
  6. Tools of Trade
  7. Insurance
  8. “Wildcard” Exemption.

Seek Legal Advice for Your Chapter 7 Exemptions

Exemptions are important, but there is much more to know before you pursue a successful Chapter 7 bankruptcy filing. If you are considering filing for Chapter 7 or Chapter 13 bankruptcy protection in Kentucky, please reach out to Bunch & Brock first. Our experienced lawyers provide valuable advice and legal representation. Call us today at (859) 254-5522.