Welcome to our General Bankruptcy faqs frequently asked questions page. The answers you find here specifically reference Kentucky Bankruptcy Law; your state’s bankruptcy law is probably very similar. This is because the bankruptcy code is a federal law. However, your State’s exemption laws govern the property that you keep. We invite you to continue reading to learn more about the questions and answers below and get information about the bankruptcy code.
1. Should I File for Bankruptcy?
A person should file Bankruptcy if, and only if, they can’t pay medical bills and other bills as they come due or is about to lose property or have property attached by the Court. A Chapter 7 bankruptcy normally has less impact than a foreclosure or repossession on your credit.
Chapter 13 takes 3 years if your income is less than the average income or 5 years if above average.
2. Keep More of Your Property by Bankruptcy Filing
Very few people lose property when they file for bankruptcy. For 2022 in Kentucky, you are allowed to keep about $4,450 equity in a car, $13,875 in personal household goods, $27,900 in a home, and at least $3,000 in any property that you choose in a general exemption plus one-half of the unused portion of the home exemption. The exemptions are adjusted annually. For married couples filing jointly, these exemptions are doubled.
To stop foreclosure in Kentucky with Chapter 13, you only need to cure the arrearage within a reasonable period, which may take up to five years.
3. The Debt You Can Manage or Pay in Chapter 13 But Can’t Discharge
Only seven magical items can be paid in Chapter 13 but not discharged: child support, alimony, taxes less than 3 years old, federally guaranteed student loans, debts due to fraud, other debts due to drunk driving, debts due to intentional injuries, and criminal restitution.
There are exceptions to even these 7; for instance, student loans can be discharged if they are an undue hardship. When in doubt, always list the debt when filing because you might be able to add it to your Bankruptcy due to an exception. If you have other questions about the bankruptcy filing of a Kentucky Bankruptcy petition or want to talk to expert bankruptcy petition preparers, e-mail us at Office@Bankruptcy-Divorce.com or call 502-625-0905.
4. What Does it Cost to File Bankruptcy?
Court costs are about the same, $338 for Chapter 7 bankruptcy and $310 for Chapter 13, plus postage for sending the plan to the creditors ($25), so both filing fees are about $338. Uncontested Chapter 7 bankruptcy Attorney fees at our office will run about $1,200 for a single, $1,400 for a couple, plus any filing fees, but expect fees and attorney fees to increase. Bankruptcy attorney fees have been the same for 8 years; they will increase. About 5% of a bankruptcy case may require additional work for a motion to redeem, strip a judicial lien, etc.
The Court sets chapter 13 attorney fees, and the Bankruptcy Court presently pays about $4100 in Western Kentucky for Chapter 13 through confirmation and the schedule of allowed claims. This is paid to the bankruptcy attorney as you pay the Court and normally only decreases what is paid to unsecured creditors.
5. What Happens When I File for Bankruptcy?
When you file Bankruptcy petition, a temporary court order called a stay goes into effect immediately, stopping all collection activity. This includes stopping foreclosures, attachments, garnishments, and creditors contacting you. The sooner you come into the law office, the sooner you can get relief, the more you can get back—and the more you can save from creditors. You will have a 341 hearing about 4 to 6 weeks after the Bankruptcy is filed.
When the Bankruptcy is finally over, a bankruptcy discharge is issued. This is a final and permanent order that permanently stops all collection activity and declares the debts to be non-collectible. Bankruptcy does not normally get rid of a security interest you gave to a creditor, such as a mortgage or a standard car lien. Still, it can destroy or modify some mortgages and judicial liens. It makes you no longer liable for the debt if you successfully get the discharge.
6. Can I Plan My Bankruptcy?
Of course! Good planning is why you want to read our manual. Planning allows you to save more money and property and gives you a workable budget for success. For instance, you may wish to delay bankruptcy filing to ensure that your taxes are over 3 years old and dischargeable. This is just like taking proper tax exemptions when you file a tax return.
There is nothing illegal or improper with properly taking exemptions. But you can become too greedy in converting assets. Always involve your bankruptcy attorney in planning your Bankruptcy. Waiting a few months until your tax debt becomes bankruptable is acceptable. However, converting large amounts of corporate assets into your retirement or going on a spending spree with credit cards just prior to filing isn’t.
7. How Long Will Bankruptcy Take?
It will take about 4 months for Chapter 7 bankruptcy to be final. (You will get a letter within 10 days of filing, telling you the time and date of the 341 hearing and that you must take the second class (Debtor education).
A hearing will be held about 5 weeks after you file for bankruptcy petition. Chapter 13 normally takes 5 years, but if you earn less than the average income, districts will consider a 3-year plan.
8. How Do I Qualify for Bankruptcy? Can I Not Be Approved?
You qualify for Bankruptcy if your outgo exceeds your income or your liabilities exceed your assets. If you don’t qualify, we will tell you when we type up the Bankruptcy. It is very rare not to qualify. In my first 15 years of practice, I had one person not qualify for Chapter 7 bankruptcy. Since 2005 there have been disposable income limits for Chapter 7 bankruptcy.
You only have to be a US citizen, reside in the state you file in, and not have filed within the designated time (you can’t file two Chapter 7’s within 8 years of each other). You cannot chain-file bankruptcy cases repeatedly. 11 USC 109(g) governs repeat filing.
9. What If the Court Does Not Approve my Chapter 13 or Chapter 7 Bankruptcy?
If anything is wrong with your Chapter 13 or Chapter 7 bankruptcy, it can normally be easily corrected by amendment. Of course, it is less costly and time-consuming to do it right the first time. If you earn so much money that you can afford Chapter 13, you will be forced to convert it from Chapter 7 bankruptcy to Chapter 13. Repayment plans are often modified. Occasionally, a bankruptcy case will be dismissed because of fraud, but not being approved is very rare.
10. How Often Can I File Bankruptcy?
For Chapter 7, you may file for bankruptcy eight years after your last Chapter 7 was discharged (prior to 10/2005, the time limit was six years). However, for Chapter 13, you may file for bankruptcy two years after a prior Chapter 13 discharge. Additionally, you can file a Chapter 7 four years after a Chapter 13 discharge. However, you can only have one Bankruptcy going on at a time. We have a chart for this in our manual.
11 If I File, Does it Mean My Old Debts are Erased from My Credit Report?
No! What is reported is that you had a debt, that your account is closed, and that bankruptcy was filed. Bankruptcy does not automatically give you a good credit record or “repair” your credit record. You repair your credit report by paying your debts on time after the Bankruptcy and by deleting inaccurate information from your report.
12. Will it Affect My Business If I file a Personal Bankruptcy?
First, if you solely own the business, the business is merely your asset. If a solely owned business has substantial value, it belongs to the bankruptcy Trustee like any other asset.
However, if the business is co-owned, such as a partnership or corporation, it becomes almost impossible for creditors to reach assets for your personal debt. If your business file Bankruptcy, it generally doesn’t affect you unless you are personally responsible for the business’s debts.
13. Do I Have to Pay My Bills During Chapter 7 or 13?
No. Don’t pay any bills after you file a Chapter 7 bankruptcy until you have negotiated with the creditor to keep the property. Don’t pay any payment in Chapter 13 unless it is the regular monthly mortgage or car loans payment, and the 13 was filed to retain that property and catch up on any arrearage.
14. What Will Happen to My House and Car?
You are allowed to keep a certain amount of property in Bankruptcy. When we prepare for your Bankruptcy cases, we will tell you if you are at risk of losing the property. At the time of filing, all property that is not exempt belongs to the bankruptcy Trustee. The idea is to exempt it all so that you keep it all.
Of course, the law concerning what property you can keep varies from state to state. We provide you with the exemptions in the manual and on our website. If you are in another state, please beware that many websites have the amounts wrong, and the amounts may not be up to filing date. We keep the amounts for our state (Kentucky) up to date.
15. Do I Have to Keep Up the Insurance on My Vehicle?
Suppose you fail to keep full coverage insurance on your vehicle paid for three months. In that case, the creditor may automatically pick up your vehicle, according to the local rules in the Western District of Kentucky. Other jurisdictions have similar rules.
16. Can I Revoke a Reaffirmation?
In Chapter 7, you can do four things with a secured debt. You can surrender a lemon auto. You can redeem a car and pay the NADA retail value of the auto and obtain a release of the title. Or you can reaffirm and keep making the payments.
If you change your mind and want to let an auto go back, you can revoke a reaffirmation. But it must be revoked within 60 days of the 341 hearing or before discharge, whichever comes first. It should be revoked in writing and sent by certified mail, so you have proof.
17. Will I Lose My 401(k) or Retirement Fund?
Your retirement is completely exempt and protected under Kentucky law. Other states have other exemptions to protect retirement plans. However, you should talk to a qualified bankruptcy attorney to get his opinion. The United States Supreme Court has held that pension plans, 401(k) plans, and other “ERISA-qualified plans” are generally excluded from the Bankruptcy Estate under 11 USC § 541(c)(2).
Unlike 401(k) plans, IRA accounts are not ERISA-qualified plans. However, in Kentucky and most other states, an IRA is excluded from the Bankruptcy Estate or otherwise exempt because of a state statute. Some Bankruptcy Court Judges have held that an IRA may be partially exempt under 11 USC §522(d)(10)(E).
18. I Have a Personal Injury Lawsuit—Will I Lose Those Funds?
In Kentucky, you can keep up to about $27,900 as an exempted amount of a personal injury lawsuit that you have pending. If both debtors were injured, you might keep $55,800. Other states have different exemptions.
19. The Finance Company Took My Household Goods as Collateral. Do I Have to Turn Them Over?
It is possible that you may be able to avoid household goods liens if the debt was not borrowed within about 90 days before filing Bankruptcy. You can also do a redemption. That 5,000 mattress is probably only worth 200 after the babies and dog slept on it.
20. I was Just Garnished. What Can I Do?
If a personal property was taken from you just before filing Bankruptcy case, and it was over $600, it can normally be gotten back. Liens on a property that was from a lawsuit can be removed. Garnishments and foreclosures can be stopped. The sooner you seek help, the sooner you can stop the bankruptcy process. It is important to seek help as quickly as possible.
21. Am I Liable for Income Taxes on Debts Discharged or Property Taxes for Items Surrendered in Bankruptcy?
People often give up cars, and the auto is sold in another state. The car property tax debts will continue to be sent to the Debtor even though he surrendered the property. To correct this in Kentucky, you can file an affidavit with the County Clerk’s office to correct the matter, proving the Debtor did not have the car after discharge. If you kept the auto, then you are liable.
Property taxes are statutory liens on the property, and the new home or car owner must pay the property tax to obtain a clear title. There is no property tax if you discharge a debt in bankruptcy before the lender takes the write-off for the debt. You must file bankruptcy before a foreclosure sale to prove you didn’t have the obligation when he writes off the debt.
If you bankrupt the debt, there is no income tax liability from it. If you don’t file bankruptcy, the amount written off is treated as an income on 1099.
22. How Long Should I Keep a Copy of My Bankruptcy?
Keep a copy of your Bankruptcy, with your tax papers, for at least 7 years. For one thing, you need them for a future mortgage application. However, they are part of an electronic filing system which means they are available for download at any Bankruptcy attorney’s office—if you filed after October 2002. For tax purposes, the requirement is to keep them for 3 years. After 3 years, the IRS has the burden of proof. But, regardless, we recommend that you keep all your tax and Bankruptcy records for 7 years.
23. When Will I Be Able to Get Credit Again?
You should be able to get other credit within 6 months to a year after discharge. However, your ability to get credit is still based on your income and history of repayment, along with the security you offer. However, you should be able to purchase a car or house if you reaffirm one or two debts and pay for them on time after your discharge. You must always be able to afford what you buy on credit or meet credit standards.
You will have to reestablish your credit report by paying on time after filing. We are happy to talk to you and recommend home mortgage bankers and other services in Kentucky. We can also recommend mortgage bankers and realtors that work specifically with bankrupt debtors.
Some companies lend to you while you are in Bankruptcy. 722 Redemption Funding will sell you a car at wholesale price (at about 21% interest), and they will also finance the redemption of some cars at the wholesale book value.
24. Will My Employer or Landlord Find Out About My Bankruptcy?
Bankruptcy petition are public records. However, under normal circumstances, no one knows you filed a bankruptcy petition unless you tell them. Chapter 13 debtors are often required to make payments through wage deduction, which means the employer learns about bankruptcy. Demoting or Firing an employee is discrimination under the bankruptcy code.
25. Will This Affect My Getting an Apartment?
Many larger apartment complexes are owned by banks, and banks tend to grant leases, according to credit bureau reports. Bankruptcy can affect you. Small landlords will call former landlords and may not check credit report.
26. Can I Run Up Charges on My Credit Cards Just Before Filing?
The official answer is “No.” Unfortunately, many people mistake using their charge cards just before filing. Spending sprees and charges of over $1,000 on any card within 90 days before filing are presumed fraudulent and non-dischargeable. Also non-dischargeable are luxury items over $500 charged within 90 days and cash advances of $750 within 70 days.
However, charges to an account that takes place more than 90 days before filing are presumed proper. Be aware that the rule about not charging within 90 days of filing isn’t written in stone. There are 12 factors. Judges use it to determine if a charge is fraudulent. The only penalty is that you will have to repay what you charged, not the entire debt. There isn’t a “penalty” to these spending sprees. American Express monitors them the most, and Lowe’s department stores the least.
27. Can I Give the Property Away Just Before Filing?
Gifts of personal property over $600 just before filing are improper. Selling a property for less than its value is also a fraudulent transfer, and the Court can go after that property and the person you gave items to. Gifts under $600 are not improper. For example, give one gift of $900 to your child, which is improper. But, give two gifts of a $450 computer to one child and a $450 car to another child — even minutes apart — and that is proper.
28. Can I Bankrupt a Utility Bill?
Yes, but they may make you pay a deposit equal to one month’s service to keep service with them. Cable TV is the exception because it is a luxury, not a utility. Cable TV can discontinue service if you bankrupt their bill. You won’t have to pay it, but they don’t have to turn it back on until you do.
If you include utilities in your bankruptcy, you need to immediately advise your utility, phone, water, gas, and electric company that you have filed. Tell them your bankruptcy case number and the date you filed. If you file bankruptcy Chapter 7, don’t pay, and don’t contact them, you may end up having your service turned off. It may be a month before the utility finds out that you have filed, so if you list a utility, advise them immediately.
29. Can I Get My Driver’s License Back?
If you have lost your license due to involvement in an accident where you had little or no insurance, filing Bankruptcy restores your license. We have the forms at our law firm! Fax forms to 502-564-3250 in Frankfort. And see our post on how to get it back.
Other Related Information
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.