Bankruptcy in Louisville, Kentucky: Chapter 7 vs. Chapter 13 Path
Stop Foreclosure. End Garnishment. Start Your Financial Fresh Start Today.
Are you living under the crushing weight of debt, constantly losing sleep worrying about losing your home or car? Dealing with harassing creditors, wage garnishments, or bank levies creates intense emotional stress, making it difficult to focus on your family or job.
You are not alone, and your situation is not hopeless.
Bankruptcy is a powerful legal tool. You can even discharge some student loans, and income taxes over than three years old. It is designed by federal law to give honest, hardworking people the ability to stop the chaos and gain a fresh financial start. But the first critical decision you face is choosing the right legal path: Chapter 7 or Chapter 13. Choosing the wrong option can cause unnecessary costs and delays and even lead to the loss of assets you are trying to protect.
Our goal on this page is to cut through the legal confusion and provide clear, confident guidance on the pros and cons of each type, helping you identify the best strategic path for your family’s future in Louisville and surrounding Kentucky counties.Filing Bankruptcy in Louisville, Kentucky
- Wage Garnishment: It immediately halts the seizure of your paycheck.
- Judgment liens that attach your home: Wait too long and a creditor may own your home.
- Bank Levies: It prevents creditors from freezing or taking money from your bank account.
- Foreclosure Proceedings: It stops the foreclosure sale, providing necessary time to create a long-term plan to save your home.
- Car Repossession: It prevents the creditor from taking your vehicle.
- Creditor Harassment: It ends the constant, stressful phone calls and collection letters.
The Automatic Stay gives us the vital “breathing room” we need to strategically choose between Chapter 7 and Chapter 13 to secure your long-term stability.
Takeaway Summary: Quick Guide to Chapter 7 vs. Chapter 13
Choosing the correct bankruptcy chapter is everything. This table provides a quick, high-level summary to help you understand the primary differences and the quickest way to address your crisis.
| If Your Goal Is To… | Chapter 7: The “Clean Slate” | Chapter 13: The “Payment Plan” | Actionable Insight |
|---|---|---|---|
| Eliminate Unsecured Debt (Credit Cards, Medical Bills) | Quickest cheapest path to eliminating unsecured debt (4–6 months) | Debt discharged after a 3–5 year plan | Chapter 7 provides the fastest path to a financial fresh start if you qualify. |
| Stop Foreclosure & Catch Up on Mortgage Payments | Chapter 7 provides only a temporary pause | Allows you to cure missed payments (arrears) over 3–5 years | If you want to keep your home, Chapter 13 is the primary tool. |
| Keep Assets with High Equity (Above Exemption Limits) | Assets may be liquidated if not fully protected by Kentucky exemptions | All assets are retained provided you make plan payments | Chapter 13 is the safety net for valuable property you must protect. |
| Manage Secured Debt (Car Loan) Arrears | Must typically reaffirm debt and cure any default quickly | Reorganizes debt to allow you to catch up on missed payments over time | Chapter 13 gives you control over secured and priority debt payments. |
| Required Monthly Payments | None (you only have payments on reaffirmed secured debt) | Required payments made to a Trustee based on your disposable income | Chapter 13 requires a long-term commitment (3–5 years). |
Chapter 7: The Quick Clean Slate (Liquidation Bankruptcy)
Chapter 7 is the most common form of personal bankruptcy for 70% of cases and is best suited for individuals or families with limited assets and overwhelming unsecured debt. It is often called a “liquidation” because it allows a court-appointed trustee to sell non-exempt assets to repay creditors.
Pros of Filing Chapter 7
- Fast Debt Elimination: Most unsecured debts (credit cards, medical bills, personal loans) are discharged—meaning they are legally eliminated—in a short time frame, usually four to six months.
- No Long-Term Payments: Once the case is discharged, you have no further legal obligation to creditors, except for any secured debts you choose to reaffirm and keep. If you have negative equity in a car you can redeem property by paying the secured creditor the value of the auto or personal property and keep the item. In a redemption you force the creditor to release the lien. It is sometimes also possible to strip liens such as judgment liens.
- Lower Total Cost: Chapter 7 generally has lower total attorney fees than Chapter 13, and the fee is usually paid in full upfront. This is because the moment you file you also make it impossible for your attorney to collect for services he did before the case was filed.
Cons and Risks of Chapter 7
- Means Test Requirement: The means test has two parts. You must qualify for a 7 by demonstrating that 1) your income is below the Kentucky median or 2) that you have insufficient disposable income after paying reasonable and necessary expenses to repay creditors.
- Asset Risk: If you have non-exempt assets (property value exceeding Kentucky’s statutory limits), those assets could be at risk of liquidation. I work diligently to maximize your exemptions so that most clients retain all their essential property.
- Temporary Secured Debt Relief: While the Automatic Stay stops foreclosure or repossession for the moment, Chapter 7 does not offer a structured way to manage or catch up on missed prioirty or secured debt payments. Creditors may file a motion for relief from the stay shortly after filing a Chapter 7 and foreclose or reposses anyway if you are behind.
- Chapter 20: To make a Chapter 13 affordable consider filing a Chapter 7 to first eliminate your unsecured debt first so it does not have to be repaid in a Chapter 13 later. This lowers your Chapter 13 payments.you have non-exemp
Chapter 13: The Reorganization Plan (Wage Earner’s Plan)
Chapter 13 is a powerful reorganization tool designed for individuals with a steady income who need to protect secured assets (like a home or car) or who have too much income or debt to qualify for Chapter 7. It allows you to manage priority or non dischargeable debts (income taxes and student loans).
Pros of Filing Chapter 13
- Stop Foreclosure and Save Your Home: This is the primary benefit. Chapter 13 allows you to include missed mortgage payments (the arrearage) in a court-approved repayment plan and catch up over three to five years, completely stopping the foreclosure.
- Asset Protection Guarantee: You are guaranteed to retain all of your property, regardless of its value or whether it is exempt under Kentucky law, provided you keep up with your plan payments.
- Tax and Priority Debt Resolution: Chapter 13 is often the best path for addressing non-dischargeable priority debts like certain tax obligations, allowing you to repay them over time without interest or penalties.
- Attorney Fees Included: In many Chapter 13 cases, the majority of the attorney fees are paid through the repayment plan, minimizing your immediate out-of-pocket costs.
Cons and Commitments of Chapter 13
- Long-Term Commitment: The repayment plan lasts three to five years, requiring you to commit to making monthly payments to a bankruptcy trustee during this entire period.
- Disposable Income Use: Your monthly payments are calculated based on your disposable income (income minus reasonable living expenses), meaning you must adhere to a reasonable budget and use your best efforts to repay.
- Complex Filing Requirements: Chapter 13 has more complex documentation and reporting requirements, including providing tax returns annually and filing a detailed budget.
Do I Qualify? Understanding Eligibility, Income, and Debt Limits
The choice between Chapter 7 and Chapter 13 is rarely arbitrary. It is a legal determination based on federal rules regarding your income, assets, and total debt load.
The Means Test: A Gatekeeper for Chapter 7
The Means Test assesses whether your income is low enough to qualify for Chapter 7 relief.
- Below the Median: If your family’s current monthly income is below the Kentucky median income limit for your household size, you are automatically presumed eligible for Chapter 7.
- Above the Median: If your income is higher, you must complete a complex calculation to determine if you have enough disposable income remaining (after essential expenses) to repay unsecured creditors. If you have substantial disposable income, you may be ineligible for Chapter 7 and must file Chapter 13.
We ensure that all our clients are guided through this process using the most current financial data for Kentucky. For cases filed after May 15, 2025, the annual median income limit for a four-person household is $105,955 (Kentucky) this adjusts several times a year.
Chapter 13 Debt Limits
Chapter 13 itself has strict limits on the total amount of secured and unsecured debt you can owe. If your debts exceed these federal maximums, you cannot file Chapter 13. As of October 2025 this was:
- Secured Debt Limit: You must owe less than $1,580,125 in secured debt (mortgages, car loans).
- Unsecured Debt Limit: You must owe less than $526,700 in unsecured debt (credit cards, medical bills).
These limits, effective for cases filed on or after April 1, 2025, are rigorously applied by the court.
Detailed Comparison: How Chapter 7 and Chapter 13 Impact Your Finances
To provide comprehensive clarity, this table summarizes key functional differences, including impact on credit and long-term commitment. If is very rare to lose property in a Chapter 7 and happens in less than 1% of all our cases. Often we are intentionally sacrificing a small asset to discharge and elminate sometimes millions in debt.
| Feature / Requirement | Chapter 7: “The Fresh Start” | Chapter 13: “The Payment Plan” | Impact and Duration |
|---|---|---|---|
| Primary Mechanism | Liquidation of non-exempt assets to discharge unsecured debt | Reorganization of debt into a 3–5 year court-approved repayment plan | The fundamental difference in process. |
| Asset Risk | Risk of liquidation for property exceeding Kentucky exemption limits | All property is retained provided plan payments are maintained | Chapter 13 is the safety net for valuable non-exempt assets. |
| Credit Report Impact | Remains on a credit report for 10 years after filing but if your score is less than 625 expect your FICO to increase within 6 months and to qualify for an FHA mortgages within 2 years. | Remains for 7 years after filing. Similarly after filing your FICO often increases, you can qualify for an FHA mortgage during Chapter 13 within a year with the approval of the court. | Chapter 13 generally offers a slightly quicker path to credit repair. |
| Attorney Fees | Typically paid upfront (generally $1,800–$2,500 total) Our normal fee in 2025 was 1400 for a single filer and 1600 for a joint petition. Filing fee is 338. | Often rolled into the repayment plan, minimizing initial out-of-pocket expenses | Crucial for clients facing immediate financial distress. |
| Key Requirement | Pass the Means Test | Maintain a steady income for repayment | Income and financial stability dictate the appropriate chapter. |
Advanced Strategies: When the Right Chapter Saves the Day
We do not just file paperwork. We leverage the specific protections in the Bankruptcy Code to provide maximum defense for your family, especially in complex situations.
Saving the House: Lien Stripping and Cramdowns
For homeowners in the Greater Louisville area, Chapter 13 offers two powerful debt strategies beyond just curing the arrears:
- Lien Stripping a Second Mortgage: If your home’s current market value is entirely covered by your first mortgage (meaning the second mortgage has no collateral value), Chapter 13 allows us to “strip off” the second or third mortgages. This debt is then treated as unsecured, often resulting in little to no repayment.
- Judgment Lien Stripping: A Debtor can be sued and not know it. As soon as the judge enters a judgment the creditor normally files a lien on any home. In Indiana this happens automatically. If you wait to file until after this judgment you may not be able to strip off this lien. You normally want to file bankuptcy as soon as possible after you are sued if you own a home.
- Cramdowns on Vehicles and Investment Property: For certain secured debts, such as car loans taken out more than 910 days ago or loans on investment properties, Chapter 13 allows us to “cram down” the loan balance to the actual current value of the property. The remaining balance is moved to unsecured debt, potentially saving you thousands.
Dealing with Changed Circumstances: Conversion Hardship and Early Discharge Flexibility
A Chapter 13 plan lasts for years, and life changes. If you suffer a job loss or another financial setback during your repayment plan, you have the right to request that your case be **converted to a Chapter 7** case, provided you qualify for Chapter 7 relief at that time. This flexibility provides a necessary safety valve, ensuring your debt strategy can adapt to unexpected financial crises.
Hardship and Early Chapter 13 Discharges.
If you substantially complete your payments and you are close to finishing your Chapter 13 within the last 1-2 years but due to no fault of your own are unable to complete the Chapter 13 often due to a sudden disability you may be able to obtain a hardship discharge or early discharge of your chapter 13.
Why Choose Nick C Thompson? Unparalleled Authority in Louisville Defense
For over 35 years, since 1991, Attorney Nick C Thompson has been committed to protecting the financial futures of families in Louisville and the surrounding Kentucky counties. In a field where compassion is vital, strategy and discipline are the ultimate defense.
The Tactical Advantage: Former Tax Prosecutor Expertise
What sets our firm apart is Attorney Thompson’s unique experience as a former Tax Prosecutor and former Bullitt County Assistant Attorney.
- Insider’s Knowledge of Creditors: As a tax prosecutor, he developed a methodical and disciplined approach to reviewing financial evidence. We apply this precision to scrutinize creditor claims and identify potential errors, ensuring your case is built on a flawless defense strategy.
- Complex Tax Debt Resolution: Tax debt is notoriously difficult to discharge in bankruptcy. Thompson’s background as a former Tax Prosecutor provides him with an unparalleled understanding of IRS procedures, compliance issues, and how government agencies pursue debt. If you are facing substantial tax obligations, his expertise can be the difference between failure and successfully resolving that debt within a Chapter 13 plan.
A Local Firm Serving Seven Kentucky Counties Since 1991
Our deep local roots and experience operating across multiple Kentucky counties ensure we are familiar not only with the U.S. Bankruptcy Code but also with the specific rules and practices of the Western District of Kentucky Bankruptcy Court.
We proudly provide comprehensive consumer bankruptcy and foreclosure defense services throughout:
- Jefferson County: Louisville, Jeffersontown, Shively, Fairdale.
- Bullitt County: Shepherdsville, Mount Washington (a region where Attorney Thompson served as Assistant Attorney).
- Oldham County: La Grange, Pewee Valley, Crestwood.
- Spencer County: Taylorsville.
- Nelson County: Bardstown, New Haven.
- Hardin County: Elizabethtown, Radcliff.
- Meade County: Brandenburg.
