The exemption amounts available to you will depend on whether you choose to apply Kentucky bankruptcy exemptions or federal exemptions to your property. Kentucky law allows residents who have lived in the state for at least 2 years to choose between the Kentucky exemption structure and the federal exemption structure. You can’t “pick and choose” between structures, so it’s important to compare the advantages and disadvantages of each before deciding which will be most financially beneficial for your situation. Below, you’ll find detailed information about each structure so that you can determine which will be most advantageous for your family.
Written by Attorney Kassandra Kuehl.
Updated July 28, 2020
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 safeguard your assets from the risk that your trustee will sell them to pay your creditors back. It’s therefore important to claim as manybankruptcy exemptions as possible so that you can maintain ownership over your property even after your eligible debts are eliminated.
Does Kentucky allow the use of federal bankruptcy exemptions?
The exemption amounts available to you will depend on whether you choose to apply Kentucky bankruptcy exemptions or federal exemptions to your property. Kentucky law allows residents who have lived in the statefor at least 2 years to choose between the Kentucky exemption structure and thefederal exemption structure. You can’t “pick and choose” between structures, so it’s important to compare the advantages and disadvantages of each before deciding which will be most financially beneficial for your situation. Below, you’ll find detailed information about each structure so that you can determine which will be most advantageous for your family.
Kentucky Bankruptcy Exemptions
The values of certain Kentucky bankruptcy exemptions differ depending on your filing status. All of the values listed in this guide (unless otherwise noted) may be claimed by an individual filing as a single person. However, Kentucky law allows most exemption values to be doubled if a married couple is filing for bankruptcy jointly. This “doubling rule” applies to all the assets listed below unless a) otherwise noted or b) the property in question is only owned by one spouse. Only apply the doubling rule if the property you’re seeking to exempt is co-owned.
Real Property - the Kentucky Homestead Exemption
The federal homestead exemption is considerably more generous than the state-specific homestead exemption. Therefore, if you are particularly concerned about safeguarding equity in your home, you may want to pay special attention to comparing these two approaches. Whereas the federal homestead exemption is $25,150 for a single filer, the Kentucky homestead exemption is only worth $5,000 in equity for a permanent residence or a burial plot. Equity is calculated by determining how much of your home loan you’ve already paid off. For example, if you purchased a house for $50,000 and you’ve paid $20,000 of your home loan, you are said to have $20,000 in equity in your home. The Kentucky homestead exemption is unusually low, which is one reason why homeowners tend to favor the option to claim federal exemptions when filing in Kentucky.
Personal Property Exemptions
Kentucky’s personal property exemptions are also not particularly generous. If you’re concerned about safeguarding 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.
At this time, 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
Health aids prescribed by a medical professional – full value
Motor vehicle - up to $2,500 of equity in a single motor vehicle, including 1 spare tire
Depending on your financial situation, you may be even more concerned about safeguarding 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
Social Security benefits
State and county employees’ pensions
Wages – Either 75% of earned but unpaid weekly disposable earnings or 30 times the state or federal hourly minimum wage, whatever is highest
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 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 wildcard exemption. You will determine which otherwise nonexempt property (either real property or personal property) to exempt – up to $1,000 in value – after you have claimed every other exemption available. You can exempt property that is otherwise not available for exemption or a greater value of property ordinarily subject to lower exemption limits.
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 and contrast 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 $4,000. However, if you and your spouse are filing bankruptcy jointly, the motor vehicle value exemption available will increase to $8,000.
Perhaps the most significant federal exemptions available is the homestead exemption. When used to safeguard real estate, a single filer can exempt a value of up to $25,150. If you don’t own real estate or don’t need the full amount to safeguard its full value, you can use up to $12,575 of the remainder to apply to otherwise nonexempt property of your choosing. Additional exempt property values (which will remain current until April 1, 2022) available under the federal exemption structure include:
Alimony or spousal support (total value)
Child support (total value)
Crime victims’ compensation (total value)
Disability, illness, or unemployment insurance benefits (total value)
Health aids and other health equipment (total value)
IRAS and Roth IRAs (up to $1,362,800)
Jewelry (up to $1,700)
Life insurance policy (loan value up to $13,400)
Life insurance proceeds tied to a policy for a lost loved one you depended on, which you currently need for support (total value)
Loss of future earnings payments (total value)
Public assistance and other public benefits (total value)
Personal injury recovery (up to $25,150 – 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 $625 per item, up to $13,400 overall)
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 (total value)
Social Security benefits (total value)
Tools of Trade: Books, implements, and tools of the trade (up to $2,525)
Veteran’s benefits (total value)
Unmatured life insurance policy except credit insurance (total value)
Unemployment compensation (total value)
Wildcard ($1,325 total plus unused homestead exemption value up to $12,575)
Wrongful death recovery for loss of an individual you depended on for financial reasons (total value)
Filing Chapter 7 bankruptcy?
Filing for Chapter 7 bankruptcy doesn’t have to be an intimidating process. Most bankruptcy attorneys will offer you a free consultation, which you can take advantage of at any time, even if you haven’t yet committed to filing Kentucky bankruptcy yet. A confidential consultation will allow you to ask any questions you may have as you weigh your options. You can ask about whether it makes more sense for you to file federal exemptions or state exemptions. You can even inquire about whether filing for Chapter 13 bankruptcy may be a better fit for your situation. If you’re interested in speaking with a bankruptcy lawyer, Upsolve can help you locate a reputable advocate in your area. Additionally, if you can’t afford an attorney or you’re simply interested in saving money by filing on your own, Upsolve may be able to help you file your bankruptcy case for free.