Bankruptcy

Bankruptcy is a federal court process to help people get a fresh financial start. It works by getting rid of debt they can’t manage or making arrangements to repay unmanageable debt. This is called “discharging debt.” The person filing for bankruptcy is called the ‘debtor’ and the people or businesses owed money to are called ‘creditors.’

The right to file for bankruptcy is governed by federal law, called the Bankruptcy Code. Bankruptcy cases are filed in federal courts. In most cases, once you file for bankruptcy your creditors have to stop trying to collect debts from you until the bankruptcy is complete.

Bankruptcy is not the right solution for every person. It can’t fix every financial problem.

Bankruptcy may make it possible for you to:

• Discharge most or all of your debts. “Discharge” is the legal term for getting rid of debt.
• Temporarily stop foreclosure on your house or mobile home. You may get a chance to catch up on missed payments. Note: Bankruptcy does not automatically get rid of your mortgage, liens on your property, or other secured debt, and does not automatically save your home from foreclosure.
• Temporarily stop repossession of your car or other property.
• Have creditors give back property, even if it was repossessed.
• Stop debt collection. This can be things like wage garnishment, harassing phone calls, and other debt collection practices.
• Stop utility shut offs or turn utility service back on.
• Stop eviction if the “forcible detainer judgment” hasn’t been entered by a court.
• Get your driver’s license reinstated if it was revoked for a civil judgment you didn’t pay.
• Challenge creditors who try to collect more than you really owe or who have committed fraud.

There are many rules you have to follow when filing for bankruptcy. It can be very hard to file for bankruptcy on your own. It is often best to talk to a lawyer before filing.

If this is your scenario, we advise you to contact a lawyer. We do not suggest representing yourself.

No. The Bankruptcy Code says that certain debts cannot be discharged (wiped out). These debts include:

• Money owed for child support, alimony/maintenance, and certain other debts related to divorce
• Court restitution orders and criminal fines
• Some taxes
• Loans you got by giving false information (on purpose) to a creditor, who used that information to give you the loan
• Debts you have because of “willful and malicious” harm
• Most student loans
• Mortgages and other secured liens, including car loans, which are not paid in the bankruptcy case
• Debts created from large cash advances, from luxury purchases, or from many large charges to a credit card within 6 months of filing bankruptcy
• Debts created from theft or embezzlement
• Debts created because of DUI (driving under the influence)
• Debts owed to a pension or profit-sharing plan

Bankruptcy can’t help you:

• Get rid of a security interest, like a mortgage
• Stop you from getting evicted if the eviction court entered the order before the bankruptcy was filed
• Protect cosigners on loans, unless they also file bankruptcy
• Get rid of debts that you created after the bankruptcy is filed
• Get rid of debts that the court decides you can afford to pay

Yes. You can keep at least some of your property in a bankruptcy. The law says the creditors can’t get at certain property. This property is “exempt.” But there are limits on how much property you can claim as exempt.

If you live in Kentucky, you can choose to follow the Kentucky limits or the federal limits on exempt property. You must pick one. You can’t mix and match. But if Kentucky has an exemption that is not listed in the federal exemptions, you can use that even if you chose to use the federal exemptions. This is a list of some of the most common exemptions and their limits as of May 1, 2020:

Note: equity is what is left when you subtract what you owe on something from what it is worth right now.

Common exemptions and the amount exempt

Equity in your home:
Kentucky Limit: $5,000
Federal Limit: $25,150

Equity in your car or truck:
Kentucky Limit: $2,500
Federal Limit: $4,000

Tools of the trade:
Kentucky Limit: $300
Federal Limit: $2,525

Household goods:
Kentucky Limit: $3,000 total
Federal Limit: $625/item, up to $13,400 total

Wild card*:
Kentucky Limit: $1,000
Federal Limit: $1,325

Benefits (like SSI, unemployment compensation, veteran’s benefits, public assistance):
Kentucky Limit: No Limit
Federal Limit: No Limit

* A wild card exemption is one you can use on any property you choose.

Note: There are other exemptions, this list is only a sample.

Married couples who file a joint bankruptcy in Kentucky can “double” the exemption amounts. This means if you and your spouse file a joint bankruptcy, you can each claim the full exemption amount for any property belonging to you. Note: you can only claim an exemption on property that only belongs to you.

There are 2 main types of bankruptcy. Chapter 7 and Chapter 13. The names come from the part of the federal Bankruptcy law that they come from.

You can file bankruptcy without a lawyer. This is called filing pro se. Note: getting advice from a lawyer with experience is highly recommended. Bankruptcy has long-term financial and legal outcomes.

If this is your scenario, we advise you to contact a lawyer. We do not suggest representing yourself.

Chapter 7 bankruptcy is the most common type of bankruptcy. It is usually the simplest. It is also known as “straight bankruptcy.” In a Chapter 7 bankruptcy, you can keep certain exempt property. Non-exempt property is turned over for sale to pay creditors.

Most debts, but not all, are discharged in a Chapter 7 bankruptcy. This means that you don’t have to pay them.

To file a Chapter 7 bankruptcy, you must have very low income and assets.

Chapter 13 bankruptcy is like a repayment plan. It can be an option for you if you have a regular income but can’t pay all your debts. Under Chapter 13 bankruptcy, the Bankruptcy Court approves a plan for you to pay your debts in installments over a certain time period. If the plan is approved, you make payments to a ‘trustee.’ This is a person who has control over your money. The trustee makes the payments to your creditors.

Under Chapter 13, you can generally keep all of your property for as long as you keep making the installment payments. In a Chapter13 bankruptcy, you have to pay your creditors in full if you can. If that isn’t possible, you have to pay the creditors all the money that you have left over after paying for your necessary living expenses. This is called ‘disposable income.’ You have to do this for 3-5 years.

Chapter 13 bankruptcy is very complicated. You often need a lawyer to help you through the process.

If this is your scenario, we advise you to contact a lawyer. We do not suggest representing yourself.

It is possible to file a bankruptcy case without a lawyer, but it is not recommended. The process is complex and hard, and you might end up losing property or other rights if you don’t know the law. Filing bankruptcy is complex and takes patience and careful preparation.

If you start a bankruptcy case and:

• you fail to complete it
• you make a mistake and are denied a discharge
• you make other errors

You may be barred from filing again for many years. Hiring a lawyer seems expensive but it can be worth it in the long run. In a Chapter 13 bankruptcy, the lawyer fees can be paid through the repayment plan.

If this is your scenario, we advise you to contact a lawyer. We do not suggest representing yourself.

Judgment proof means that you have no assets or income that a creditor can take to pay your debt. You may be judgment proof if all the following are true:

• You have no income, or
  • your take-home pay from work is below $217.50 a week (30 times the federal minimum wage – currently $7.25 per hour); or
  • your income is only from a protected source like public benefits, child support or Social Security.
   
• You don’t own a home, or the home you own has less than $5,000 in equity. Note: equity is the difference between how much is owed on the home and how much it is worth right now (there may be some other factors).
   
• You don’t own a car, or the car you own has less equity than the amount you can claim as exempt. For example,$2,500.
   
• You don’t have more than the amount of equity you can claim as exempt. For example, $1,000 in bank accounts.
   

NOTE: if you are judgment proof, it usually doesn’t help you to file for bankruptcy.

If you are married, you don't have to file a joint bankruptcy with your spouse. You can choose to file for bankruptcy alone, although you still have to include your spouse's income on some bankruptcy forms.

Married couples who file a joint bankruptcy in Kentucky can “double” the exemption amounts. This means if you and your spouse file a joint bankruptcy, you may each claim the full exemption amount for any property belonging to you. Note: you can only claim an exemption on property that belongs only to you.

• If you only have a few debts, it may be best to contact your creditors and work out a payment plan with them, rather than filing for bankruptcy.
   
• Bankruptcy can negatively affect your credit history for 10 years. This can make it hard to get new credit, a mortgage, a job, insurance, or to rent.
   
• Not all debts can be discharged by bankruptcy. You still have to pay child support and alimony, student loans, income taxes from recent years, certain fines and penalties like traffic tickets, and some other debts.
   
• Bankruptcy usually can’t discharge any secured debts you have. Secured debts are debts backed by collateral. For example, a car loan is a secured debt because your car serves as the collateral.
   
• If creditors or debt collectors are harassing you, federal and state fair debt collection laws can help protect you from the abuse and harassment.
   
• Any unsecured creditor, like credit card companies and hospitals, have to file a lawsuit against you in court to collect the debt if you don’t pay. If they file a case against you, you are served with copies of the court papers. You can go to court to tell the judge your side of the story. The court decides how much, if any, money you owe. A creditor can’t have you jailed for not paying a debt.

Deciding to file a bankruptcy is an important decision. It is best to talk to a lawyer before you make that decision.

If this is your scenario, we advise you to contact a lawyer. We do not suggest representing yourself.

Bankruptcy can appear on your credit record for 10 years. This can make it hard for you to get credit during that time. But if you are thinking about bankruptcy, then your credit might already be bad, so filing bankruptcy can make it easier for you to fix your credit sooner by discharging many of your debts.

Yes. Many people think they can’t own anything for a while after filing for bankruptcy. This is not true. You can keep your exempt property and anything you get after the bankruptcy is filed.

But, if you get an inheritance, a property settlement, or life insurance benefits within 180 days after filing for bankruptcy, that money or property may have to be paid to your creditors if it is not exempt. You have to report this to the bankruptcy trustee assigned to your case and your lawyer if you have one.

For more detailed information about Chapter 7 and Chapter 13 bankruptcies go to: https://www.uscourts.gov/services-forms/bankruptcy/bankruptcy-basics