Considering Bankruptcy In Kentucky? Explore The Alternative
In terms of debt per capita, Kentucky’s state government debt equates to approximately $3,649 per person, which is slightly higher than the national average of $3,366 per person. According to data from the United States Courts, there were 13,279 bankruptcy filings in Kentucky in the fiscal year 2021 (which runs from October 2020 to September 2021). Of these filings, 9,856 were Chapter 7 bankruptcies, 3,262 were Chapter 13 bankruptcies, and 161 were Chapter 11 bankruptcies.
Bankruptcy Laws in Kentucky
Bankruptcy in Kentucky is governed by federal law, specifically the United States Bankruptcy Code. However, there are also some state-specific rules and exemptions that apply in Kentucky bankruptcy cases. In Kentucky, individuals can file for either Chapter 7 or Chapter 13 bankruptcy. Chapter 7 bankruptcy allows individuals to discharge most of their unsecured debts, such as credit card debt and medical bills, while Chapter 13 bankruptcy allows individuals to reorganize their debts and make payments over a period of three to five years. Kentucky has its own set of exemptions that individuals can use to protect certain assets in bankruptcy. These exemptions include:
- Homestead exemption: up to $5,000 of equity in a primary residence
- Personal property exemption: up to $3,000 of equity in household goods, clothing, and other personal property
- Motor vehicle exemption: up to $2,500 of equity in a motor vehicle
- Tools of the trade exemption: up to $3,000 of equity in tools and equipment used for work
- Wildcard exemption: up to $1,000 of equity in any property, plus unused portion of homestead exemption
Considering Business Bankruptcy? Things You Need To Know
There are several types of bankruptcy that a business may file for depending on their financial situation and goals. The most common types of bankruptcy for businesses are:
- Chapter 7: This is also known as liquidation bankruptcy, where the business ceases operations and a trustee is appointed to sell off assets to repay creditors. Chapter 7 bankruptcy is usually appropriate for businesses that cannot recover financially.
- Chapter 11: This is also known as reorganization bankruptcy and allows a business to restructure its debts while continuing operations. Under Chapter 11, the business is usually allowed to negotiate new payment terms with its creditors and develop a plan to repay its debts over time.
- Chapter 13: This type of bankruptcy is primarily designed for individuals but can also be used by sole proprietors. Under Chapter 13, the business owner creates a repayment plan to repay some or all of their debts over a three to five-year period. This type of bankruptcy may be useful for sole proprietors who want to keep their business running while restructuring their debt.
- Chapter 12: This type of bankruptcy is specifically designed for farmers and fishermen and provides them with the opportunity to restructure their debts while keeping their operations running.
If you are considering filing for business bankruptcy in Kentucky, there are several important things to keep in mind:
- Understand the types of bankruptcy: As mentioned earlier, there are different types of bankruptcy that a business can file for, and each has its own advantages and disadvantages. Consulting with a bankruptcy attorney can help you determine which type of bankruptcy is best for your specific situation.
- Consider the consequences: Filing for bankruptcy can have significant legal and financial implications, including the loss of assets and the negative impact on credit scores. It’s important to carefully consider the consequences before deciding to file.
- Explore alternatives: Bankruptcy should be a last resort option. Before filing, explore other options, such as negotiating with creditors, restructuring debts, or seeking alternative sources of funding.
- Prepare for the process: Bankruptcy is a complex legal process that requires thorough preparation and attention to detail. Working with an experienced bankruptcy attorney can help ensure that the process goes as smoothly as possible.
- Keep accurate records: It’s important to maintain accurate records of all financial transactions leading up to and during the bankruptcy process. This includes bank statements, tax returns, and other financial documents.
- Cooperate with the bankruptcy trustee: A bankruptcy trustee will be appointed to oversee the process and ensure that creditors are paid as much as possible. It’s important to cooperate with the trustee and provide any requested information in a timely and accurate manner.
- Plan for the future: Bankruptcy provides an opportunity to start fresh and rebuild. Develop a plan for the future that takes into account the lessons learned from the bankruptcy process and sets realistic goals for the future of the business.
Does Bankruptcy Discharge All Debts?
While bankruptcy can discharge many types of debts, there are some debts that are not typically dischargeable in bankruptcy. These include:
- Certain tax debts: Some tax debts, such as those for recent tax years, are generally not dischargeable in bankruptcy. However, older tax debts may be dischargeable under certain circumstances.
- Student loans: In most cases, student loans cannot be discharged in bankruptcy unless the debtor can prove that paying them would cause undue hardship.
- Domestic support obligations: Debts for child support or alimony are typically not dischargeable in bankruptcy.
- Criminal fines and penalties: Debts resulting from criminal fines or penalties, such as restitution or fines for traffic violations, are usually not dischargeable.
- Debts incurred through fraud or illegal activity: Debts incurred through fraudulent or illegal activity, such as embezzlement or theft, are generally not dischargeable.
- Debts owed to certain creditors: Some debts owed to certain creditors, such as debts resulting from willful or malicious injury to another person or debts owed to a pension fund, are not dischargeable in bankruptcy.
How Bankruptcy in Kentucky Affects Your Credit Score and Ability to Get a Future Loan
Filing for bankruptcy in Kentucky can have a significant impact on your credit score and ability to get a future loan. A bankruptcy filing can stay on your credit report for up to ten years, and it can negatively impact your credit score. While it is possible to rebuild your credit after bankruptcy, it may take some time and effort. During this time, you may have difficulty obtaining credit or loans, and if you are able to obtain them, you may face higher interest rates or more stringent terms.
How Does Bankruptcy in Kentucky Affect Tax Debt?
The effect of bankruptcy on tax debts in Kentucky depends on the type of tax debt and the specific circumstances of the case. In general, bankruptcy can provide relief for some tax debts, but not all. The following are some ways that bankruptcy can affect tax debts in Kentucky:
- Dischargeability of tax debts: Some tax debts may be dischargeable in bankruptcy, while others are not. Generally, income tax debts that meet certain criteria, such as being at least three years old and having been assessed at least 240 days prior to filing for bankruptcy, may be dischargeable in Chapter 7 bankruptcy. However, tax debts for more recent years, as well as other types of tax debts, such as payroll taxes, are generally not dischargeable.
- Automatic stay: When a bankruptcy petition is filed, an automatic stay goes into effect, which halts most collection activities, including those related to tax debts. This can provide temporary relief from collection efforts, allowing the debtor to reorganize or discharge other debts.
- Repayment plans: In Chapter 13 bankruptcy, a debtor can develop a repayment plan that includes tax debts, allowing them to pay the debt over a period of three to five years. This can help the debtor catch up on tax debts while also repaying other creditors.
- Tax liens: Bankruptcy may not eliminate tax liens, but it can prevent the IRS or state from enforcing the lien while the bankruptcy case is pending. In some cases, it may be possible to have a tax lien removed through bankruptcy.
Will You Lose Your Home or Car in Bankruptcy in Kentucky?
Whether or not you will lose your home or car in bankruptcy in Kentucky depends on several factors, including the type of bankruptcy you file, the value of your assets, and whether you are current on your mortgage or car payments. In a Chapter 7 bankruptcy, also known as a “liquidation” bankruptcy, the bankruptcy trustee may liquidate certain assets to pay off creditors. However, Kentucky has exemptions that allow debtors to protect certain assets, including a portion of the equity in their home and car. If your home or car equity is protected by an exemption, you may be able to keep them. If the equity is not fully protected, the bankruptcy trustee may sell the property to pay off creditors. In a Chapter 13 bankruptcy, also known as a “reorganization” bankruptcy, debtors develop a repayment plan to pay back creditors over a period of three to five years. If you are current on your mortgage or car payments, you may be able to keep your home or car by including those payments in your repayment plan. However, if you are behind on payments, the bankruptcy court may require you to catch up on payments or surrender the property.
Statute of Limitations for Collections in Kentucky
In Kentucky, the statute of limitations for collections on debts is generally five years. This means that creditors have up to five years from the date of the last payment or transaction to file a lawsuit to collect a debt. If the creditor does not file a lawsuit within this time period, the debt is considered “time-barred,” and the creditor may not be able to legally collect the debt. It’s important to note that the statute of limitations varies depending on the type of debt. For example, the statute of limitations for written contracts, such as credit card debt, is generally five years in Kentucky, while the statute of limitations for oral contracts is generally only three years. It’s also important to note that making a payment or acknowledging the debt can restart the statute of limitations period, so it’s important to understand your rights and consult with an attorney if you are being contacted by a creditor about a debt.
Cons of bankruptcy in Kentucky
While bankruptcy can provide relief and a fresh start for individuals and businesses struggling with overwhelming debt, there are also some potential cons to consider. Here are a few cons of bankruptcy in Kentucky:
- Negative impact on credit score: Bankruptcy can have a significant negative impact on your credit score, which can make it difficult to obtain credit in the future or may result in higher interest rates or less favorable terms.
- Public record: Bankruptcy is a public record, which means that anyone can access information about your bankruptcy case, including creditors, potential employers, and landlords.
- Potential loss of assets: Depending on the type of bankruptcy and the specifics of your case, you may be at risk of losing certain assets, such as your home or car, if they are not protected by exemptions or you are unable to repay the debt.
- Cost: Bankruptcy can be expensive, and there are filing fees and other costs associated with the process. Additionally, if you choose to work with an attorney, there will be legal fees to consider.
- Emotional toll: Bankruptcy can be emotionally challenging and stressful, as it often involves confronting financial difficulties and making difficult decisions about your financial future.
Compare the Pros and Cons of Bankruptcy: Pros and Cons of Filing Bankruptcy
Will You Regret Filing For Bankruptcy?
While bankruptcy can provide relief and a fresh start for individuals and businesses struggling with overwhelming debt, some people may regret filing for bankruptcy for various reasons. Here are a few reasons why people may regret filing bankruptcy:
- Negative impact on credit score: As mentioned earlier, bankruptcy can have a significant negative impact on your credit score, which can make it difficult to obtain credit in the future or may result in higher interest rates or less favorable terms.
- Emotional toll: Bankruptcy can be emotionally challenging and stressful, as it often involves confronting financial difficulties and making difficult decisions about your financial future. Some people may feel ashamed or embarrassed about filing for bankruptcy.
- Loss of assets: Depending on the specifics of your case, you may be at risk of losing certain assets, such as your home or car, if they are not protected by exemptions or you are unable to repay the debt.
- Long-term impact: While bankruptcy can provide immediate relief from overwhelming debt, it may also have long-term consequences, such as difficulty obtaining credit or financing in the future.
- Regret over not exploring other options: Some people may regret filing for bankruptcy if they did not fully explore other options, such as debt consolidation, debt management plans, or negotiating with creditors.
What Are The Alternatives To Bankruptcy?
If you do not qualify for bankruptcy in Kentucky, there may be other options available to you to help address your debt issues. One of which is debt settlement. Debt settlement involves negotiating with creditors to settle debts for less than the full amount owed. There are some potential benefits to debt settlement over bankruptcy that may make it a more favorable option for some individuals.
- No BK on your credit report: Filing for bankruptcy shows on your credit report for up to 10 years. On the other hand, debt settlement does not show as a bankruptcy.
- Cost: Filing for bankruptcy can be expensive, with filing fees, attorney fees, and other costs adding up quickly.
- Emotional Impact: People report horror stories of the negative emotional impact of BK.
- With a bankruptcy for the rest of their life: Employers or lenders can ask if someone has filed BK for the rest of their life. It is much less likely to be asked if one ever used debt settlement to pay back an agreed to amount.
- Control: With debt settlement, you may have more control over the process and negotiations with your creditors, whereas with bankruptcy, a court will make the final decision.
- Less severe consequences: Filing for bankruptcy can have significant consequences, such as the liquidation of your assets, whereas debt settlement may allow you to negotiate a more manageable repayment plan while keeping your assets.
CuraDebt – An Alternative To Consider
CuraDebt, a professional debt settlement firm, is a great alternative to bankruptcy. We have a team of debt professionals who are ready to help you better understand and potentially eliminate your debts. Contact us today for your free consultation. 1-877-850-3328