As previous posts here have discussed, one of the advantages to Chapter 13 bankruptcy is that a Kentucky family gets to hang on to all of their property, even after the bankruptcy. This is different from the more common Chapter 7 bankruptcy, in which a debtor may need to surrender non-exempt property to a bankruptcy trustee so that it can be used to pay off creditors. Instead, a Chapter 13 debtor agrees to a repayment plan over time.

Like a Chapter 7, however, a Chapter 13 bankruptcy does not have a long-term effect on secured loans, like mortgages and car loans, although a Chapter 13 can be used to catch up on delinquent payments. To explain this advantage in greater detail, Kentucky, like most other states, has a list of exempt property that debtors would be allowed to keep in the event of a bankruptcy or, for that matter, a collection proceeding taking place outside of bankruptcy. Should a debtor be able to use those exemptions to keep all or most of their property after a bankruptcy, then a Chapter 7 might make sense.

The problem is that some debtors have their wealth tied up in non-retirement accounts and property that would not be exempt from bankruptcy proceedings under the law. This means that those debtors need to choose between immediate financial relief via a Chapter 7 and protecting their long-term savings that they were planning to use for other purposes, such as expenses in their old age or a legacy for their children.

In these sorts of cases, so long as the debtor has a regular income through which to pay off some of their debts, a Chapter 13 bankruptcy might be a good option, since it will allow a debtor to protect their property and get debt relief.