Listed below are the Kentucky Bankruptcy Exemptions. Every state has the option to use the Federal exemptions or it may use their own state exemptions. Kentucky along with the majority of the other states uses federal exemptions. Indiana uses much smaller Indiana state law exemptions. Persons in Indiana often lose tax refunds and bank account funds if they don’t plan their bankruptcy.
Planning your Bankruptcy Exemptions
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 debt. You are allowed to keep a certain amount of property by using these exemptions. 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 to get rid of the debt.
You can plan with your lawyer to exempt all of your property and keep it. For example lets say: the value of the home is $204,000 and the mortgage is $140,000 and it is jointly owned. His home exemption is $25,000, hers is $25,000 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. 204,000-140,000 – 50,000 – 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
The following information in the table below is for 2020. Please note that the amounts increase in April of each year. Also note that Indiana has much smaller state exemptions.
Exemptions & Amounts
|Real Property Exemption is now $25,150 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 ($2525)|
|Household goods Exemption is now over per Debtor ($13,425) but not any item over 625. If it is over 625 use the wildcard to keep it||Personal Injury Case Exemption is now over($25,150) The Personal Injury claims exemption has always been the same value as the real property exemption|
|Automobiles Exemption is now over $4,000 in equity (one vehicle per spouse) we value it at trade in or auction value based on condition||Wildcard = Property Any Kind. This exemption is now $1,325 plus you can use half of the unused portion of any homestead exemption you did not use.|
|Professional Books and Library ($1,000) (attorneys lawyers doctors)||Retirement Accounts Tax-exempt retirement accounts are totally exempt. Taxable retirement accounts IRAs and Roth IRAs are capped at $1,362,800|
|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. However, in Chapter 13, the Debtor can always dismisses his case and then, his property is not taken from him. Instead, he remains in possession of it at all times. Also, for people who lose property filing for Chapter 7 Bankruptcy, they lose it because of one or more of the following reasons:
- They didn’t make the monthly car or home payments.
- The bank forgot to properly file the mortgage or car lien.
- They didn’t properly exempt property.
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. A husband and wife have individual exemptions so the amount doubles for a couple if they jointly own property.
Kentucky Bankruptcy Exemptions and Your Retirement Accounts
In 2020, each person has $25,150 in exemptions to keep their personal home under the Federal exemptions. In Kentucky, the Federal exemptions are at $4,000 for an auto. However, note that 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 also includes information about how property is exempted. The, if there is an issue, he will inform you. Interestingly, the Federal and Kentucky retirement exemption is for a reasonable amount. Because of the cost of retirement most courts have allowed over one million dollars. See bankruptcy code section 522(n). Also, If the retirement account has an anti alienation clause it is probably not property of the estate under § 541(b)(5).
Transfer Property and Lose the Exemption
Debtors sometimes make the mistake of transferring property to a friend or relative prior to filing for less than the fair value. Unfortunately, this probably becomes a fraudulent or preferential transfer. If that happens, you lose the exemption that might have allowed you to keep the property when you transfer it. However, the Trustee is allowed to undo a transfer in order to get transfers back to pay creditors. Additionally, the Debtor is not able to exempt property after he voluntarily transfers it. What happens next is that he loses it entirely and it is looked at as a fraudulent transfer.
Kentucky Exemptions and Keeping Your Home
Keeping a home in Chapter 7 or Chapter 13 bankruptcy is simple. To accomplish this, you simply keep the payments current and the property insurance up to date. In fact, the lender normally only wants the account up to date and insured. Then, the Trustee only wants property if there is too much equity. If there is too much equity, Chapter 13 will allow you up to 5 years to catch payments up if you are behind..This is with no risk of losing property by paying the excess equity to unsecured creditors. Also, Chapter 13 can be filed immediately after Chapter 7 to save a home. However, by doing this, you don’t get a second discharge because you have not waited the required time period. However, you can file and save the home.
Modifying a Mortgage or Delaying the Foreclosure
Sometimes its possible to refinance to a lower rate, or modify the mortgage while you are in Chapter 13. In fact, filing a chapter 7 or 13 gives you additional time to modify a mortgage or sell a home. However, Chapter 7 does not force the mortgage company to accept catching payments up over time because Chapter 7 closes within about 4 months after filing. With some predatory high rate mortgages or if you owe more than what a property is worth, it might be best to surrender the property over time. Another good strategy might be to defend the lawsuit and file bankruptcy cases at the right time to delay the foreclosure process as long as possible. Do this to give yourself a longer period of time to stay in the property rent-free.
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 Kentucky bankruptcy exemptions and how to keep your property in Bankruptcy. Download your free copy today. This is the link to the NOLO article on federal expemptions.