Kentucky Bankruptcy Law: The Basics of Chapter 7 and Chapter 13

Kentucky bankruptcy law provides residents with the opportunity to alleviate financial distress through two primary forms of bankruptcy: Chapter 7 and Chapter 13. Understanding the basics of these chapters can help individuals make informed decisions about their financial futures.

Chapter 7 Bankruptcy

Chapter 7, often referred to as "liquidation bankruptcy," is designed for individuals who cannot repay their debts. In this process, a bankruptcy trustee is appointed to oversee the case. The trustee evaluates the debtor’s assets and may liquidate non-exempt property to pay creditors. However, many personal assets are exempt under Kentucky law, meaning individuals can retain essential property, such as a home, vehicle, and personal belongings.

To qualify for Chapter 7 bankruptcy in Kentucky, individuals must pass a means test. This test assesses the debtor’s income and expenses to determine if filing for Chapter 7 is appropriate based on their financial situation. If the debtor's income exceeds the state median, they may need to explore other bankruptcy options.

Once the Chapter 7 bankruptcy is filed, an automatic stay takes effect, preventing creditors from pursuing collections while the case is processed. Most Chapter 7 cases are resolved within a few months, leading to the discharge of unsecured debts, such as credit card bills and medical expenses. This allows individuals to obtain a fresh financial start.

Chapter 13 Bankruptcy

Chapter 13, known as "reorganization bankruptcy," is intended for individuals with a regular income who can repay a portion of their debts over time. Under this plan, debtors propose a repayment plan to creditors, usually lasting three to five years. During this period, debtors make monthly payments to the bankruptcy trustee, who distributes the funds to creditors according to the agreed-upon plan.

One of the significant advantages of Chapter 13 bankruptcy is that it allows individuals to avoid foreclosure on their homes. Debtors can catch up on missed mortgage payments while making their monthly payments under the Chapter 13 plan. Additionally, Chapter 13 can help individuals retain non-exempt property that might otherwise be liquidated in Chapter 7.

To qualify for Chapter 13 bankruptcy, individuals must have a regular source of income and their unsecured debts must not exceed a specific amount set by the IRS guidelines. Unlike Chapter 7, there is no means test in Chapter 13, making it a viable option for some individuals who do not qualify for Chapter 7 but still need relief from their debts.

The Process of Filing for Bankruptcy in Kentucky

Filing for bankruptcy in Kentucky involves several steps. Initially, individuals must complete credit counseling from an approved provider within the 180 days before filing. Once this is completed, they can file their bankruptcy petition in the appropriate U.S. Bankruptcy Court in their district.

After filing, a meeting of creditors, also known as a 341 meeting, is scheduled. During this meeting, the bankruptcy trustee and creditors can ask debtors questions about their financial status. Finally, upon completing all obligations as per their bankruptcy chapter, individuals can work towards achieving their financial recovery.

Conclusion

Understanding Kentucky bankruptcy law, particularly Chapter 7 and Chapter 13, is crucial for individuals facing financial difficulties. Each option provides different benefits and caters to varying circumstances. Consulting with a qualified bankruptcy attorney can ensure that individuals make informed choices suited to their specific financial needs.