Bankruptcy Exemptions

Exemptions are specific laws that let you protect certain property from your creditors, like your car or home. If you file a Chapter 7 bankruptcy, you can keep the things that are protected by Kentucky’s bankruptcy exemptions. If you file for Chapter 13 bankruptcy, the bankruptcy exemptions play a role in how much you have to repay your creditors through your Chapter 13 plan.

Kentucky has state exemptions you can use when you file a bankruptcy. There are also federal bankruptcy exemptions. In Kentucky, you can choose between the state and federal exemptions. But you can't mix and match. You have to choose to use either Kentucky or the federal exemptions.

If you choose the Kentucky bankruptcy exemptions, you can still use any federal non-bankruptcy exemptions (meaning exemptions that are not contained in the federal bankruptcy code) that apply to you. Federal non-bankruptcy exemptions protect things like federal and military retirement accounts and veteran’s benefits.

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

• how they work,
• which exemption system you should use
• special rules for the homestead exemption

See NOLO's Bankruptcy Exemptions topic page here: https://www.nolo.com/legal-encyclopedia/bankruptcy-exemptions

Below is a list of commonly used bankruptcy exemptions. Also listed are the statutes and other resources where you can find the law or information about them.

Homestead Exemption

Ky. Rev. Stat. Ann § 427.060 & 090

Up to $5,000 worth of equity in any real or personal property in Kentucky that you use as a permanent residence. You can also use your homestead exemption to protect a burial plot for yourself or your dependent.

Example. You own a home worth $120,000 and you still owe $116,000 on it. This means you have $4,000 worth of equity in your home. You can protect the full value of your home with the Kentucky homestead exemption.
 

Personal Property Exemption

Ky. Rev. Stat. Ann § 427.010(1) protects:

• Up to $3,000 worth of household furnishings and clothing.
• Up to $3,000 worth of tools, equipment, and livestock used in farming.
• Up to $2,500 of equity in 1 motor vehicle with accessories, including 1 spare tire.
• Professionally prescribed health aids for you or your dependent.

Ky. Rev. Stat. Ann § 427.150 protects:

• Alimony and support you receive, at least a reasonable amount needed for you and your dependents’ support.
• Crime victim’s reparation funds.
• Wrongful death award from the death of a person you were dependent on.
• Up to $7,500 of value in a personal injury award that you got from an injury to yourself or your dependent, at least the reasonably necessary amount needed for the support of you and your dependents.
• Awards for loss of future earnings, at least a reasonably necessary amount needed for the support of you and your dependents.
   

Pensions and Retirement Accounts Exemption

• ERISA-qualified retirement accounts. Ky. Rev. Stat. Ann § 427.150
• Police and firefighters’ pensions. Ky. Rev. Stat. Ann. § 67A.620; 427.125; 427.150(2)(e)
• State and county employees’ pensions. Ky. Rev. Stat. Ann. §§ 61.690; 427.150(2)(e); 67A.350
• Teachers’ pensions. Ky. Rev. Stat. Ann. §§ 161.700; 427.150(2)(e)
   

Public Benefits Exemption

• Public assistance. Ky. Rev. Stat. Ann. § 205.220
• Unemployment compensation. Ky. Rev. Stat. Ann. § 341.470
• Workers' compensation. Ky. Rev. Stat. Ann. § 342.180
   

Tools of the Trade Exemption

• Up to $300 worth of tools that you use in your trade and up to $2,500 of value in one motor vehicle and accessories, including one spare tire, if you are a mechanic or another skilled tradesperson who repairs or services mechanical, electrical, or other equipment. Ky. Rev. Stat. Ann § 427.030
• Up to $1,000 of value in a professional library, office equipment, instruments, or furnishings that you need for your practice if you are a lawyer, minister, doctor, veterinarian, or dentist. And up to $2,500 of value in one motor vehicle and one spare tire. Ky. Rev. Stat. Ann § 427.040
   

Insurance Exemption

• Proceeds or benefits paid or to be paid by a cooperative life or casualty insurance company. Ky. Rev. Stat. Ann§ 427.110
• Life insurance proceeds if there is a clause in the policy that prohibits them from being used to pay beneficiary's creditors. Ky. Rev. Stat. Ann. § 304.14-350
• Life insurance proceeds or cash value if the beneficiary is someone other than insured. Ky. Rev. Stat. Ann. § 304.14-300
• Group life insurance proceeds. Ky. Rev. Stat. Ann. § 304.14-320

Wildcard Exemption

• Up to $1,000 of value in any real or personal property. Ky. Rev. Stat. Ann § 427.160.

Federal Homestead Exemption

If you own (rather than rent) your home, you can protect up to $25,150 of equity in the real property. 11 U.S.C. § 522(d)(1). If you owe more on your mortgage than your home is worth, you have no equity.
 

Not using the homestead exemption? No problem!

If you don’t own real property, or you don’t have any equity you need to protect, the federal bankruptcy exemptions let you to use up to $12,575 as an additional wildcard exemption. 11 U.S.C. § 522(d)(5).
 

Wildcard Exemption

Wildcard exemptions are a catch-all category that let you apply all or a portion of the exemption to an item that belongs in another category, or no category at all. This means you can protect things you normally wouldn’t be able to protect.

For example, if you have a vehicle worth $4,500, you can only exempt $4,000 of its value using the federal exemption for motor vehicles. But you could exempt the remaining $500 of its value using part of the federal wildcard exemption. Now your vehicle is 100% protected.
 

Personal Property and the Federal Bankruptcy Exemptions

If you don’t own real estate, the personal property exemptions are the most useful to you. Currently, federal bankruptcy exemptions give protection in the following categories:

• $4,000 for your motor vehicle -11 U.S.C. § 522(d)(2).
• $625 per individual item with a $13,400 total value on household goods, furnishings, appliances, clothes, books, animals, crops, musical instruments -11 U.S.C. § 522(d)(3).
• $1,700 for jewelry -11 U.S.C. § 522(d)(4).
• $2,525 for tools of the trade including implements and books -11 U.S.C. § 522(d)(6).
• Professionally prescribed health aids -11 U.S.C. § 522(d)(9).

For married couples filing jointly, all the dollar amounts listed above are doubled. So, the homestead exemption for a married couple filing jointly is $50,300 instead of $25,150 as long as both spouses have an ownership interest in the property.

Real and personal property are not the only types of assets protected by the federal bankruptcy exemptions.
 

Other Types of Assets

Federal bankruptcy exemptions also protect “intangible assets.” These are things like:

• IRAs
• pension plans
• tax exempt retirement accounts
• cash value life insurance

Income from things like social security, public benefits, veteran’s benefits, alimony, and child support is 100% protected.

Other assets protected under the federal bankruptcy exemptions include:

• $13,400 in loan value, accrued dividends, or interest in a life insurance policy -11 U.S.C. § 522(d)(8).
• Wrongful death recovery for a person you were a dependent of -11 U.S.C. §522(d)(11)(b).
• Personal injury recovery up to $15,000, not including for pain and suffering or for actual financial loss -11 U.S.C. § 522(d)(11)(d).
• Loss of future earnings payments -11 U.S.C. § 522(d)(11)(e).
• IRAs and Roth IRAs up to $1,362,800 -11 U.S.C. § 522(n).
• Crime Victims Compensation -11 U.S.C. § 522(d)(11)(a).
• Unmatured life insurance policy not including credit life insurance -11 U.S.C. §522(d)(7).
• Disability, unemployment compensation, and illness benefits -11 U.S.C. § 522(d)(10)(c).
• Life insurance payments for someone if you were their dependent and relied on them for support -(11 U.S.C. § 522(d)(11)(c)