Every state can use the Federal bankruptcy exemptions. Or it may use its state bankruptcy exemptions. Each state chooses which set of exemptions it wants to use. Along with most other states, Kentucky uses the federal bankruptcy exemptions. Indiana uses the much smaller bankruptcy exemptions found in its state bankruptcy code. Listed below are the Kentucky Bankruptcy Exemptions.
Here are the Indiana state law exemptions. Persons in Indiana often lose tax refunds and bank account funds if they don’t take time to plan their bankruptcy. It is essential in Indiana to empty the bank account just before filing. The intangible property, which includes money owed to you, is limited to about 400 dollars and includes income tax refunds and bank accounts.
Planning Your Bankruptcy Exemptions
Most of our bankruptcy clients keep all their property when they file for Chapter 7 bankruptcy in Kentucky. You must be honest and disclose any property you own or transfer. A debtor can keep a substantial amount of real or personal property by using your federal bankruptcy exemptions. Debtors use exemptions to exempt and keep property they own.
However, you cannot exempt property you gave away. If you gave property for less than its value, the Trustee would require that property be returned and sold for the benefit of creditors if it has substantial value. Property transferred for less than fair market value is a fraudulent or preferential transfer. People often attempt to give away luxury items they can not keep.
Kentucky Exemptions Allow You to Keep Reasonable and Necessary Items
Debtors plan what property to keep and what should go back. There is rarely a surprise about what property you can keep in bankruptcy in Kentucky because you know what property you own and your equity when you file bankruptcy. If you owe $25 million, you may be okay with sacrificing a 10,000-dollar car that is paid to get rid of the debt and not owe the debt.
You can plan with your bankruptcy lawyer to exempt the property and keep it according to the exemptions. For example, let’s say the home’s value is $200,000 the mortgage is $140,000, and it is jointly owned. Your Kentucky homestead exemption is over $25,000; hers is over $25,000.
The cost of selling the home is $4,000, and the trustee fee is $10,000 (Trustees are paid on a sliding scale, and for 200,000, they get 10%). Under this scenario, the amount paid to unsecured creditors would be $0. Since there is no benefit to creditors, a trustee would act improperly in selling the home. He must work for the benefit of creditors, who must get a benefit from selling the home.
How Do Exempt Properties in Chapter 13 Affect My Repayment Plan?
The rule to remember in Chapter 13 is that a Chapter 13 must repay what a Chapter 7 bankruptcy case would repay. If the debtor would have lost a 100,000-dollar truck in Chapter 7, then a Chapter 13 must repay 100,000 dollars minus any exemptions and costs of a sale.
This rule looks at more than what the auto is worth. The federal law looks at what Chapter 7 would have repaid from a sale of the asset. If an auction keeps 10% from the sale, it lowers what a Chapter 13 must repay by 10%.
The Trustee also keeps a portion of the sales of small asset cases up to 25%. After his fees are deducted, a Chapter 13 may only need to repay 65,000. The car in question will sell not for the retail value but the auction price, usually another 20 – 30% less than the NADA retail used car value.
This Chapter 13 only has to pay 100,000 minus 30,000 minus another 7,000 for the auction and about 15,000 for the Trustee. The debtor also deducts 4,000 for his auto and personal property exemption. Chapter 13 would only have to repay 44,000 to keep a 100,000-dollar truck.
If this is their home with no mortgage and a couple owned a 100,000 home, their two 27,900 Kentucky homestead exemptions minus the costs of sale and the quick sale value would often mean the debtors could keep a home valued at 100,000.
Having only some of your property exempt may increase your Chapter 13 plan payment, but due to these deductions from the value of a home or car, you may get to keep the property you would have lost in state court.
Declaring Your Property and Exemptions
Some people, unfortunately, get nervous when they file for bankruptcy in Kentucky under federal law. They have heard stories about people losing property by filing for bankruptcy in Kentucky. Sometimes debtors fail to list an asset because they don’t want to lose that asset.
However, if you hide and fail to list an asset, you don’t get to use any bankruptcy exemption to keep it. The petition must first be accurate. The penalty for not being complete and truthful is often losing the property you might have saved if you listed the property and exempted it.
People sometimes fail to list property because they forget they have an interest in it. Sometimes, they don’t think they own an interest in their parent’s home or bank account. But if they are on the deed or bank account as an owner, they own that property.
Attorneys do a small check on the public records about your assets to make sure some assets are not missed. However, not all purchases leave a proper paper trail. If you gave a house to the wife, and it was recorded days before filing bankruptcy in Kentucky it can be missed. It may not yet be on the county computer records. However, by the time of the 341 meeting, it will be found in the county court records.
Ultimately it is the responsibility of the debtor to truthfully and accurately list his assets. Some people are not aware of items that are assets of the estate that the Trustee can claim. If someone dies within six months after your bankruptcy, the inheritance from that person is part of the property you have to exempt.
If you purchase a lottery ticket that you didn’t know was a winning ticket when you filed, it is an asset. Tax refunds which you worked part of that year have a partial interest owed to the Trustee unless you exempt it.
The bankruptcy exemption only covers about 400 dollars of the bank accounts and tax refunds in Indiana. Planning your state and federal exemptions allows you to spend that refund before you file, so it is not an asset for the Trustee. You don’t have to give away property normally to the Trustee.
Some Assets Don’t Need an Exemption.
An asset may be valuable to you but until it has value the trustee can sell it has no value to the estate. If your business is a painting company and your only income comes from your labor, the company has no value unless it has assets like a truck or ladders.
You may own part of a partnership or corporation. But the stock in that corporation is the only asset you own. The Trustee cannot usually sell off the corporation to pay your debts unless you are the sole owner of that corporation. Partnerships and stock normally have no value until they sell.
Most well-drafted corporations and partnerships place the corporation outside the reach of a trustee or creditor. Business partners don’t want the business to be forced into a sale because of the creditors of one of the owners. Well drafted incorporation agreements will not allow the sale.
Business Bankruptcy and Exemptions
Only people can use a bankruptcy exemption. Businesses can use the exemptions. When a company files for bankruptcy, the assets are typically sold for the benefit of the creditors, especially in Chapter 7. Sometimes a business or the business owner can restructure and eliminate unprofitable contracts or divisions by filing a Chapter 7 or 11.
By restructuring the business in Chapter 11, the corporation can become profitable. But the company can not claim an exemption to keep the property. Instead, the business negotiates with its secured creditors for better terms.
The State of Kentucky and Federal Exemptions and Amounts
Kentucky allows you to use the federal bankruptcy exemptions, but it also has state exemptions. The Kentucky exemption for a home is only 5,000 in equity. The Federal exemption is over 27.000. Since the federal exemptions are almost always higher than the state exemptions, you can ignore the state exemptions and always use the federal exemptions.
The following information in the table is for 2022. Please note that the amounts increase in April of each year. Also, note that Indiana has much smaller state exemptions.
Exemptions & Amounts updated 9-21-2023 $0.00 amounts are unlimited
Highlighted common and important items, Exemptions with a 0 value are unlimited
If you give property away or sell it for less than it is worth before filing you cannot use the exemption to keep property you don’t own. You often recover garnished property.
|Public Assistance (Welfare benefits are generally exempt however if you mix welfare funds with other funds in a bank account the entire bank account can be attached)||$0.00||11 USC § 522(d)(10)(a)|
|Unemployment Compensation||$0.00||11 USC § 522(d)(10)(a)|
|Lost Future Earnings if you have a personal injury case (Pain and suffering amounts are often part of the estate and are limited)||$0.00||11 USC § 522(d)(11)(e)|
|Wrongful Death Awards Unlimited if the debtor dies this is normally needed for the benefit of the debtor’s dependents.||$0.00||11 USC § 522(d)(11)(b)|
|Homestead Exemption $27,900 per person on a deed. If you do not own a home you can use half $13,950 as a wild card for any property||$27,900.00||11 USC § 522(d)(1)|
|Animals & Livestock||$14,875.00||11 USC § 522(d)(3)|
|Wedding Rings, Jewelry, Furs||$1,875.00||11 USC § 522(d)(4)|
|Automobiles $4,450 per person on the title of an auto||$4,450.00||11 USC § 522(d)(2)|
|Wearing Apparel The household goods exemption is $14,875 which includes your furniture, clothes and household items. The total of the items must be less than 14,875.00. Use the trade in or liquidation value.||$14,875.00||11 USC § 522(d)(3)|
|Crops: Growing or Harvested part of your household goods exemption||$14,875.00||11 USC § 522(d)(3)|
|Wildcard Exemption This is a separate exemption and not 1/2 of the unused home real estate exemption||$1,475.00||11 USC § 522(d)(5)|
|Tools of Trade Tools used to make a living||$2,800.00||11 USC § 522(d)(6)|
|Household Goods and Furnishings The total of furniture clothing and all household goods items must be less than $14,875||$14,875.00||11 USC § 522(d)(3)|
|Wildcard (the unused portion of your home exemption this unused portion can be applied to any property)||$13,950.00||11 U.S.C. § 522 (d)(5)|
|Lien avoidance limit If your wages were garnished this allows you to take those garnishments back||$7,575.00||11 U.S.C. § 522(f)(3)|
|Personal Injury Settlement This should be used for the pain and suffering part of any Personal Injury case the lost wages and death are covered with other exemptions||$27,900.00||11 USC § 522(d)(11)(d)|
|Education IRA||$7,575.00||11 U.S.C. § 541(b)(5)(C)|
|Hobby Equipment Again part of the household goods exemption where together with clothes and furniture all items must be less than $14,875||$14,875.00||11 USC § 522(d)(3)|
|Qualified ABLE program funds||$7,575.00||11 U.S.C. § 541(b)(10)(C)|
|Books, Antiques, Art, Collectibles Again part of the household goods exemption of $14,875||$14,875.00||11 USC § 522(d)(3)|
|Tenancy By Entirety unlimited||$0.00||11 USC § 522(b)(3)(b)|
|Burial Plot Part of your real estate homestead exemption||$27,900.00||11 USC § 522(d)(1)|
|Life Insurance (unmatured)||$0.00||11 USC § 522(d)(7)|
|Pre-purchased tuition credits||$7,575.00||11 U.S.C. § 541(b)(6)(C)|
|Life Insurance (loan value, unmatured) a completely separate exemption||$14,875.00||11 USC § 522(d)(8)|
|Alimony or Maintenance Support||$0.00||11 USC § 522(d)(10)(d)|
|Veterans’ Benefit||$0.00||11 USC § 522(d)(10)(b)|
|Crime Victims’ Compensation||$0.00||11 USC § 522(d)(11)(a)|
|Wages||$0.00||15 USC § 1673|
|Tax Exempt Retirement Accounts||$0.00||11 USC § 522(d)(12)|
|Health Aids||$0.00||11 USC § 522(d)(9)|
|Disability Benefits||$0.00||11 USC § 522(d)(10)(c)|
|Social Security||$0.00||11 USC § 522(d)(10)(a)|
|Life Insurance (for support)||$0.00||11 USC § 522(d)(11)(c)|
|Stock Bonus, Pension, Annuity, etc.||$0.00||11 USC § 522(d)(10)(e)|
|Life Insurance (loan value, unmatured (Outdated)||$13,400.00||11 USC § 522(d)(8)|
|Public Student Loan||$1,000,000.00||20 U.S.C. 1095(a)(d)|
|IRA||$1,362,800.00||11 U.S.C. § 522(n)|
|Social Security (already received) Never mix these funds with other money in a bank account you lose the exemption||$0.00||42 U.S.C. 407. 522(d)(10)|
How is Property Lost to a Chapter 7 Trustee?
Only a Chapter 7 Trustee takes property away. In Chapter 13, the debtor can always dismiss his case to avoid losing property. In Chapter 13, the debtor remains in possession of his property.
If he owns too much property above the exemption limits, his payment must equal what Chapter 7 would have repaid. Most people who lose property in Chapter 7 Bankruptcy lose it because of one or more of the following reasons:
- They didn’t make the monthly car or home payments, and the lender takes it.
- The bank forgot to file the mortgage or car lien properly, so now the Trustee may be able to take it.
- The debtor transferred the property and then could not exempt it, or the debtor didn’t properly exempt property.
It is rare for someone to “lose” property to the Trustee because they filed for bankruptcy. You review how the mortgage and car titles were recorded when you filed for bankruptcy. In Chapter 7 or Chapter 13, you can discharge all of your debts and start life over with a “reasonable amount of equity in the property.”
Each state can have a different amount of “reasonable property” that you are allowed to keep when you file for bankruptcy. Most states use federal exemptions. A spouse has individual exemptions, so the exemption amounts double for a couple if they jointly own property.
Kentucky Bankruptcy Exemptions and Your Retirement Accounts
In 2020, each person had $27,900 in exemptions to keep their home under the Federal exemptions. In Kentucky, the Federal exemptions include $4,000 for an auto. However, note that Federal exemptions constantly increase with the bi-annual cost of living raises.
When your attorney reviews your Chapter 7 or 13 bankruptcy, he exempts property so you can keep it. If there is an issue, he will inform you about any risk.
Interestingly, the Federal retirement exemption is for a reasonable amount. The Kentucky exemption is unlimited. However, I have never seen a trustee take the position with an excessive retirement account.
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 the estate’s property under § 541(b)(5).
Transfer Property and Lose the Exemption
Debtors sometimes mistake transferring property to a friend or relative before filing for less than the fair value. It becomes a fraudulent or preferential transfer. If that happens, you lose the exemption that would have allowed you to keep the property when you transfer it.
The Trustee can undo a transfer to get transfers back to pay creditors. The debtor is not able to exempt property after he voluntarily transfers it. A debtor loses any ability to exempt and keep property. Transfers for less than its value are fraudulent transfers.
Kentucky Exemptions and Keeping Your Home
Keeping a home in Chapter 7 or Chapter 13 bankruptcy is simple. To accomplish this, you keep the payments current and the taxes and property insurance up to date. The lender normally only wants the account up to date and insured. A Chapter 7 Trustee only wants property if there is too much finance.
If there is too much equity, Chapter 13 must repay what Chapter 7 would have. But 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 proposing a plan which pays the excess equity to unsecured creditors. After a home is caught up, there may be no need for Chapter 13. Chapter 13 can be filed immediately after Chapter 7 to save a home.
Doing this doesn’t get a second discharge because you have not waited for the required period. However, you can file and catch up on a mortgage saving the home even though you just finished filing a Chapter 7.
Modifying a Mortgage or Delaying the Foreclosure
Sometimes it’s possible to refinance to a lower rate or modify the mortgage while you are in Chapter 13. Filing a chapter 7 or 13 gives you additional time to modify a mortgage or sell a home.
Chapter 7 does not force the mortgage company to accept catching payments over time because Chapter 7 closes within four 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 strategy is 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 to stay in the property rent-free and pursue other alternatives like finding a different home or selling the property.
If the property has a second mortgage with no equity, you may be able to destroy the second mortgage by stripping the second mortgage. See the subpage and chart for a complete chart of Kentucky Federal Exemptions.
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 exemptions.
Approach Us to Plan Your Bankruptcy Exemptions!
Whether you want to plan bankruptcy exemptions or keep your home according to federal bankruptcy law, Nick C. Thomson can help you! I own a team of legal professionals to carry out your formalities. Thus, contact us to know how to use the federal exemptions.
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.