Chapter 13 Exemption – What is it and How to Handle it?

chapter 13 exemption

Whether chapter 7 bankruptcy or chapter 13 bankruptcy, exemptions allow the filers to keep the assets they need to keep the job and house, moreover, it also helps determine how a debtor must pay in the repayment plan of chapter 13.

Property exemption in chapter 13 affects the payment amounts. Therefore, it is advised to consult with a professional Louisville, Kentucky, attorney to learn more about it.

We comprehend that bankruptcy is a stressful and unpleasant step that anyone, even the calmest, would have to take. That is the reason why we offer free consultancy to our clients.

The good news is: In chapter 13, bankruptcy, you can keep the property, but it comes with a price. As a debtor, you have to pay the amount of the property in 3-5 years.

In addition, the rest of the article includes information about nuances of exempt property in chapter 13 bankruptcy and other related aspects.

Keeping the Property By Bankruptcy Chapter 13 Exemptions

Since after filing for bankruptcy, you do not lose everything, but you also don’t have a chance to keep everything you have. Instead, start analyzing what are the bankruptcy exemption laws in your state.

Many states offer a homestead exemption that protects some amount of a home’s equity. If your state laws give you the leverage to choose from the federal or state bankruptcy exemptions, choose federal bankruptcy exemptions.

The homestead amounts are different substantially among states, so check whether your state laws are among the smaller ones or whether you qualify for the wildcard exemption.

Any money you cannot safeguard through the bankruptcy exemption is referred to as non-exempt property, and creditors will receive a similar amount for them.

Does Exempt Property Matter in Chapter 13?

calculate disposable income to pay off your debts

You agreed to repay part or all of your obligations in the chapter 13 bankruptcy filing. In return, you get a chance to keep your home. You can offer a repayment plan in bankruptcy, and the bankruptcy court will subsequently authorize it.

Generally, the time covered for the repayment plan is from 3-5 years, and the debtor is bound to pay monthly payments to the trustee assigned. The trustee is then responsible for the distribution of money to the creditors.

To put it similarly, here is some explanation about how the chapter 13 exemption works. Firstly, chapter 13 bankruptcy must get an equivalent amount or more than a creditor might get in chapter 7 bankruptcy.

For example, if the trustee of the chapter 7 bankruptcy case sells the property to benefit the creditors, creditors in the chapter 13 bankruptcy case should also get the same amount, at least the value.

So, how would you calculate what amount a creditor should receive?

It’s simple!

The debtor’s non-exempt property worth defines it. A debtor of chapter 13 bankruptcy must pay to keep the property that might have been lost if they filed bankruptcy under chapter 7 bankruptcy.

Kentucky State Laws for Chapter 13 Exemptions

calculate the worth of non exempt property

The rules and laws regarding property exemption differ from state to state. It entirely depends on how long you have been residing in the state and whether the state allows you to choose from federal exemptions or state exemption laws.

Kentucky Motor Vehicle Bankruptcy Exemptions

According to the Kentucky motor vehicle exemption law, you can use your accessories to safeguard up to $2,500 of a single car’s equity. However, certain occupations allow the storage of different cars.

Kentucky Homestead Bankruptcy Exemptions

You can safeguard up to $5,000 equity in any personal or real property in Kentucky that you have used as a regular residence. Moreover, you can also preserve the burial site for yourself or a dependent, along with your homestead exemption.

Wildcard Kentucky Exemption

In Kentucky exemption laws, you can keep your personal and real accessories worth $1,000.

Other Kentucky Bankruptcy Exemptions Laws

  1. Alimony and Awards: the alimony payments that are crucial for you and the people dependent on you, wrongful death awards, reparation funds for crime victims, personal injury awards up to $7,500, loss of future earning awards, and consortium loss awards.
  2. Trade Tools: the tools in the profession are worth $300, $2,500 for mechanic vehicles, $3,000 for farming tools and equipment, and $1,000 for professional office accessories, physician, dentist, or furnishing for an attorney.
  3. Personal Property: $3,000 in household and clothing items, $3,000 in farming tools, livestock, and prescribed health aids for the debtors and their dependents.
  4. Retirement Accounts and Pensions: ERISA- qualified retirement accounts, state and county employee pensions, firefighters and police pensions, and teachers’ pensions are exempt.
  5. Public Benefits: workers’ compensation benefits, unemployment benefits, and public assistance are exempt in Kentucky.
  6. Insurance: Benefits or proceeds from a casualty insurance company or cooperative life, proceeds from life insurance, and group life insurance proceedings.

Does Property Exempt Affect the Repayment Plan in Chapter 13?

pay creditors timely

The debtor must analyze their property, income, costs, and obligations before creating a repayment plan in chapter 13 bankruptcy. The most considerations in the property exemption are the debtor’s discretionary income and non-exempt property value.

Calculate the monthly expenses by reducing the living costs from the monthly earnings. The resultant should then be multiplied by the months’ number you have to repay the money, which is between 3-5 years.

Meanwhile, you must figure out which are exempt assets and subtract their prices from the overall worth of assets. Sometimes, a part of the item can be exempt because it exceeds the exemption limit.

Consequently, you have to pay two bigger sums to your bankruptcy trustee once you have completed your calculations regarding the disposable income and non exempt property. They will use those funds to repay your unsecured debts.

Secured debts are paid before unsecured debts and are tied to specific assets. If the bankruptcy trustee sells your assets, creditors with the secured debts must be paid first and in full.

Debts and Property That Can Increase the Payments of Chapter 13

If you have significant income and do not own a substantial amount of non-exempt property, you must be able to get your repayment plan on chapter 13 bankruptcy authorized. This is a common situation that many individuals in chapter 13 bankruptcy face.

They have enough money to keep their assets and property but not enough to pay their debts and bear living expenses in their region under chapter 7 bankruptcy. In the meantime, they haven’t bought a house or any other significant asset yet.

Whereas, if you have a lot of non-exempts but don’t make much money, chances are your repayment plan for the unsecured creditors will be rejected. In such a condition, a good option would be to file for chapter 13 bankruptcy.

It means the debtor has to the value of their non-exempt property while sending all their disposable income for the repayment plan. For instance, if you have a car and a home with a minimum income, chapter 13 is not an option.

Even if you are planning a 5-year repayment plan and your discretionary income isn’t sufficient to meet the requirements, you can sell your high-value assets to pay off the debts instead then considering bankruptcy.

Or else, they may sell your assets and then go for bankruptcy under chapter 7 or 13.

Calculation of Chapter 13 Repayment Plan

It is challenging for an ordinary person already going through a stressful bankruptcy situation to decide whether they can keep the house. Moreover, it is also tricky because first, you have to compute the repayment plan – and the money you owe to creditors might quickly add up.

In the chapter 13 bankruptcy repayment plan, you must know how much you have to pay your unsecured creditors. Therefore, start by subtracting your daily expenses cost from your monthly income. You have to pay the following debts from the remaining funds:

  • Mortgage monthly payment and car monthly payment unless you plan to send them back to the collateral party.
  • Total amounts of the missed car loan payments, mortgage payments, or any other secured debts that need to be paid.
  • You must pay the entire amount of priority debts, like support obligations and taxes.
  • Non-exempt property value
  • Other disposable income debts remain after you pay the previous expenses.

Calculation of Nonexempt Property Value

I advise you to list the assets you own and their worth. Then go through in detail and learn what your state bankruptcy exemptions laws (or federal bankruptcy exemptions laws, if you qualify for them) say about your assets. After this thorough research, you will know which part of your property is exempt and the worth of the non-exempt property you own.

Let us consider an example; you own a harpsichord worth $2,500, and as per your state laws, you are allowed to exempt $5,000 for the musical instruments. To that end, you can keep the instrument with you as it doesn’t exceed the exemption limit.

Whereas, if your state does not have an exemption for musical instruments, you must pay the instrument’s value to the unsecured creditors. Such payments happen through the Chapter 13 repayment plan.

Contact Our Law Firm Today to Ensure You Get the Right Assistance for Chapter 13 Exemptions!

At my law firm, I comprehend the right pick for you and which bankruptcy suits you. I have experience and a wealth of knowledge handling bankruptcy cases in Louisville, Kentucky, and Indiana.

If your relative, friend, or family member is facing a challenging financial situation, we are here to assist you. Contact us now, book a free consultancy session, and make the best decision.

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If you are considering bankruptcy, don’t delay because timing is crucial. I am here to help you. So, contact my office right away to start the conversation. Nick C. Thompson, Bankruptcy Lawyer: 502-625-0905.


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