Many people assume that if they file for bankruptcy, they will lose everything in the process. This is a common misconception. In fact, there are many ways to file for bankruptcy without losing things like your home or car. So to answer your question “Can I keep my house if I file bankruptcy?” – yes, you can. However, there are some requirements that must be met to ensure you are able to.
In this post, our experienced bankruptcy attorneys at O’Bryan Law Offices will explain to you the pros and cons of bankruptcy and answer your commonly asked questions like: Can I keep my house if I file bankruptcy? If you plan on filing for bankruptcy or have questions about what might happen if you do, turn to the professionals. For more information regarding bankruptcy, contact one of Kentucky’s most renowned family-owned bankruptcy law firms today.
How can I file chapter 7 and keep my house?
When determining what chapter to file for bankruptcy under, the house is often a main area of concern. No one wants to lose their home for situations out of their control. Odds are, if someone is taking such measures as filing for bankruptcy, they will do everything they can to avoid that possibility. Unfortunately, sometimes there is simply no other solution than to give up your home.
This is always a last resort, and there are ways that you can file chapter 7 bankruptcy and keep your house. When filing for bankruptcy, the debtor can protect an asset such as a house by claiming an exemption for it. Every state provides their own list of exemptions.
In the state of Kentucky, you can choose which set of exemptions to use. One of the most important decisions during this process is choosing whether to use federal exemptions or Kentucky’s state exemptions. Federal exemptions can be found in the U.S. Bankruptcy Code, while Kentucky’s are primarily found in KRS Chapter 427.
This is a weighted decision, as a lot rests on it. You cannot pick and choose which exemptions you want from each list, but rather you must decide on one set of exemptions. A skilled bankruptcy attorney can help you decide what route would most benefit your specific situation.
If you file chapter 7 in Kentucky, you will need to be current on your payments and able to protect the entire amount of home equity with the bankruptcy exemption. If the exemption is not enough to cover the full amount of equity, your house may need to be sold to pay off any unsecured debts.
Below, we’ll provide a comparative list of some of the more common types of exemptions found in both Kentucky and federal law, including homestead exemptions.
Kentucky Exemptions vs. Federal Exemptions
|Exemption||Kentucky Law||Federal Law|
|Homestead||$5,000 (can be doubled to $10,000 if married and jointly filing)||$23,675 of equity in primary place of residence|
|Vehicle||$2,500 (including up to one spare tire)||$3,775|
|Personal Property||$3,000 for household furnishings, clothing, jewelry, farming equipment. $5,000 for burial plots in lieu of the homestead exemption.||$12,625 combined total value of household items. Federal wildcard exemption applicable.|
|Wages||75% of earned, unpaid weekly disposable earnings OR 30 times the minimum wage||Income earned but not yet received becomes part of the bankruptcy estate|
|Pension/Retirement||Exempt||Exempt (cap of approximately $1.28 million on IRAs and Roth IRAs)|
Under Kentucky law, you are granted only a $5,000 exemption for your homestead, which is significantly lower than most states. This means that if you must sell your home under chapter 7, you will receive $5,000 to go towards purchasing a new residence. Meanwhile, under federal law, you will be given a $23,675 exemption.
What is a wildcard exemption?
A wildcard exemption allows debtors to choose the property they protect. In general, one can use this wildcard to exempt any property of their choosing. The state of Kentucky has a wildcard exemption that allows an exemption of $1,000 in any given area. Under federal law, the wildcard exemption enables $1,250 to go to any property and $11,850 for any unused portion of homestead.
Chapter 7 vs. Chapter 13 Bankruptcy
When considering bankruptcy and whether or not you can keep your house, it is important to understand your options. In addition to the exemption status you choose, another crucial decision you must make is what chapter to file under. We already discussed chapter 7 and how that might affect your living situation. But what about chapter 13 bankruptcy? What’s the difference? Can you file chapter 13 and keep your house?
There are a few key differences between chapter 7 and chapter 13 bankruptcy. Chapter 7 is a type of liquidation bankruptcy that wipes out the most possible unsecured debts without needing to establish a repayment plan. As we mentioned before, chapter 7 allows you to keep your home under a few conditions:
- You are up-to-date with your mortgage payments at the time you file
- Your state laws approve of the homestead exemption
- The exemption covers the full amount of equity
Chapter 13, on the other hand, is what is sometimes known as a wage earner’s plan. It allows a person with a regular income to develop a repayment plan to pay off all or part of their debts. The payment plan occurs over a period of three to five years.
For chapter 13 bankruptcy in Kentucky, if you are able to reach an agreement with the courts for a repayment strategy, you will likely be able to save your home. This chapter allows you a grace period to catch up on any late mortgage payments. As long as you remain under chapter 13, your mortgage creditor cannot take any actions of foreclosure so long as you’re paying your planned payments on time.
Does bankruptcy ruin your credit?
While there are many benefits that come with filing bankruptcy, there are also some sacrifices that must be made. One of these is that a bankruptcy claim can leave a negative impact on your credit score. The amount of damage it does, though, depends on what your credit score looked like before you filed.
If your credit score was relatively good before filing, bankruptcy can certainly leave a big dent in your score. Those with good credit post-filing should expect a sizable drop in their score. However, if your score was already low before filing, the damage won’t amount to nearly as much. A person with many delinquent accounts and a high debt-to-asset ratio (meaning they have a lot of debt and few assets) already has a pretty low credit score. As such, filing for bankruptcy will only cause a modest drop in credit score.
While a bankruptcy claim can certainly tank your credit score to begin with, it can also be the quickest way to improve it. For example, someone who doesn’t file for bankruptcy might continuously be behind in payments and have an ever-increasing amount of debt without the ability to catch up. In this case, their credit score will continue to take hit after hit with seemingly no means for improvement.
On the other hand, someone who does file for bankruptcy will have a reduced debt load and will eventually be able to get their finances back on track. They will be able to start making loan and credit payments on time all while reducing their debt-to-income ratio and rebuilding their credit.
For More Questions, Contact O’Bryan Law Offices Today
There are many pros and cons of filing for bankruptcy. Many times, though, it is the best course of action given someone’s current financial circumstances. The good news is that there are ways to save your home under both chapter 7 and 13 bankruptcy. If you’re questioning where you stand financially and need help deciding which route to take, you need an experienced bankruptcy attorney.
At O’Bryan Law Offices, our team of attorneys specializes in bankruptcy claims. We know the ins and outs of both Kentucky and federal law regarding bankruptcy and exemptions. We also practice in the state of Indiana with an office located in New Albany. As such, we can provide information and answer any questions regarding Indiana state exemptions, as well.
If you have any more questions like Can I keep my house if I file for bankruptcy?, contact the family-owned law firm at O’Bryan Law Offices. To arrange your free consultation, give us a call at 502-339-0222 or complete our online contact form here. We look forward to working with you.