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Bankruptcy: Kentucky

Filing bankruptcy in Kentucky aims to achieve two things.  First, it gives honest debtors a chance to overcome crushing debt, and second, creditors may be repaid to the extent that the debtor’s property value or earnings permit. 24,155 bankruptcies were filed in Kentucky in 2010, ranking Kentucky 14th in the country for the number of bankruptcy filings per capita. 75% of Kentucky’s bankruptcy petitions in 2010 sought protection under Chapter 7 bankruptcy.

Filing Bankruptcy in Kentucky

Federal law governs bankruptcy proceedings in Kentucky, and as such all bankruptcy cases are filed in the US Bankruptcy Courts located in:

  • Kentucky Eastern District Court: Ashland, Corbin, Covington, Frankfurt, Lexington, Pikeville
  • Kentucky Western District Court: Bowling Green, Louisville, Owensboro, Paducah

Although federal courts have jurisdiction over bankruptcy proceedings, Kentucky law permits petitioners to use the exemptions found in the U.S. bankruptcy code or the exemptions provided under Kentucky law. The federal and state exemption systems cannot be mixed and matched. With the guidance of a bankruptcy attorney Kentucky debtors can gain a full understanding of what personal property the systems permit the petitioner to keep in bankruptcy, and what must be sold.

Chapter 7 Bankruptcy, Kentucky

Chapter 7 bankruptcies in Kentucky are the most common bankruptcy filing. Chapter 7 is appropriate for petitioners who lack significant assets including investments or substantial equity in a home, for the reason that a Bankruptcy Trustee may liquidate personal property that isn’t protected by Kentucky’s bankruptcy exemptions. Liquidation occurs when the Trustee converts personal assets to cash for distribution to creditors. Kentucky’s Chapter 7 bankruptcy law allows debtors to keep some essential property and the exempt assets are strictly off-limits to creditors seeking repayment.

The vast majority of Chapter 7 cases are “no-asset” cases where no property is taken.

Kentucky Bankruptcy Exemptions

Kentucky bankruptcy law designates specific property exemptions that permit debtors to keep certain personal property and assets so they may move forward from bankruptcy as productive members of society.  In real terms, this means the creditors cannot force debtors to sell the shirt off their backs.  Bankruptcy in Kentucky permits petitioners to choose exemptions from either the federal or the state lists.

Property exemption amounts are subject to change, so it is suggested that individuals or couples considering bankruptcy seek the counsel of a Kentucky bankruptcy attorney and discuss the options open to them.  Kentucky bankruptcy exemptions include:

Kentucky Homestead Exemption

  • $5,000 total: Real or personal property used as residence; sale proceeds exempt

Kentucky Personal Property Exemption

  • $3,000 total: Clothing, jewelry, articles of adornment and furnishings
  • $2,500 total: Motor vehicle
  • Health aids
  • Lost earnings payments needed for support
  • Medical expenses paid and reparation benefits received under motor vehicle reparation law
  • Prepaid tuition payment fund account
  • $7,500 total: Personal injury recoveries (does not include pain and suffering or pecuniary loss)
  • Wrongful death recoveries for person you depended on, needed for support
  • $5,000 total: Burial plot in lieu of homestead exemption

Kentucky Tools of the Trade Exemption

  • $1,000 total: Library, office equipment, instruments and furnishings of minister, attorney, physician, surgeon, chiropractor, veterinarian or dentist
  • $2,500 total: Motor vehicle of auto mechanic, mechanical, or electrical equipment technician, minister, attorney, physician, surgeon, chiropractor, veterinarian or dentist
  • $3,000 total: Tools, equipment, livestock and poultry of farmer
  • $300 total: Tools of non-farmer

Kentucky Wage Garnishment Exemption

  • 75% of disposable weekly earnings or 30 times the federal minimum hourly wage per week, whichever is greater (Low-income debtors may be authorized for more)

Kentucky Public Benefits Exemption

  • Aid to blind, aged, disabled; public assistance
  • Crime victims’ compensation
  • Unemployment compensation
  • Workers’ compensation

Kentucky Insurance Exemption

  • $350 per month: Annuity contract proceeds
  • Health or disability benefits
  • Fraternal benefit society benefits
  • Cooperative life or casualty insurance benefits
  • Group life insurance proceeds
  • Life insurance policy if beneficiary is a married woman
  • Life insurance proceeds if clause prohibits proceeds from being used to pay beneficiary’s creditors
  • Life insurance proceeds or cash value if beneficiary is someone other than the insured

Kentucky Pensions and Retirement Savings Exemption

  • Firefighters, Police officers, State employees and Teachers
  • Urban county government employees
  • ERISA-qualified benefits, including IRAs, SEPs and Keoghs deposited more than 120 days before filing

Kentucky Miscellaneous Exemption

  • Property of business partnership

Kentucky Wild Card Exemption

  • $1,000: Any property

Chapter 13 Bankruptcy, Kentucky

In 2010, 25% of petitioners filed for protection under Chapter 13 bankruptcy laws in Kentucky.  Filing Chapter 13 bankruptcy in Kentucky initiates a financial restructuring process whereby a court-appointed Trustee negotiates with creditors and implements a 3-5 year repayment plan, using the debtor’s future earnings to settle up with creditors.  Chapter 13 petitioners in Kentucky keep most – or all – of their property.

How to File Bankruptcy in Kentucky

One’s eligibility for property exemptions should play a major role when determining if bankruptcy is the answer to one’s financial problems. The goal should be to preserve major assets and discharge qualified debts. Because each bankruptcy case is unique, a Kentucky bankruptcy attorney can assist debtors in understanding their options and advise whether Chapter 7 or Chapter 13 bankruptcies are appropriate actions given their particular circumstances.

Bankruptcy Attorney: Kentucky

It is the bankruptcy petitioner’s responsibility to know their rights and obligations as debtors.  A Kentucky bankruptcy attorney can simplify the federal laws and exemption systems and explain how they affect bankruptcy petitioners.  The counsel and support of a Kentucky bankruptcy attorney is valuable to anyone facing the complex and stressful road to personal bankruptcy.