Understanding Chapter 7 Homestead Exemption
After a car accident in 1999, my husband and I have lived off of our credit cards, until they were maxed out. Currently the minimum payments are getting harder and harder to make, and we have fallen behind. We are looking into Chapter 7 filing, but are confused about the homestead exemption in KY. I used my $40,000 settlement to pay down our mobile home. It’s current value is $43,500 and I have a loan against it for $12,500. Would we lose our home if we filed Chapter 7? Our only other assets are a car valued at $2,500, with a lien on it to my father, and a truck valued at $200. Would we lose one or both of those vehicles under Chapter 7?
Re: Understanding Chapter 7 Homestead Exemption
The homestead exemption in Kentucky is $5,000; $10,000 for a married couple.
According to the information you posted, the home is worth $43,500 with a $12,500
lien on it. That means you have $31,000 of equity. You can protect $21,000 of that
equity by asserting your homestead exemption.
Keep in mind, however, that valuation is a big issue in many bankruptcy proceedings.
It may be that the value of the home is less than you think, leaving less equity for
a trustee to recover. While you could lose your home, you could also find that there
is less equity than you think. You could also enter into an agreement with the trustee
to pay him or her the value of the equity over a period of time, thereby keeping the house.
There is also a $1,000 “wildcard” exemption that each of you have, which could be used to
exempt another $2,000 of equity.
The vehicle exemption in Kentucky is $2,500. Each of you can exempt one vehicle, so, given
the values you posted, there should be no problem with the vehicles.
Finally, you mentioned being in a car accident. Be aware that if you have filed a lawsuit
to recover damages from the accident, the trustee will take over the lawsuit and be entitled
to much of its value (you have some exemption rights there, too, though).
E. Brian Davis
Davis Law Office
101 North Seventh Street
Louisville, KY 40202-2924