What Are the Kentucky Bankruptcy Exemptions?

What Are the Kentucky Bankruptcy Exemptions and Why Are They Important in a Chapter 7 Bankruptcy? 

When an individual files for Chapter 7 bankruptcy, the bankruptcy court assigns a bankruptcy trustee to oversee some aspects of the case. The bankruptcy trustee is allowed to sell any of the filer’s assets that aren’t classified as “exempt property.” Applying exemptions to your property when you file bankruptcy will allow you to protect your possession. Exempt assets can't be sold to pay your creditors back. In most Chapter 7 cases, filers get to keep all their property.

Does Kentucky Allow Filers To Use Federal Bankruptcy Exemptions?

While the Bankruptcy Code governs most aspects of the bankruptcy process in cases across the U.S., states can create their own exemptions. Some states allow filers to choose which set of exemptions they want to use: state exemptions (plus the federal nonbankruptcy exemptions) or federal exemptions. Kentucky allows residents that have been in the state for at least two years to choose which set of exemptions they want to use. But you can't pick and choose some exemptions from each set.

It's important to look at both sets of exemptions so you can decide which set will best protect the things you own.

Kentucky Bankruptcy Exemptions

All the exemption amounts listed below are for individuals filing bankruptcy on their own. If you're married and filing jointly with your spouse, you can double most exemptions for any property you co-own with your spouse. Keep that in mind as you review the rest of the article

Real Property: The Kentucky Homestead Exemption

The Kentucky homestead exemption only protects up to $5,000 in equity for your permanent residence. The federal exemption is far more generous, covering up to $27,900 in equity. If you own a home and want to keep it, you'll want to carefully consider the homestead exemption.

Equity is calculated by substracting what you owe on your mortgage from the current fair market value of your home. So if your home is worth $150,000 and you still owe $125,000 on it, you have $25,000 in equity. This would be protected if you opt to use the federal bankruptcy exemptions, but the Kentucky homestead exemption falls far short The Kentucky homestead exemption is unusually low, which is one reason many homeowners choose to use the federal exemptions when filing in Kentucky.

Personal Property Exemptions

Kentucky’s personal property exemptions also aren't particularly generous. If you’re concerned about protecting your personal property, you may want to consider claiming federal exemptions instead. In addition to the specific personal property exemptions allowed under federal law, a significant amount of unused homestead exemption value can be used to protect personal property under the federal exemption structure. For more details, see the “federal bankruptcy exemption” section of this guide.

Kentucky state law allows filers to exempt the following kinds of personal property:

• Clothing and household furniture up to $3,000 in aggregate value

• Farming tools, equipment, and livestock up to $3,000 in aggregate value

• The full value of health aids prescribed by a medical professional

• Up to $2,500 of equity in one motor vehicle, including one spare tire

Money Benefits

Depending on your financial situation, you may be more concerned about protecting intangible assets than you are about protecting tangible physical property. Thankfully, both Kentucky and federal exemptions protect various types of wages, insurance proceeds, benefits, and other monetary assets. Unless otherwise noted, filers may exempt the full value of the following money benefits under Kentucky law:

• Alimony or spousal support (as reasonably necessary for support)

• Child support (as reasonably necessary for support)

• Cooperative life or casualty insurance benefits and proceeds

• Crime victims’ compensation

• ERISA-qualified retirement accounts

• Group life insurance proceeds

• Illness and disability benefits

• Life insurance pay-outs necessary for support

• Life insurance proceeds if contract clause prevents proceeds from being used to repay creditors

• Life insurance proceeds or cash value if the beneficiary is someone other than the insured

• Loss of future earnings awards (as reasonably necessary for support)

• Personal injury award - resulting from filer’s injury or injury to filer’s dependent (up to $7,500)

• Police and firefighters’ pensions

• Public assistance

• Social Security benefits

• State and county employees’ pensions

• Teachers’ pensions

• Veterans’ benefits

• Wages – Either 75% of earned but unpaid weekly disposable earnings or 30 times the state or federal hourly minimum wage, whatever is highest

• Unemployment compensation

• Workers’ compensation

• Wrongful death recovery - from the death of a person upon whom filer was dependent

Other Kentucky Exemptions

Kentucky allows for different “tools of the trade” exemptions that allow filers who need to retain property for their profession to safeguard the value of some of the equipment they need. These exemptions include:

• Motor vehicle and accessories for a skilled tradesperson who repairs or services mechanical, electrical, or other equipment – up to $2,500 in value

• Furnishings, instruments, office equipment, and professional library necessary for the practice of attorneys, dentists, ministers, physicians, and vets – up to $1,000 plus up to $2,500 of value in one motor vehicle and one spare tire when applicable for professional need for such individuals

• Tools of trade - up to $300 in value (regardless of occupational title)

Finally, Kentucky law permits filers to take advantage of a $1,000 wildcard exemption. You'll determine which otherwise nonexempt property (either real property or personal property) to exempt — up to $1,000 in value — after you've claimed every other exemption available. You can exempt property that's otherwise not covered by an exemption or a greater value of property ordinarily subject to a lower exemption limit.

Federal Exemptions

How do you know if it makes more sense to apply federal bankruptcy exemptions or Kentucky exemptions to your property? You’ll want to compare the specific exemption allowances noted above with those provided by the federal Bankruptcy Code. Depending on your circumstances, you may find that you can benefit significantly from choosing one or the other.

When evaluating the federal exemptions below, note that they apply to single filers. Meaning, if you and your spouse are filing jointly as a married couple, the values listed will double automatically. For example, federal law permits a single filer to claim the value of a motor vehicle up to $4,450 However, if you and your spouse are filing bankruptcy jointly, the motor vehicle value exemption available will increase to $8,900.

Perhaps the most significant federal exemption available is the homestead exemption. A single filer can exempt up to $27,900 in equity in their home. If you don’t own real estate or don’t need the full homestead exemption to safeguard its full value, you can use up to $13,950 as an additional wildcard exemption.

As of April 1, 2022, the following are fully exemption under federal law:

• Alimony or spousal support

• Child support

• Crime victims’ compensation

• Disability, illness, or unemployment insurance benefits

• Health aids and other health equipment

• Life insurance proceeds tied to a policy for a lost loved one you depended on, which you currently need for support

• Loss of future earnings payments

• Public assistance and other public benefits

• Retirement accounts that are tax-exempt: 401(k)s, 403(b)s, defined benefit plans, money purchase plans, profit-sharing plans, SEP and SIMPLE IRAs

• Social Security benefits

• Veteran’s benefits

• Unmatured life insurance policy except credit insurance

• Unemployment compensation

• Wrongful death recovery for loss of an individual you depended on for financial reasons

As of April 1, 2022, the following are exempt up to the listed amount:

• IRAS and Roth IRAs up to $1,512,350

• Jewelry up to $1,875

• Life insurance policy with a loan value up to $14,875

• Personal injury recovery up to $27,900 with exceptions made for pain and suffering, as well as pecuniary loss

• Personal property: Animals, appliances, books, clothing, crops, furniture, household goods, and musical instruments up to $700 per item, up to $14,875 overall

• Tools of Trade: Books, implements, and tools of the trade up to $2,800

• Wildcard up to $1,475 total plus unused homestead exemption value up to $13,950

Filing Chapter 7 bankruptcy? 

Filing for Chapter 7 bankruptcy doesn’t have to be an intimidating process. Most bankruptcy attorneys offer free consultations. A confidential consultation will allow you to ask any questions you may have as you weigh your options. If you're filing a simple Chapter 7 case, Upsolve may be able to help you file your bankruptcy case for free.