Kentucky Bankruptcy Exemptions

Kentucky bankruptcy lawyers know that bankruptcy exemptions protect your property.

Bankruptcy is a legal way to have many of your debts forgiven and get a fresh start working toward a brighter financial future. Unfortunately, people often are afraid to file for bankruptcy because of the misperception that all their property is turned over in bankruptcy in order to help pay for outstanding debts.

This is not true. On the contrary, filing for bankruptcy may offer a legal way to keep most, if not all, of your possessions. It can also free you of harassment from creditors and the threat of repossessions, foreclosure, wage garnishment or bank account levies, while providing a fresh financial start.

Federal and Kentucky bankruptcy exemptions may be available to you.

The good news is that there are both Kentucky and federal bankruptcy exemptions which enumerate assets that a bankruptcy filer is allowed to set aside and keep out of reach of the bankruptcy court’s management. In Kentucky, you can choose either set of exemptions, and, depending on the circumstances, in some situations you may be able to keep all of your possessions. An experienced and effective bankruptcy attorney can help you evaluate your individual situation and take advantage of these exemptions.

If you are in dire financial straits and are considering a bankruptcy for either you or your business, contact Bunch & Brock, Attorneys at Law and let us help. Bunch & Brock of Lexington has more than 35 years of experience in handling bankruptcies, both big and small, and we are eager to use our experience to help you. We’re proud to serve our community’s legal needs, from large corporations to individuals. We will listen to your concerns and evaluate your situation to help you find the best solution for your family or your business. We have the knowledge, experience and resources to help you use bankruptcy to your best advantage.

For answers to your questions or to set up an appointment, call us today at 859-254-5522.

Kentucky Exemptions from Creditors

Exemptions depend on which type of bankruptcy is right for you.
In Kentucky, two main types of bankruptcy are employed — Chapter 7 and Chapter 13. The type you choose depends on your situation and financial needs.

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. As a result, most Chapter 7 and Chapter 13 bankruptcy filers in Kentucky will be using federal exemptions.

Chapter 7:

In Chapter 7 bankruptcy, all your dischargeable debts will be erased. In return, some assets are liquidated and sold at auction in order to pay off as many outstanding debts as possible. Your exemptions protect certain types of property from bankruptcy liquidation sale in Chapter 7. Anything you own that is worth less than an available exemption is considered exempt property, and you can keep it. If you have non-exempt property, this can be sold to repay some of your creditors prior to Chapter 7 debt discharge, when the remaining outstanding debt is discharged, or wiped away.

Chapter 13:

Chapter 13 bankruptcy is restructuring of debt, often by negotiating for easier payments and, if a business, giving time to implement a different business plan. Exemptions for Chapter 13 often allow repayment options to go even lower.

According to the bankruptcy code {11 U.S.C. § 1322(d)}, Chapter 13 allows you to restructure and pay off your debts over a period of three to five years. When you file for Chapter 13 bankruptcy, your attorney will propose a repayment plan to your creditors under which you can make installment payments to pay off your debt, or a portion of it. During this time, the creditors are forbidden from starting or continuing collection efforts against you.

Chapter 13 bankruptcy may be right for you if you are in a situation where you wish to keep valuable assets, like a home, and you are earning enough money to repay some of your debts over a period of time. If you are a homeowner whose debts have caused you to be behind on mortgage payments, Chapter 13 will allow you to make up this amount over time so you can save your home from foreclosure, and you may get to keep additional assets as well.

To determine whether Chapter 13 is your best option, our bankruptcy attorneys will examine the assets that you wish to keep and your income to make sure it will allow you to qualify.

Types of Bankruptcy Exemptions

There are two basic types of exemptions: federal and state. Federal exemptions are put in place by the federal government and are applicable in every state. State exemptions are enacted by the states themselves and apply only to the specific state for which they are created. Each state also has specific rules about which exemptions may be employed, whether federal, state, or both. In Kentucky, an individual applying for bankruptcy may choose to use federal or state exemptions, but not both. Some general rules apply to most exemptions. While the goal of the courts isn’t to take everything you own, you likely will have to forfeit some non-exempt property.

Luxury Items – These items include property and materials often considered by the court to be superfluous and unnecessary. Examples are vacation homes, expensive vehicles, yachts and other non-essential items where there is sizeable non-exempt equity.

Jewelry – Exemptions are generally reasonable in this category. For example, wedding rings, up to a specific price, depending on state or federal law, are mostly exempt. However, high-priced jewelry is very rarely protected.

Animals– The state and federal governments, as a general rule, have no interest in collecting your pets. The exception, of course, are high-value animals, including horses sent out to stud and other animals used for profit.

What is the Kentucky Homestead exemption from creditors?

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. If you own your home, you can protect up to $25,150 of equity in real property; if your mortgage balance is greater than the value of your home, you have no equity. If you don’t own real property, or you don’t have any equity you’d need to protect, the federal bankruptcy exemptions allow you to use up to $12,575 as an additional wildcard exemption instead. A married couple gets an exemption of twice this amount.

Other Kentucky Bankruptcy Exemptions You Should Be Aware Of

The purpose of Kentucky exemptions is to make sure you are left with enough property to start fresh once your debts are discharged. However, limits are placed on amounts, based on the specific exemption and type of property. For example, while most everyone needs a vehicle to get to work, do shopping, and get to doctor’s appointments, a new luxury vehicle is not necessary. As a result, the motor vehicle exemption is limited to a certain dollar amount. This and other limit amounts are updated every three years and will next be updated on April 1, 2022.

Some other Kentucky and federal bankruptcy exemptions and their current limits 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 $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). Wildcard exemptions are a category of exemptions that allow you to apply all or a portion of the exemption to an item that belongs in another category, or no category at all.

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.

Examples of Utilizing Federal Exemptions vs. Kentucky Exemptions

Kentucky Revised Statute § 427.010 exempts personal property and health savings funds and protects disposable earning during bankruptcy. Also, individuals are specifically allowed to employ federal exemptions, which are generally greater than Kentucky exemptions.  Some examples of the benefits of using federal exemptions are:

  • No more than $12,250 in household goods and items, versus $3,000 under Kentucky exemption laws of KRS 427.010(1)
  • No more than $2,300 in value of professional books or tools of the trade, versus $3,000 of farming livestock, tools or equipment under Kentucky exemption laws
  • No more than $3,675 of equity in one motor vehicle, versus $2,500 of equity under Kentucky law
  • All health aids professionally prescribed for the individual or their dependents
  • A “wildcard” exemption of $1,225 plus $11,500 of unused exemption from your homestead exemption for a total of $12,725, versus $1,000 under Kentucky’s wildcard exemption
  • A homestead exemption of $22,975 of equity in your primary residence, versus $5,000 under Kentucky law KRS 427.060

Earnings are also protected under Kentucky law. With some exceptions, the maximum part of a person’s disposable earnings that can be garnished for any workweek may not exceed the lesser of either:

(a) Twenty-five percent (25%) of disposable earnings for that week, or
(b) The amount by which disposable earnings for that week exceed thirty (30) times the federal minimum hourly wage in effect at the time the earnings are payable.

Call Our Bankruptcy Lawyers for Help Today

Bunch & Brock has been serving our community and the entire state of Kentucky from offices in Lexington for more than 35 years. We don’t just serve the community – we are members of it, and we look forward to helping our neighbors when they need us. If you have legal questions regarding bankruptcy or would like to set up an appointment, call us at 859-254-5522.