Will I Lose Everything If I File Bankruptcy?
The short answer is no. In fact, most of our clients in Louisville and the surrounding counties (Jefferson, Bullitt, Oldham, Spencer, and Nelson) keep everything they own. The fear of losing your home or car is the number one reason people delay filing for bankruptcy. That delay often costs them money. The truth is, bankruptcy laws are not designed to leave you destitute. They are designed to give you a “fresh start.” To do that, the law allows you to keep, protect, and “exempt” basic property from being sold by the court.
For the vast majority of our clients, the Federal exemptions are far superior to the state exemptions, offering significantly higher protections for your home, vehicle, and cash. Some states, like Florida, have much higher state exemptions.
Kentucky Bankruptcy Exemptions: Can I Keep My House and Car?
The Critical Choice: Kentucky State vs. Federal Exemptions
Kentucky is an “opt-in” state. This means the Kentucky legislature allows you to bypass the state-specific exemptions (found in KRS Chapter 427) and instead use the federal exemptions (found in 11 U.S.C. § 522). If you are sued in state court the creditor can take more that the Trustee can take in federal court.
You must choose either your state or the federal exemptions. You cannot “mix and match.” For example, you cannot use the Kentucky homestead exemption and the Federal car exemption. The Federal list is almost always the smarter financial move for Louisville debtors. If you have over one million in retirement funds, the Kentucky retirement exemption is unlimited and larger. The federal exemption uses “necessary” for retirement as a rule.
2026 Comparison: Federal vs. Kentucky Exemptions
| Asset Category | Kentucky State Exemption | Federal Exemption (for Feb 2026) |
| Homestead (Home Equity) | $5,000 per person | $31,575 per person |
| Motor Vehicle | $2,500 per person | $5,025 per person |
| Household Goods | $3,000 total | $16,850 total ($800/item limit) |
| “Wildcard” (Any Property) | $1,000 | $1,675 + up to $15,800 (unused homestead) |
| Tools of the Trade | $300 ($3,000 for farming) | $3,175 |
| Jewelry | Part of personal property | $2,125 |
(Note: Federal amounts adjust at least every three years. The figures above reflect the April 1, 2025 inflation adjustment.)
The Kentucky Homestead Exemption vs. Federal Homestead Exemption
Your home is likely your most valuable asset. Protecting it is our priority. The Kentucky bankruptcy exemptions for homesteads are outdated. KRS 427.060 only allows you to protect $5,000 of equity in your home. If you are married and filing jointly, that doubles to $10,000. In today’s housing market, $5,000 in protection is rarely enough.
The Federal Advantage:
Under the Federal exemptions (11 U.S.C. § 522(d)(1)), you can protect up to $31,575 of equity per person.
- Single Filer: Protects $31,575 in equity.
- Married Couple both on the deed (Joint Filing): Protects $63,150 in equity. If only one spouse files the non filing spouse keeps even more property. A non filing spouse keeps one half the equity when you compute whether the home or other property is sold.
What Is Equity?
Equity is the current market value of your home minus what you owe.
- Example: Your Louisville home is worth $250,000. You owe $200,000 on your mortgage. You have $50,000 in equity.
- Result: Under Kentucky state rules ($10,000 protection for a couple), the Trustee could sell your home to pay creditors. Under Federal rules ($63,150 protection for a couple on the deed), your home is 100% safe.
- Result if only one spouse files and the home is 300,000: After deducting the 200,000 mortgage, there is 100,000 in equity. The non-filing spouse keeps half the equity, 50,000, not just 31,575. The filing spouse keeps 31,575. Now the Trustee doesn’t have enough left to pay the cost of selling the home. Real Estate broker’s fee of 6% or $ 18,000, plus closing costs. There are no funds left over for creditors from a 300,000 sale. Under Federal rules ($81,575 of protection for a couple on the deed with just one person filing), your home is 100% safe.
Protecting Your Vehicle: The Motor Vehicle Exemption
Transportation is essential for your job and family.
- Kentucky Rule: Protects up to $2,500 of equity in one vehicle.
- Federal Rule: Protects up to $5,025 of equity in one vehicle.
If your car is paid off and worth $8,000, neither specific vehicle exemption fully protects it. However, this is where the Federal Wildcard saves the day.
The “Wildcard” Exemption: Your Secret Weapon
The Federal “Wildcard” exemption is the primary reason we recommend Federal exemptions over Kentucky bankruptcy exemptions for most clients.
How It Works:
If you do not use your entire Homestead exemption (for example, you rent your home, or you have very little equity), the Federal law allows you to apply the unused portion to any other property.
- Standard Wildcard: $1,675 applied to anything. Normally, we often use this for your checking account.
- Unused Homestead Spike: Up to $15,800 of your unused homestead amount.
Total Potential Wildcard: ~$17,475.
Real-World Example:
You rent an apartment (using $0 homestead), but you own a $15,000 car, fully paid off. It is a little unclear, but you can clearly use 15,000 of the unused home exemption. Some jurisdictions have allowed debtors to stack and use two exemptions to stack and exempt property. If both the wife and husband are on the title, they can both use their exemptions and double these exemptions.
- Vehicle Exemption: Covers the first $5,025 if the car is jointly owned a couple filing could exempt 10,050.
- Wildcard Exemption 50% of the unused homestead: Covers up to $31,575 for a couple.
- Result: You keep your paid-off car completely.
Kentucky judges and Trustees do not like the idea of stacking exemptions, such as adding 50% of the unused portion of the homestead exemptions and the vehicle exemptions, to exempt a $40,000 paid for auto for a couple. You get a fresh start in a slightly used KIA or Ford not a Mercedes that is nicer than the Trustee’s Chevy.
Retirement Accounts: Are My Savings Safe?
Yes. Both State and Federal laws aggressively protect your future.
- 401(k)s, 403(b)s, and Defined Benefit Plans: These are generally 100% exempt under both systems.
- IRAs: Protected up to roughly $1.5 million under Federal law.
- Social Security: 100% protected.
You should never liquidate your retirement to pay credit card debt. The law protects those funds for your old age. Let the bankruptcy wipe out the debt while you keep your nest egg intact.
What About Personal Property?
You don’t have to live in an empty house. The Federal exemptions allow you to keep substantial amounts of:
- Household Goods: Furniture, appliances, clothes, and electronics. $16,850 ($800/item limit)
- Jewelry: Up to $2,125.
- Tools of the Trade: Up to $3,175 for tools you need for your job.
Trustees generally do not want your used sofa or flat-screen TV. They are looking for high-value items like luxury boats, expensive artwork, or large amounts of cash.
Important: The Western District of Kentucky Context
We practice primarily in the Western District of Kentucky Bankruptcy Court. When you file, you will attend a “341 Meeting of Creditors,” usually held at the Gene Snyder Courthouse in Louisville (or via Zoom).
The Trustees in our district are thorough but fair. Their job is to find non-exempt assets to sell for creditors. Our job is to use these exemptions to ensure the Trustee finds nothing available to sell. By listing your assets accurately and applying the correct Kentucky bankruptcy exemptions (or Federal ones), we effectively remove your property from the Trustee’s reach.
Common Mistakes That Risk Your Assets
Exemptions only protect property you actually own and disclose.
- Hiding Assets: If you fail to list a boat or a bank account, you cannot exempt it. The Trustee can seize it, and you could face federal fraud charges.
- Giving Property Away: Transferring a car to your brother or signing your house over to your children before filing is a fraudulent transfer. The Trustee can reverse the transfer, take the property, and sue your family member. You can exempt items you own and keep. You can’t exempt property you gave away.
- Using the Wrong List: Filing with Kentucky state exemptions when you have $40,000 in home equity could cost you your house.
Summary: You Have Options
Bankruptcy is not about losing what you have; it is about protecting what you need. For over 30 years, I have helped thousands of Kentucky families navigate this process. We analyze your specific assets—your home equity, your car’s value, and your savings—to build a fortress around your property using the law.
Don’t guess with your financial future. Whether you need the power of Federal exemptions or the specific nuances of State law, we will guide you to the right choice.
External Resources
- U.S. Government Publishing Office – 11 U.S.C. 522 – The official text of the Federal Bankruptcy Exemptions.
This is the link to the NOLO article on federal exemptions.
Resources for Bankruptcy
Indiana Bankruptcy Exemptions • Video
Filing Chapter 7 & Chapter 13 Bankrupt
How to Qualify for a Chapter 7
How to Keep Tax Refunds in Chapter 7 or 13 Bankruptcy
Retirement Benefits & 401k in bankruptcy
If you are thinking about filing 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 Attorney: 502-625-0905.