April 30, 2019
If you’re strapped for cash and unable to pay your bills at the end of the month, filing for bankruptcy in Kentucky can help you get back on track. You’ll start by determining whether it’s best to file for Chapter 7 or Chapter 13 bankruptcy. But that’s just the start. You’ll also want to know:
- whether your income qualifies for the bankruptcy chapter you’ve chosen, and
- if you can protect your property using bankruptcy exemptions.
This article can help.
You’ll learn how to locate the information you’ll need to answer these questions, such as Kentucky means test figures, the exemption laws you’ll use to protect property in a Kentucky bankruptcy, and more.
Qualifying for Bankruptcy in Kentucky—Means Testing
In bankruptcy, the means test determines whether you meet the qualification requirements of a particular chapter.
- Chapter 7 bankruptcy. You’ll meet income qualifications if you pass the “means test.” The first step is determining whether your household income is lower than the median income of your state. If it is, you pass and can receive a discharge in a Chapter 7 case. You might still pass the means test after completing the second portion, which involves subtracting allowed expenses from your income. If, after doing so, you don’t have enough discretionary income to make a meaningful payment to creditors, you’ll qualify for Chapter 7.
- Chapter 13 bankruptcy. If your income exceeds the Chapter 7 limits, you can repay some or all of what you owe in a five year Chapter 13 repayment plan. The tricky part here is that you must have enough income to pay all required debts. To determine your Chapter 13 bankruptcy payment, you’ll do a calculation similar to that in Chapter 7. You’ll pay the greater of your disposable income, the value of your nonexempt property, or the amount of your nondischargeable debt (such as support obligations and tax debt). If you qualify for Chapter 7 but want to file Chapter 13 to take advantage of its unique mechanisms, such as saving a home from foreclosure, you can shorten the plan length to a three-year plan.
The necessary income charts and expense guidelines are on the U.S. Trustee’s website (select “Means Testing Information”).
Protecting Property With Kentucky Bankruptcy Exemptions
Most people want to know whether they’ll be able to keep their property in bankruptcy. You’ll find out which assets you can protect by reviewing Kentucky’s bankruptcy exemption law.
A list of federal bankruptcy exemptions exists, too, and Kentucky is one of the states that will let residents choose between the two lists. If you use Kentucky’s bankruptcy exemptions, you can also use the federal nonbankruptcy exemptions.
You might be able to exempt all of your property. Here are some terms that will help you understand how to maximize your exemptions when you file for bankruptcy.
- Exempt property. You can exempt assets that appear on the list of Kentucky exemptions (below) or the list of federal bankruptcy exemptions. As a Kentucky resident, you can choose which list to use, but you must limit your exemptions to just the one list.
- Nonexempt property. If your property doesn’t appear on the exemption list, the Chapter 7 trustee can sell it to pay your creditors according to the bankruptcy payment rules. In a Chapter 13 bankruptcy, the process is different. You can keep your nonexempt property, but you’ll have to pay for it in the Chapter 13 repayment plan.
- Doubling exemptions. If you file a joint bankruptcy with your spouse in Kentucky, you can double the exemption if both of you own the property. If only one spouse owns it, you cannot double the exemption amount.
Kentucky’s Bankruptcy Exemption List
Below are some commonly used Kentucky bankruptcy exemptions. Statute citations are to the Kentucky Revised Statutes Annotated.
Kentucky Homestead Exemption
You’ll be able to protect up to $5,000 of equity in any real or personal property in Kentucky that you use as a permanent residence. You can use your homestead exemption to protect a burial plot for yourself or your dependent. (Ky. Rev. Stat. Ann § 427.060 & 090.)
Kentucky Motor Vehicle Exemption
You can protect up to $2,500 of equity in one motor vehicle with accessories. (Ky. Rev. Stat. Ann § 427.010(1).) Certain professions can keep additional vehicles.
Kentucky Wildcard Exemption
You’ll be able to keep any real or personal property of your choosing up to a value of $1,000. (Ky. Rev. Stat. Ann § 427.160.)
Other Bankruptcy Exemptions in Kentucky
- Alimony and awards. Alimony and support to the extent reasonably necessary for you and your dependents’ support; crime victim’s reparation funds; wrongful death award from the death of a person upon whom you were dependent; up to $7,500 of value in a personal injury award resulting from injury to yourself or your dependent in an amount reasonably necessary for the support of you and your dependents; awards for loss of future earnings in an amount reasonably necessary for the support of you and your dependents. (Ky. Rev. Stat. Ann § 427.150.)
- Insurance. Proceeds or benefits paid or to be paid by a cooperative life or casualty insurance company (Ky. Rev. Stat. Ann § 427.110); life insurance proceeds if clause prohibits proceeds from being used to pay beneficiary's creditors (Ky. Rev. Stat. Ann. § 304.14-350); life insurance proceeds or cash value if the beneficiary is someone other than insured (Ky. Rev. Stat. Ann. § 304.14-300); group life insurance proceeds (Ky. Rev. Stat. Ann. § 304.14-320).
- Personal property. $3,000 in household goods and wearing apparel; $3,000 in farming tools, equipment, and livestock; professionally prescribed health aids for debtor and dependents (Ky. Rev. Stat. Ann § 427.010(1).)
- Pensions and retirement accounts. ERISA-qualified retirement accounts (Ky. Rev. Stat. Ann § 427.150); police and firefighters’ pensions (Ky. Rev. Stat. Ann. § 67A.620; 427.125; 427.150(2)(e)); state and county employees’ pensions (Ky. Rev. Stat. Ann. §§ 61.690; 427.150(2)(e); 67A.350); teachers’ pensions (Ky. Rev. Stat. Ann. §§ 161.700; 427.150(2)(e)).
- Public benefits. Public assistance (Ky. Rev. Stat. Ann. § 205.220); unemployment compensation (Ky. Rev. Stat. Ann. § 341.470); workers' compensation (Ky. Rev. Stat. Ann. § 342.180).
- Tools of the trade. $300 in tools used in a trade or profession and $2,500 for a mechanic’s automobile (Ky. Rev. Stat. Ann § 427.030); up to $3,000 for farmer’s tools (Ky. Rev. Stat. Ann § 427.010(1); up to $1,000 of value in a professional library, office equipment, instruments, or furnishings necessary to the practice of an attorney, minister, physician, veterinarian, or dentist (Ky. Rev. Stat. Ann § 427.040).
Verify Exemptions Before Filing
Kentucky will amend these exemption amounts regularly, and additional exemptions exist. Visit the website for the Kentucky Legislature to ensure that you are using all exemptions available and that you have the most recent figures.
More Kentucky Bankruptcy Information
You’ll use this information when you’re ready to prepare your paperwork and file your case.
Kentucky Credit Counseling and Debtor Education Information
Individual filers must take two financial courses—one before filing and another before receiving a discharge (debt forgiveness). Approved providers are listed under “Credit Counseling & Debtor Education” on the U.S. Trustee’s website (be sure to scroll down to your district).
Bankruptcy Costs, Filing Fees, and Forms
Most people must pay something to file for bankruptcy, but it’s usually worth the cost. Here’s what you can expect.
- Official bankruptcy forms. Before the Kentucky bankruptcy court wipes out qualifying debt, you must disclose all aspects of your financial situation—income, expenses, property, debt, and property transactions—on official bankruptcy forms. These forms are free. After filling out the bankruptcy forms online on the U.S. Bankruptcy Court forms webpage, you’ll file your paperwork in your local bankruptcy court.
- Bankruptcy filing fees or fee waiver. You’ll pay a filing fee when you file your paperwork with the court unless you qualify for a fee waiver. Find out about both in Bankruptcy Filing Fees and Costs.
- Bankruptcy lawyer fees. The cost to hire a lawyer varies depending on the area. Many people benefit from retaining counsel. Find out the benefits of being represented by an attorney.
Kentucky Bankruptcy Court Locations and Websites
There are two federal districts in Kentucky and each has its own bankruptcy court. Each district is further divided into divisions, but not all divisions have offices that will accept bankruptcy filings. For guidance on where to file your case, contact an office using a number listed below or visit the Federal Court Locator page (choose “Bankruptcy” in the “Court Type” drop-down box).
On each court’s website, you’ll find the court’s local rules and instructions for filing your paperwork (under either “Bankruptcy Info” or “Pro Se Resources”). Click on one of the links below to go directly to the court’s website.
This resource can help a filer find some of the information needed to prepare a bankruptcy filing; however, it does not explain all aspects of bankruptcy. Each filer is responsible for understanding the law and bankruptcy procedures. A do-it-yourself book like How to File Chapter 7 Bankruptcy by Attorney Cara O’Neill and Albin Renauer J.D. can provide additional information.