While the perception by many is that those who file for bankruptcy must have engaged in reckless spending, that is far from the truth. According to debt.com, most cases of bankruptcy are the result of financial hardship due to job loss, medical bills, and economic downturn. In fact, CNBC notes that two-thirds of those who file for bankruptcy cite medical issues as a key contributor to their financial downfall. One study cited by CNBC noted medical issues played a huge part in bankruptcy filings not only because of the high costs associated with medical care but also because of time away from work due to illness or injury. Other reasons listed as the primary cause of bankruptcy filing included unaffordable mortgages, foreclosure, providing help to friends or family members, repaying student loans, and divorce or separation.
The year with the highest number of bankruptcy filings was 2005 when one out of every 55 households were forced to file for bankruptcy. In 1980, businesses accounted for 13 percent of all bankruptcies, but today they account for only about 3 percent. The number of bankruptcies varies greatly from state to state. As an example, in 2011, California had 240,000 bankruptcy filings, while Alaska had fewer than 1,000. Although the population is certainly a factor, bankruptcy also tends to occur more often in states with lenient wage-garnishment laws.
Since the 1990s, bankruptcy has been increasingly frequent among older individuals, with more and more senior citizens declaring bankruptcy. If you are considering filing bankruptcy, remember that no one is immune to severe financial troubles, and there should be no embarrassment or shame attached to such a decision. If you have been struggling financially for a while yet remain overwhelmed by debt, talking to an experienced, compassionate Kentucky bankruptcy attorney can truly be life-changing. A knowledgeable, non-judgmental bankruptcy attorney can help alleviate much of the stress and anxiety that often accompanies a bankruptcy filing.
Making the Decision to File for Bankruptcy in Kentucky
While you may be feeling a little desperate as a result of your financial situation, try not to think of filing for bankruptcy as a desperate move. Rather, think of it as a second chance opportunity to rebuild your finances under bankruptcy law protection. While bankruptcy is certainly a big decision, requiring significant due diligence prior to moving forward, it can also be the right way to get your finances back on track.
Determining Eligibility for Bankruptcy Filing
Not everyone will be eligible to file bankruptcy. The basic procedure will include determining your eligibility, participating in credit counseling if you are eligible, completing all bankruptcy forms, filing the forms, and completing debtor counseling prior to receiving a discharge. You will also be required to turn over any financial documents that substantiate the information in your paperwork. When you file for bankruptcy in Kentucky, you must compare your own income to the median income for a household of your size in the state of Kentucky.
If your income is less than the median, you will be eligible to file for Chapter 7; if your income is above the median income of Kentucky, you may still qualify for Chapter 7, although you will be required to provide detailed information concerning your expenses and payments on secured debts to make this determination. Chapter 13 filers will also be required to provide this information. As of May 2019, the median income for Kentucky was as follows:
- One person in the household–$45,640
- Two people in the household–$54,835
- Three people in the household–$66,154
- Four people in the household–$78,951
- Five people in the household–$87,951
- Six people in the household–$96,951
Choosing Which Type of Bankruptcy to File
Once you determine whether you are eligible to file for bankruptcy in the state of Kentucky, you will then determine whether you will file for Chapter 7 bankruptcy or Chapter 13 bankruptcy. Chapter 7 bankruptcy is a liquidation-type of bankruptcy. Under Chapter 7, most of your general, unsecured debts (credit cards and medical bills) will be wiped out without the need to pay back those balances. If you make too much income, however, you will be required to file under Chapter 13. If you file for Chapter 7 bankruptcy, an automatic stay will stop most creditors from pursuing collection of the debt.
A bankruptcy trustee will be appointed under Chapter 7 bankruptcy. The trustee will review all paperwork and supporting documents and will be in charge of selling any non-exempt property to pay back creditors. If you have no non-exempt assets, your creditors will receive nothing. Chapter 7 bankruptcy tends to work well for those who have few assets and relatively low income. Chapter 7 bankruptcy can also work for those whose discharged debt exceeds the value of the property sold, particularly if the funds will be applied to non-dischargeable debts, such as spousal support or taxes.
Chapter 13 bankruptcy is known as “wage-earners” bankruptcy or “reorganization” bankruptcy. Debtors with a regular income, who have sufficient disposable income left over at the end of the month to pay back a portion of the debt through a repayment plan, could benefit from filing under Chapter 13. Chapter 13 bankruptcy filers generally make too much money to qualify under Chapter 7 bankruptcy. Some debtors who might qualify for Chapter 7 could decide to file under Chapter 13 to take advantage of certain benefits, such as being able to catch up on missed mortgage payments.
You are allowed to keep your property under Chapter 13 however, you will have to pay creditors an amount equal to the value of any non-exempt property. Under Chapter 13 bankruptcy, you will create a repayment plan which is dependent on your income, expenses, and specific type of debts. To file for Chapter 13, you cannot have more than $419,275 of unsecured debt, or $1,257,850 of secured debt. Finally, to qualify for Chapter 13 bankruptcy, you must have filed federal and state income tax for the past four years.
How Will Bankruptcy Affect Your Credit?
Many people are discouraged from filing for bankruptcy because of the effect it will have on their credit score. While it is true that a bankruptcy filing can stay on your credit report for up to 10 years, seriously hurting your credit score, not filing and allowing your debts to go to collections will also seriously damage your credit score. Depending on whether you file for Chapter 7 or Chapter 13 bankruptcy, it is likely your credit score will immediately drop at least 160 to 220 points, taking a fair credit rating down to a poor one. This will certainly make it more difficult to qualify for an auto or home loan, however, there are measures you can take, following a bankruptcy filing, to positively enhance your credit score. If you continue to manage your debt responsibly following your bankruptcy filing, your credit score will gradually increase. A completed Chapter 13 bankruptcy stays on your credit report for up to seven years, while a completed Chapter 7 bankruptcy stays on your credit report for up to 10 years. Because all debts under a Chapter 7 bankruptcy are discharged within a few months of filing for bankruptcy, it is likely those debts will drop from your credit report a few years before the bankruptcy itself.
Choosing Between Federal and State Exemptions
When you file for bankruptcy, there are certain “exemptions” which allow you to protect some property from your creditors. Under Chapter 7 bankruptcy in Kentucky, you can keep the items protected by exemptions, and under Chapter 13, those exemptions will play a role in how much you will repay to your creditors. While Kentucky has its own state exemptions you can use when you file for bankruptcy, the state also allows you to choose between state or federal exemptions. You cannot mix the two. You must choose one or the other, although if you do choose Kentucky exemptions, you are still allowed to use the federal exemptions to protect federal and military retirement accounts and veterans’ benefits. Married couples filing for joint bankruptcy can double the exemption amounts.
People who are filing for bankruptcy are generally most concerned about their homes. Under Kentucky exemptions, you can keep up to $5,000 in equity in your permanent residence. The federal exemption is much more generous, at $23,675 in equity. Further exemptions include:
- Kentucky law provides for up to $3,000 in household furnishings and clothing (Federal exemption is $12, 625).
- Kentucky law provides for up to $3,000 in tools, equipment, and livestock used by farmers.
- Kentucky law provides for up to $2,500 in equity for one motor vehicle, including one spare tire (Federal exemption is $3,775).
- Any professionally prescribed health aids for yourself and your dependent(s) are exempt.
- Kentucky provides for pensions and retirement plans, including ERISA, Police and firefighters’ pensions, state and county employees’ pensions, and teachers’ pensions are exempt.
- Public benefits are exempt in the state, including unemployment, public assistance, and workers’ compensation.
- Tools of the trade, up to $300 in tools and $2,500 of value in one motor vehicle, are exempt under Kentucky law for skilled tradespersons. For attorneys, ministers, doctors, veterinarians, and dentists, Kentucky allows up to $1,000 of value in a professional library, instruments, furnishing, and office equipment and up to $2,500 of value in one motor vehicle.
- Life insurance proceeds or benefits are generally exempt from bankruptcy.
- Kentucky offers a wildcard exemption of up to $1,000 of value in any real or personal property (Federal exemption is $1,250).
- You are also allowed to keep alimony and support to the extent reasonably necessary for support, crime victim’s reparation funds, wrongful death awards resulting from the death of a person upon whom you were dependent, up to $7,500 of value from a personal injury award, and awards for loss of future earnings, to the extent necessary to support you and your dependents.
Federal law also allows an exemption of $1,600 for jewelry and $2,375 for tools of the trade.
How the Christopher Kurtz Law Office Can Help
At the Christopher Kurtz Law Office, we believe we can help you through this difficult time in your life with the least stress possible. Christopher Kurtz offers personalized service to each and every client and has extensive experience in Kentucky bankruptcy law. We operate a boutique practice, which allows us to help individuals solve their financial troubles in the most satisfactory manner. We offer patience, compassion, and education, helping relieve you of the anxiety you are likely experiencing due to your financial difficulties. Contact the Christopher Kurtz Law Office today for experienced, knowledgeable representation.