Chapter 7 & Chapter 13 Bankruptcy in Kentucky

Chapter 7 Bankruptcy — Eliminate Your Debts

Chapter 7 is often called a "fresh start" bankruptcy. It allows you to eliminate most unsecured debts — credit cards, medical bills, payday loans, personal loans, and utility arrears — without having to pay them back.

Most Eastern Kentucky residents who file Chapter 7 complete the process in 3 to 4 months and keep all of their property.

What Chapter 7 Can Do for You

• Eliminate credit card balances entirely
• Wipe out medical debt, no matter the amount
• Discharge payday loans and personal loans
• Stop creditor calls and collection letters permanently
• Stop wage garnishment immediately upon filing
• Give you a clean financial slate in as little as 90 days

Who Qualifies for Chapter 7?

To qualify, you must pass a means test — a calculation based on your household income compared to the Kentucky median income. In 2024, the median income for a family of four in Kentucky is approximately $80,000. If your income is below the median, you almost certainly qualify.

If your income is above the median, we can still often qualify you by accounting for allowed expenses. Attorney Stanley will walk you through this calculation in your free consultation at no charge.

What Happens to Your Property?

Kentucky bankruptcy exemptions protect most property that working families own. In most cases, you keep:

• Your home (up to $5,000 in equity per person, $10,000 per couple)
• Your car (up to $2,500 in equity)
• Household furniture and appliances
• Work tools and equipment needed for your job
• Retirement accounts (401k, IRA, pension — fully protected)
• Social Security and disability benefits

The vast majority of our clients keep everything they own. If you have concerns about a specific asset, bring it up in your consultation — we will give you a straight answer.

What Chapter 7 Cannot Do

• Discharge student loans (in most cases)
• Eliminate recent income taxes (generally taxes older than 3 years may be discharged)
• Eliminate child support or alimony obligations
• Stop a secured creditor from repossessing collateral if you stop paying

Chapter 13 Bankruptcy — Save Your Home & Catch Up

Chapter 13 is a reorganization bankruptcy. Instead of eliminating debt immediately, you repay a portion of what you owe over a 3 to 5 year plan — and in return, you get to keep your home, catch up on missed mortgage payments, and stop foreclosure.

What Chapter 13 Can Do for You

• Stop a foreclosure sale — even if it is scheduled for tomorrow
• Catch up on missed mortgage payments over 3 to 5 years
• Keep your car even if you are behind on payments
• Reduce the interest rate on your car loan in some cases
• Eliminate a second mortgage if you have no equity in your home
• Pay back taxes over time, without interest or penalties continuing to grow
• Stop wage garnishment immediately upon filing

Who Should Consider Chapter 13?

Chapter 13 is often the right choice if you:

• Are behind on your mortgage and want to save your home
• Have income above the Chapter 7 means test limit
• Own significant property you want to keep that would not be protected in Chapter 7
• Have non-dischargeable debts (back taxes, support) you need time to pay
• Filed Chapter 7 too recently to file again (within 8 years)

How the Chapter 13 Payment Plan Works

You make one monthly payment to a bankruptcy trustee. The trustee distributes those funds to your creditors according to the plan. At the end of the plan — typically 3 years for lower-income filers, 5 years for others — any remaining eligible unsecured debt is discharged.

Your plan payment is based on what you can afford after allowed living expenses. Attorney Stanley calculates this carefully to make sure your plan is confirmable and manageable.

Stopping Foreclosure with Chapter 13

If you are facing foreclosure, Chapter 13 can be a lifeline. The moment you file, an automatic stay goes into effect. This is a federal court order that immediately stops all collection activity, including a scheduled foreclosure sale.

Your plan then allows you to catch up on the mortgage arrears over the plan period, while continuing to make your regular monthly payment going forward. As long as you stick to the plan, you keep your home.