No, You Don’t Have To Give Up Your Home In A Kentucky Bankruptcy

Bankruptcy Can Be Beneficial

There are far too many people who might benefit from bankruptcy who are simply afraid to move forward with the process. Concerns about potential issues such as the loss of certain assets or even the negative mark on your credit score could keep you from considering the potential benefits of bankruptcy. 

However, despite a relatively negative cultural attitude toward bankruptcy, it can actually be a beneficial process. You can discharge debts and get back in control of your financial situation. Depending on your personal income, you may qualify for Chapter 7 (for lower than average income individuals) or structured debt repayment in Chapter 13 bankruptcy

Keeping Your Home in a Bankruptcy

Whether or not you can keep your home depends on the type of bankruptcy you are filing. Most people are generally able to keep their homes and other personal property due to exemptions. 

  • Chapter 7:  If your home doesn't have much equity and you keep up with your mortgage payments, you are likely able to keep your home. If the bankruptcy exemptions are not enough to cover your home, the bankruptcy trustee may sell it to pay off your debts.
  • Chapter 13: Those filing for Chapter 13 can keep their homes and property because the debts are repaid through a payment plan. As long as you keep up with your payments, you will be able to keep your home. 

Kentucky Exemptions in the Bankruptcy Process

Filing for bankruptcy relief means asking the courts to step in because you simply can’t meet financial obligations anymore. For those who pass the Kentucky state means test, Chapter 7 bankruptcy is often the best option. This form of bankruptcy involves discharging unsecured debts without a repayment period. However, any assets you have beyond certain exemption limits are subject to sale by the courts to repay your creditors.

State law allows you to exempt assets of up to a certain value from seizure and sale during bankruptcy. Every state has different limits, which reflect both real estate values and income in the state. In Kentucky, homeowners can exempt up to $5,000 in real property. That means that your share of interest in a home is exempt, up to $5,000 (or $10,000 if married and filing together).

You Can Opt for Federal Bankruptcy Exemptions 

If you have more than $5,000 in equity, that doesn’t mean you have to struggle financially without any hope of bankruptcy protections. You have the right to use either federal exemption standards or state exemptions when you file. Since Kentucky has such low exemptions available, homeowners with more equity may want to consider using federal exemptions for their Chapter 7 bankruptcy.

Under the federal exemption standard, you can protect up to $23,675 (or double that if you’re married, filing together). That may make federal bankruptcy exemptions a better option for your family. Any amount of equity beyond the exempted amount could end up cashing out to repay some of your creditors. Alternatively, those with low income but a large amount of equity in their home may want to seriously consider the potential benefits of Chapter 13 bankruptcy instead, as it won’t involve the liquidation of any assets.