Every state either uses the Federal bankruptcy exemptions or the state’s exemptions. The Kentucky homestead exemption is only 5,000 dollars, and the Federal Homestead exemption in 2025 is 27,900. Each state chooses which set of exemptions it wants to use. Like most other states, Kentucky lets you use either the Kentucky homestead exemption or the federal bankruptcy exemption. Indiana will only allow you to use the much smaller Indiana exemptions. Listed below are the Federal Bankruptcy Exemptions we use in Kentucky.
You must live in the home to use the homestead exemption. Half of any unused homestead exemption can be applied as a wildcard exemption. You only get the full value for your home. But you can use half of the unused homestead exemption (in 2025 up to $13,950) for a vacation home, personal property or motor vehicle.
Here are the Indiana state law exemptions. Persons in Indiana often lose tax refunds and bank account funds if they don’t take time to plan their bankruptcy. It is essential in Indiana to empty the bank account just before filing. The intangible property, which includes money owed to you, is limited to about 400 dollars and includes income tax refunds and bank accounts.
Planning Your Bankruptcy Exemptions
Planning Your Kentucky Exemptions
Most of our bankruptcy clients keep all their personal property when they file for Chapter 7 bankruptcy in Kentucky. You must be honest and disclose any property you own or transfer to use a federal exemption or the Kentucky exemptions. You cannot use your federal exemption or Kentucky exemptions if you don’t list the property or transfer it before you file bankruptcy. A debtor can keep a substantial amount of real or personal property by using your federal bankruptcy exemptions. Federal law on fraudulent transfers and preferential transfers will allow the Trustee to recover and sell it if you hide personal property by not listing it or transferring it for less than its value.
You cannot exempt property and keep personal property you gave away. The Trustee will sell any personal property for the benefit of creditors if it has substantial value and you hide it. Property transferred for less than the fair market value under federal law is a fraudulent or preferential transfer. People often attempt to give away luxury items they can not keep. Kentucky law also has fraudulent transfer clawback.
Straightforward Kentucky Bankruptcy Exemptions Allow You to Keep Reasonable and Necessary Items
Debtors plan what property to keep and what should go back. There is rarely a surprise about what property you can keep in bankruptcy in Kentucky. You know what property you own and what equity you have when you file for bankruptcy. Many ERISA-qualified retirement accounts and retirement exemptions are unlimited. Both Kentucky’s bankruptcy exemptions and Federal bankruptcy exemptions protect unemployment compensation, social security benefits, child support, retirement accounts, and public assistance benefits a debtor needs for a fresh start. If you are trying to keep office equipment or books, the bankruptcy court partially protects future earnings by exempting tools of your trade.
If you owe $25 million, you may be okay with sacrificing a 10,000-dollar car that is paid to get rid of the debt and not owe the debt. When you file bankruptcy, your bankruptcy lawyer can plan to exempt property and keep it according to the exemptions. For example, let’s say the home’s value is $200,000, the mortgage is $140,000, and it is jointly owned. In 2025 your Kentucky homestead exemption is $27,900, hers is $27,900. The cost of selling the home is $4,000, and the trustee fee is $10,000 (Trustees are paid on a sliding scale commission scale). He would only sell a property if there was a benefit to creditors.
Under this scenario, the amount paid to unsecured creditors would be $0. Since creditors do not benefit, a trustee would sell the home. He must work for the benefit of creditors, who must benefit from selling the house. The bankruptcy trustee uses the liquidation value for cars and homes, not the retail cash value.
How Do Exempt Properties in Chapter 13 Affect My Repayment Plan?
The rule to remember in Chapter 13 is that a Chapter 13 must repay what a Chapter 7 bankruptcy case would repay. If the bank failed to record its lien on a 100,000-dollar motor vehicle in Chapter 7, then the debtor must repay what the sale, minus any exemption and costs of a sale, would be.
This rule looks at more than what the motor vehicle is worth. The federal law looks at what Chapter 7 would have repaid from a sale of the asset. If an auction keeps 10% from the sale, it lowers what a Debtor must repay by 10%.
The Trustee also earns a commission in small asset cases up to 25%. After his fees are deducted, a Chapter 13 may only need to repay 65,000. The motor vehicle car in question will sell not for the retail value but the auction liquidation value, usually another 20 – 30% less than the NADA retail used car value.
This Chapter 13 only has to pay 100,000 minus 30,000 minus (liquidation value) another 7,000 for the auction and about 15,000 for the Trustee. The Debtor also deducts 4,500 for his auto exemption. A Chapter 13 would only have to repay 44,000 to keep a 100,000-dollar car or truck.
If this is their home with no mortgage and a couple owned a 100,000 home, their two 27,900 Kentucky homestead exemptions minus the costs of sale and the quick sale value would often mean the debtors could keep a home valued at 100,000. $100,000 – $20,000 (liquidation value) – $55,800 (homestead exemptions) – $15,000 (Trustee costs) – $9,000 Real estate broker and closing costs. Having only some of your property exempt may increase your Chapter 13 plan payment, but due to deductions, you may get to keep property you would have lost in state court.
Declaring Your Property, state or federal law bankruptcy exemptions, and federal non-bankruptcy exemptions
Some people, unfortunately, get nervous when they file for bankruptcy in Kentucky under federal law. They have heard stories about people losing property by filing for bankruptcy in Kentucky. Sometimes, debtors fail to list an asset because they don’t want to lose that asset or to “include it in the bankruptcy.” But not listing any valuable asset guarantees you will lose it.
There is a household goods exemption, which people, by mistake, often call a personal property exemption. Your car may be personal property, but it is not a household good. The household goods exemption is large for clothes, furniture, and appliances. But the household goods exemption doesn’t protect your boat, which is personal property. When you file for bankruptcy, your state exemptions may include personal property exemptions.
When you hide and fail to list an asset, you don’t get to use any bankruptcy exemption to keep it. The petition must first be accurate. The penalty for not being complete and truthful is often losing the property you might have saved if you listed the property and exempted it. You can sell the boat and buy 10,000 dollars of appliances and keep the appliances. However, the bankruptcy code and Kentucky law will not allow you and your bankruptcy lawyer to not list the property and the exemption. The bankruptcy trustee, whether you use Kentucky state law or federal law exemptions, will sell property that is not listed.
People sometimes fail to list property because they forget they have an interest in it. Sometimes, they don’t think they own an interest in their parent’s home or bank account. But if you are on Mom’s deed or bank account as an owner, you own that property.
Unknown Property
Attorneys check public records about your assets to make sure some assets are not missed. However, not all purchases leave a paper trail. If you gave a house to the wife, and it was recorded days before filing for bankruptcy in Kentucky, it can be missed. It may not yet be in the county’s computer records. However, by the time of the 341 meeting, it will be found in the county court records.
Ultimately, it is the responsibility of the debtor to list his assets truthfully and accurately. Some people are unaware of assets of the estate the Trustee can claim. If someone dies within six months after your bankruptcy, the inheritance from that person is part of the property you must exempt.
If you purchase a lottery ticket that you didn’t know was a winning ticket when you filed, it is an asset. Tax refunds for which you worked part of that year have a partial interest owed to the Trustee unless you exempt it. Indiana especially goes after these “intangible assets”.
The Indiana state exemptions only covers about 400 dollars of bank accounts and tax refunds in Indiana. Planning your state and federal exemptions often allows you to spend that refund before you file, so it is not an asset for the Trustee. You usually don’t have to give away property to a Chapter 7 Trustee.
Some Assets Don’t Need an Exemption.
An asset may be valuable to you, but to a trustee, it must have value for the estate. If your business is a painting company and your only income comes from your labor, the company has no value unless it has assets like a truck or ladders.
You may own part of a partnership or corporation. But the stock in that corporation is the only asset you own. The Trustee cannot usually sell off the corporation to pay your debts unless you are the corporation’s sole owner. Partnerships and stocks typically have no value until they sell.
Most well-drafted corporations and partnerships place the corporation outside the reach of a trustee or creditor. Business partners don’t want the business to be forced into a sale because of the creditors of one of the owners. Well-drafted incorporation agreements will not allow the sale of part of the business.
Business Bankruptcy and Exemptions
Only people can use a bankruptcy exemption. Businesses cannot use the exemptions. When a company files for bankruptcy, the assets are typically sold for the benefit of the creditors, especially in a Chapter 7 bankruptcy. Sometimes, a business can restructure and eliminate unprofitable contracts or divisions by filing a Chapter 11. However, over 90% of the companies that file Chapter 11 are converted by the Trustee into Chapter 7 and then liquidated.
Chapter 11 cases pay hefty attorney fees. Often, the attorney forgets to educate his client about this high failure rate of Chapter 11. By restructuring the business in Chapter 11, the corporation can become profitable. However, the company can not claim an exemption to keep the property. Instead, the business negotiates with its secured creditors for better terms.
Owners of a corporation or LLC can often file a Chapter 7 or 13 and effectively restructure the business without filing a Chapter 11. In Chapters 13 and 7, the owner declares exemptions that may save property that would otherwise be lost.
Kentucky Bankruptcy Exemptions the Federal Exemptions and Amounts
The following information in the table is for 2022. Please note that the amounts increase in April of each year. Also, note that Indiana has much smaller state exemptions.
| Exemptions & Amounts updated 1-1-2025 $0.00 amounts are unlimited
Highlighted common and important items, Exemptions with a 0 value are unlimited If you give property away or sell it for less than it is worth before filing you cannot use the exemption to keep property you don’t own. You often recover garnished property. |
Code Section | |
| Public Assistance (Welfare benefits are generally exempt; however, if you mix welfare funds with other funds in a bank account the entire bank account can be attached) | $0.00 | 11 USC § 522(d)(10)(a) |
| Unemployment Compensation | $0.00 | 11 USC § 522(d)(10)(a) |
| Lost Future Earnings if you have a personal injury case (Pain and suffering amounts are often part of the estate and are limited) | $0.00 | 11 USC § 522(d)(11)(e) |
| Wrongful Death Awards Unlimited if the debtor dies this is normally needed for the benefit of the debtor’s dependents. | $0.00 | 11 USC § 522(d)(11)(b) |
| Homestead Exemption $27,900 per person on a deed. If you do not own a home you can use half $13,950 as a wild card for any property | $27,900.00 | 11 USC § 522(d)(1) |
| Animals & Livestock | $14,875.00 | 11 USC § 522(d)(3) |
| Wedding Rings, Jewelry, Furs | $1,875.00 | 11 USC § 522(d)(4) |
| Automobiles $4,450 per person on the title of an auto but you only get one motor vehicle to use this on | $4,450.00 | 11 USC § 522(d)(2) |
| Wearing Apparel The household goods exemption is $14,875, which includes your furniture, clothes, and household items. The total of the items must be less than 14,875.00. Use the trade-in or liquidation value. | $14,875.00 | 11 USC § 522(d)(3) |
| Crops: Growing or Harvested part of your household goods exemption | $14,875.00 | 11 USC § 522(d)(3) |
| Additional Wildcard Exemption this is a separate exemption and not 1/2 of the unused home real estate exemption | $1,475.00 | 11 USC § 522(d)(5) |
| Tools of Trade Tools used to make a living | $2,800.00 | 11 USC § 522(d)(6) |
| Household Goods and Furnishings The total of furniture clothing and all household goods items must be less than $14,875 | $14,875.00 | 11 USC § 522(d)(3) |
| Wildcard (the unused portion of your home exemption this unused portion can be applied to any property) | $13,950.00 | 11 U.S.C. § 522 (d)(5) |
| Lien avoidance limit If your wages were garnished this allows you to take those garnishments back | $7,575.00 | 11 U.S.C. § 522(f)(3) |
| Personal Injury Award This should be used for the pain and suffering part of any Personal Injury case the lost wages and death are covered with other exemptions | $27,900.00 | 11 USC § 522(d)(11)(d) |
| Education IRA | $7,575.00 | 11 U.S.C. § 541(b)(5)(C) |
| Hobby Equipment Part of the household goods exemption where together with clothes and furniture all items must be less than $14,875 | $14,875.00 | 11 USC § 522(d)(3) |
| Qualified ABLE program funds | $7,575.00 | 11 U.S.C. § 541(b)(10)(C) |
| Books, Antiques, Art, Collectibles Again part of the household goods exemption of $14,875 | $14,875.00 | 11 USC § 522(d)(3) |
| Tenancy By Entirety unlimited | $0.00 | 11 USC § 522(b)(3)(b) |
| Burial Plot Part of your real estate homestead exemption | $27,900.00 | 11 USC § 522(d)(1) |
| Unmatured Life Insurance Policy | $0.00 | 11 USC § 522(d)(7) |
| Pre-purchased tuition credits | $7,575.00 | 11 U.S.C. § 541(b)(6)(C) |
| Life Insurance (loan value, unmatured) a completely separate exemption | $14,875.00 | 11 USC § 522(d)(8) |
| Alimony, Child Support or Maintenance Support | $0.00 | 11 USC § 522(d)(10)(d) |
| Veterans’ Benefit | $0.00 | 11 USC § 522(d)(10)(b) |
| Crime Victims’ Compensation | $0.00 | 11 USC § 522(d)(11)(a) |
| Wages | $0.00 | 15 USC § 1673 |
| Tax Exempt Retirement Accounts: the Federal retirement exemption is for a reasonable amount. The Kentucky exemption is unlimited. Most courts allow over one million dollars. See bankruptcy code section 522(n) | $0.00 | 11 USC § 522(d)(12) |
| Professionally Prescribed Health Aids | $0.00 | 11 USC § 522(d)(9) |
| Disability Benefits | $0.00 | 11 USC § 522(d)(10)(c) |
| Social Security | $0.00 | 11 USC § 522(d)(10)(a) |
| Life insurance policy (for support) | $0.00 | 11 USC § 522(d)(11)(c) |
| Stock Bonus, Pension, Annuity, etc. | $0.00 | 11 USC § 522(d)(10)(e) |
| Life Insurance | $13,400.00 | 11 USC § 522(d)(8) |
| Public Student Loan | $1,000,000.00 | 20 U.S.C. 1095(a)(d) |
| IRA | $1,362,800.00 | 11 U.S.C. § 522(n) |
| Social Security (already received) Never mix with other money in a bank account. You lose the exemption. | $0.00 | 42 U.S.C. 407. 522(d)(10) |
How is Property Lost to a Chapter 7 Trustee?
Only a Chapter 7 Trustee takes property away. In Chapter 13, the debtor can always dismiss his case to avoid losing property. In Chapter 13, the debtor remains in possession of his property.
Most people who lose property in Bankruptcy lose it because of one or more of the following reasons:
- They didn’t make the monthly car or home payments; the lender takes it.
- The bank forgot to file the mortgage or car lien properly. So now a Chapter 7 Trustee can take it because the bank doesn’t have a lien, and the trustee, in effect, has a judgment lien.
- The Debtor transferred the property and then could not exempt it, or the debtor didn’t list the asset and exempt property.
This is the link to the NOLO article on federal exemptions.
Resources for Bankruptcy
Indiana Bankruptcy Exemptions • Video
Filing Chapter 7 & Chapter 13 Bankrupt
How to Qualify for a Chapter 7
How to Keep Tax Refunds in Chapter 7 or 13 Bankruptcy
Retirement Benefits & 401k in bankruptcy
If you are thinking about filing bankruptcy, don’t delay because timing is crucial. I am here to help you. So, contact my office right away to start the conversation. Nick C. Thompson, Bankruptcy Attorney: 502-625-0905.
