Kentucky Bankruptcy Exemption keep your property!

Kentucky Bankruptcy Exemptions

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Listed below are the Kentucky Bankruptcy Exemptions.  Kentucky uses the federal exemptions. Indiana has similar but smaller Indiana state law exemptions. Persons in Indiana often lose tax refunds and bank account funds if they don’t plan their bankruptcy.

Most of our bankruptcy clients keep all their property when they file a Chapter 7 bankruptcy, unless they want to surrender the property and not owe. You are allowed to keep a certain amount of property in a Chapter 7 bankruptcy. You do not lose property that is exempt. There is rarely a need to lose property in bankruptcy because you know what property you own and what equity you have. But if you owe 25 million you may not mind losing a 10,000 dollar car that is paid off.

You can plan with your lawyer to exempt all of the property and keep it. For example lets say: the value of the home is $200,000 and the mortgage is $140,000 and it is jointly owned. His home exemption is $23,000, hers is $23,000 the cost of selling the home is $4,000 the trustee fee is $10,000 (Trustees are paid on a sliding scale and for 200,000 they would get 10%). Under this the amount paid to unsecured creditors would be $0.  200,000-140,000 – 46,000 – 4,000 -10,000 = 0  Since there is no benefit to creditors, a Trustee would be acting improperly in selling the home. He must work for the creditors not just sell homes with no benefits to creditors.

Kentucky and Federal Exemptions. 

 

This is 2017.  This increases every year in April.  Indiana has much smaller exemptions.

Real Property Exemption is now $23,675 in equity.  You must live in the property or it is reduced by 1/2 and used as a wildcard.Tools Equipment and Livestock Exemption is now over ($2375)
Household goods Exemption is now over per debtor ($12, 625) but not any item over 600.  If it is over 600 use the wildcard to keep itPersonal Injury Case  Exemption is now over($23,675) always the same value as the real property exemption
Automobiles Exemption is now over $3,775 in equity (one vehicle per spouse) we value it at trade in or auction value based on conditionWildcard = Property Any Kind.  This exemption is now $1,250, plus half  of the homestead exemption you did not use.
Professional Library ($1,000) (attorneys lawyers doctors)Retirement Accounts  Tax exempt retirement accounts are exempt, IRAs and Roth IRAs are capped at $1,283,025
Unmatured Life Insurance cash value (now unlimited) Jewelry  1600
Professional Vehicle ($2,500) (attorneys lawyers doctors)Professional Library and Professional Tools($2375)

How property is lost to a Chapter 7 Trustee

Only a Chapter 7 Trustee takes property away.   In a Chapter 13 the Debtor can always dismiss his case and his property is not taken from him.  He remains in possession of it at all times.  Most people who lose property filing for Chapter 7 Bankruptcy lose it because:

  • They didn’t make the monthly car or home payments or
  • The bank forgot to file the mortgage or car lien

It is rare for someone to “lose” property to the court just because they filed for bankruptcy. When you file for bankruptcy you review how the mortgage and car titles were recorded. In a Chapter 7 or Chapter 13 you are allowed to discharge all of your debts and start life over with a “reasonable amount of equity in property.” Each state can have a different amount of “reasonable property” that you are allowed to keep when you file for bankruptcy. Kentucky and most states use the Federal exemptions. A husband and wife have individual exemptions so the amount is doubled for a couple if they own property jointly. For instance, a couple with a $200,000 dollar home may have a $160,000 dollar mortgage and still keep their home in Kentucky in Chapter 7 or Chapter 13 bankruptcy.

Retirement Accounts

Each person has a $21,000 exemption to keep their personal home under the Federal exemptions. Kentucky and the Federal exemptions have a $3,250 exemption for autos. Kentucky and the Federal exemptions constantly increase with bi-annual cost of living raises. When your attorney reviews your Chapter 7 or 13 bankruptcy he will review how property is exempted and will inform you if there is a problem. The Federal and Kentucky retirement exemption is at least one million dollars see bankruptcy code section 522(n).  If the retirement account has an anti alienation clause it is probably not even property of the estate § 541(b)(5) .

Transfer property and lose the exemption

Debtors can make the mistake of transferring property to a friend or relative prior to filing for less than a fair value. This can become a fraudulent or preferential transfer.  You lose the exemption that may have allowed you to keep the property when you transfer it. The Trustee is allowed to undo a transfer in order to get transfers back to pay creditors. The Debtor is not able to exempt property after he voluntarily transfers it. What happens is that he loses it entirely and it is looked at as a fraudulent transfer.

Saving your home

Keeping a home in a Chapter 7 or Chapter 13 bankruptcy is simple. You simply keep the payments current and keep the property insured. The lender only wants the account up to date. The court only wants property if there is too much equity. A Chapter 13 will allow you up to 5 years to catch payments up if you are behind.   And a Chapter 13 can be filed immediately after a Chapter 7 to save a home.  You just don’t get a second discharge because you have not waited the time period.  But you can file the save the home.

Sometimes you can refinance to a lower rate, or modify the mortgage while you are in a Chapter 13.  Filing a chapter 7 or 13 can give you the additional time to modify a mortgage or sell a home.  A Chapter 7 will not force the mortgage company to accept catching payments up over time.  With some high rate mortgages or where you owe more than what a property is worth it may be best to surrender the property over time. A good strategy may be to defend the lawsuit and file bankruptcy cases at the right time to delay the foreclosure process as long as possible giving you a longer period of time to stay in the property with free rent.

If the property has a second mortgage with no equity you may be able to destroy the second mortgage by stripping the second mortgage.  For a complete chart of Kentucky Federal Exemptions see the subpage and chart.

The Bankruptcy Manual fully discusses exemptions and how to keep your property in Bankruptcy. Download your free copy.