Bankruptcy is a word many Kentucky residents do not want to hear, especially when applied to themselves. There can be a stigma that gets attached to people who file for bankruptcy, so many individuals will not even look into it as a possibility. However, with the economic downturn that occurred several years ago, the number of bankruptcies filed in the country rose, and more people understand that very little stands between them and a job loss, or medical or other emergency that could cause an inability to pay their debts. One big reason many people fear bankruptcy is that they believe they will lose all their possessions. This may not be the case in many situations.
As with any legal process, it is important to understand the basic concepts of a bankruptcy case before attempting to decide whether it is the right decision. Previous posts here have discussed the general differences between Chapter 13 and Chapter 7 bankruptcy. In a Chapter 7 Bankruptcy, the idea is to liquidate property in order to pay creditors. However, there are also “exemptions” that come into play.
Exemptions, in a bankruptcy context, are amounts of value in certain property that are immune to being taken by a bankruptcy trustee and sold for the purposes of paying creditors in satisfaction of the filer’s debts. Basically, exemptions protect property from being liquidated in a Chapter 7 Bankruptcy. In Kentucky, these exemptions include property used as a residence up to $5,000, many types of insurance policies and retirement plans, up to $2,500 for a vehicle, up to $3,000 worth of furniture and clothing, tools used in a person’s trade and up to $1,000 in “wildcard” property, which can be anything. There may be other exemptions, such as alimony or child support payments and certain amounts of legal settlements for injury.
It should be noted that these exemptions will not save property that is itself collateral for a debt. For example, a home that has been mortgaged or a car with a lien can still be taken if those debts aren’t paid, notwithstanding any bankruptcy exemptions. This is one reason Chapter 7 liquidation is not right for everyone.