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Exempt vs. Non-Exempt Assets in a Chapter 7 Bankruptcy

Bankruptcy Questions - Lanna Martin Kilgore

Two Different Kinds of Bankruptcy Available to Individuals

Bankruptcy can be a great way to hit the reset button on a tenuous financial situation. For individuals, there are usually two types of bankruptcy available, Chapter 7 and Chapter 13. The difference involves how many of your assets you are allowed to keep and what will need to sold off to pay off your creditors.

There are state and federal exemptions that allow you to keep some of your assets, like your car and certain types of property. Other state and federal exemptions can protect either the asset’s value or up to a particular dollar amount of the asset. Exemptions protect your assets from bankruptcy.

Chapter 13 bankruptcy involves reorganizing your debts and developing a repayment plan.  Although your debts are reduced, it still means you need to pay them. This type of bankruptcy helps to protect assets that would otherwise be sold off in Chapter 7. A typical Chapter 13 bankruptcy can take three to five years to complete.

Chapter 7 bankruptcy discharges most of your debts. The liquidation of your non-exempt assets will pay your creditors. If you do choose to exempt eligible assets, then they will be protected from liquidation. On average, the typical Chapter 7 bankruptcy will take four to six months to reach completion.

Assets Exempt from Bankruptcy

In Kentucky, you may choose between the state or federal exemptions. Below are some of the exemptions for the state and the federal government respectively.


  • Alimony and child support
  • Homestead – up to $5,000 worth of equity in primary residence
  • Insurance – Annuity contract (up to $350 a month); fraternal benefit society benefits; group life and health insurance; health or disability insurance; life insurance
  • Motor vehicle – up to $2,500
  • Pensions/retirement – ERISA qualified retirement accounts, most state pensions; a $1,283,025 cap on IRAs and Roth IRAs
  • Personal property – up to $3,000 in articles of adornment, clothing, furniture, health aids, and jewelry
  • Public benefits (e.g., public assistance, crime victims’ compensation, unemployment compensation, workers’ compensation)
  • Tools of the trade – varies on the profession, $300 – $3,000
  • Wildcard — $1,000 in any property

Federal: These amounts have been adjusted for inflation, as of April 1, 2016

  • Alimony and child support
  • Jewelry – up to $1,600
  • Homestead – $22,975 of equity
  • Life insurance policies – those that have not yet matured except credit life insurance
  • Loan value of life insurance policy – up to $12,625
  • Motor vehicle – up to $3,775
  • Pension/retirement – retirement accounts; a $1,283,025 cap on IRAs and Roth IRAs
  • Personal property – (e.g., appliances, books, clothes, crops, furniture, health aids) up to $12,625 aggregate value ($600 per individual item)
  • Public benefits (e.g., public assistance, Social Security, Veteran’s benefits, workers compensation)
  • Tools of the trade –up to $2,375
  • Wildcard – $1,250 plus up to $11,850 of the unused portion of your homestead

Note that the federal exemptions are more generous than the ones offered by the state.

Assets Which are Non-Exempt from Bankruptcy

Non-exempt assets can be sold to pay creditors who filed a claim on the bankruptcy estate. When you are listing your non-exempt assets, it’s best to be honest. Otherwise, you may have to go to the U.S. Trustee’s office. They may search your home if they think you may be lying about your assets.

The following is a general list of non-exempt assets:

  • A newer car with equity
  • An additional car or truck
  • A vacation home
  • Bank accounts, cash, stocks bonds, investments
  • Expensive clothing
  • Expensive musical instruments, unless used for business
  • Family heirlooms
  • Stamp or coin collections
  • Valuable artwork

A Chapter 7 bankruptcy may be painful, but you will not be left destitute. If you’re looking to file a Chapter 7 bankruptcy, you should contact a seasoned Kentucky bankruptcy lawyer. Lanna Martin Kilgore, Attorney at Law wants to help you navigate the tough decisions surrounding bankruptcy and hep you get back on your feet financially, as well as provide you with some debt relief. With over 25 years of legal experience, she can expertly guide you through the bankruptcy process and help you get a fresh start. Contact Lanna Martin Kilgore, PLLC at 270-846-3700 or online for a consultation to learn about what your debt relief options are.


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