Kentucky Bankruptcy Exemptions
Chapter 7 bankruptcy is sometimes referred to as “liquidation” bankruptcy because a filer is required to sell, or liquidate, assets to pay off creditors before receiving a discharge of debt. Both state and federal bankruptcy laws, however, contain numerous exemptions from this requirement. In fact, the vast majority of Chapter 7 filers are able to capitalize on the available exemptions and obtain a “no-asset” bankruptcy, through which they can wipe away their debt without having to sell off any property. Having the help of an experienced bankruptcy attorney can be crucial to getting a no-asset bankruptcy.
When filing Chapter 7 bankruptcy in Kentucky, you have the option of selecting either the federal bankruptcy exemptions or the Kentucky bankruptcy exemptions. Your attorney can help you decide which set of exemptions will be most favorable to you and can help make sure you take full advantage of all available exemptions. Some of the more common exemptions are listed below:
Homestead – The Federal exemption protects $22,975 of the equity in your principal residence. The Kentucky homestead exemption keeps $5,000 of your equity safe.
Motor Vehicle – Exempt $3,675 of the equity or value in your automobile with the Federal exemption, or $2,500 if using the Kentucky exemptions.
Household Goods and Furnishings – The Federal exemptions allow $12,250 to be exempted, with a maximum of $525 per item. Kentucky exemptions max out at $3,000.
Tools of the Trade – You can exempt $2,300 with the Federal exemptions, while the Kentucky exemptions allow you to keep up to $3,000 in tools, equipment and livestock.
Health Aids – Both state and federal exemptions allow you to exempt your health aids.
Domestic Relations Orders – Alimony and child support you receive are exempt under both systems, to the extent they are needed for support.
Personal Injury Awards – $22,975 is exempt from bankruptcy under the Federal rules, and $7,500 with the Kentucky exemptions.
Crime Victim Compensation – Both systems exempt crime victim reparation funds.
Retirement – The Federal exemptions protect tax-exempt retirement accounts, such as IRAs and 401(k) plans, with a cap of $1,245,574 on IRAs and Roth IRAs. The Kentucky exemptions allow you to keep ERISA-qualified retirement accounts and also exempt state employee pensions as well as police, firefighter and teacher pensions.
Wildcard – The Kentucky exemptions allow you to exclude $1,000 of any other real or personal property not otherwise exempted. The federal wildcard exemption is up to $1,225, plus $11,500 of any unused portion of the homestead exemption.
So which system is better?
The federal exemptions may appear more generous than Kentucky in most instances, but keep in mind that this list is incomplete, and there are many more Kentucky exemptions covering specific types of property and assets. Also, married couples filing a joint bankruptcy who choose the Kentucky exemptions may double the exemption amounts. It is important to fully disclose your entire financial picture to your attorney to make sure you select the right table of exemptions for your unique situation.