Notes on Kentucky exemption law
Kentucky exemption law
See:
Kentucky exemption statutes
KRS §427.005 - Definitions.
As used in this chapter:
- (1) The term "earnings" means compensation paid or payable for personal services, whether denominated as wages, salary, commission, bonus, or otherwise, and includes periodic payments pursuant to a pension or retirement program.
- (2) The term "disposable earnings" means that part of the earnings of any individual remaining after the deduction from those earnings of any amounts required by law to be withheld.
- (3) The term "garnishment" means any legal or equitable procedure through which the earnings of any individual are required to be withheld for payment of any debt.
- (4) The terms "household furnishings, jewelry, personal clothing, and ornaments" mean clothing, furniture, appliances, linens, china, crockery, kitchenware, and personal effects of an individual and the individual's dependents, but do not include:
- (a) Works of art;
- (b) Electronic entertainment equipment (except to the extent of one (1) television and one (1) radio);
- (c) Antiques; and
- (d) Jewelry other than wedding rings.
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The language contained in KRS §427.005(1) through (3) is exactly the same as the language of 15 U.S.C. §1672 (Pub. L. 90-321, title III, Sec. 302, May 29, 1968, 82 Stat. 163.), which was enacted in Title III of the Federal Consumer Credit Protection Act of 1968, effectively preempting, in part, State laws relating to wage garnishment.
The Congressional findings and declaration of purpose, 15 U.S.C. §1671, reads as follows:
- (a) Disadvantages of garnishment
The Congress finds:
- (1) The unrestricted garnishment of compensation due for personal services encourages the making of predatory extensions of credit. Such extensions of credit divert money into excessive credit payments and thereby hinder the production and flow of goods in interstate commerce.
- (2) The application of garnishment as a creditors' remedy frequently results in loss of employment by the debtor, and the resulting disruption of employment, production, and consumption constitutes a substantial burden on interstate commerce.
- (3) The great disparities among the laws of the several States relating to garnishment have, in effect, destroyed the uniformity of the bankruptcy laws and frustrated the purposes thereof in many areas of the country.
- (b) Necessity for regulation
On the basis of the findings stated in subsection (a) of this section, the Congress determines that the provisions of this subchapter are necessary and proper for the purpose of carrying into execution the powers of the Congress to regulate commerce and to establish uniform bankruptcy laws.
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In Rice, Seiller, Cantor, Anderson & Bordy v. Fitzgerald, 824 S.W.2d 435 (Ky.App. 1992) the question before the court was "whether proceeds from a dairy farmer's sale of milk constitute 'earnings' within the meaning of KRS 427.005. If so, these 'earnings' are exempt under KRS 427.010 and partially protected from garnishment."
The Kentucky Court of Appeals cited with approval from Coones v. Federal Deposit Ins. Corp., 796 P.2d 803 (Wyo. 1990), construing a statute very similar to Kentucky's, "profits and business earnings are outside the meaning of wage and salary," and Roberts v. Frank Carrithers & Bros., 180 Ky. 315, 202 S.W. 659 (1918), which defined "wages and salary as consideration given by an employer to one who is providing the employer services."
Held: "The language of KRS 427.005 is limited in its application and does not include all compensation paid. We determine that proceeds from a diary farmer's sale of milk do not constitute "earnings" as defined in KRS 427.005. And, therefore, the proceeds from such a sale are not exempt under KRS 427.010."
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The appeal in Mickler v. Mickler, 245 S.W.3d 809 (Ky.App. 2008) involved a garnishment of money owed by various insurance companies to a physician for medical services provided through his private practice. Although the Kentucky Court of Appeals approved the idea that "accounts receivable" could fall within the meaning of KRS §427.005's definition of "earnings" if the money owed "was actually derived from the personal services of the debtor," the decision hinged upon the debtor's failure to meet a burden to prove the funds represented fees for the personal professional service delivered individually by the debtor, and not also including fees for services delivered by other staff and employees in the medical practice. Specifically, there was no obligation upon the trial court "to determine a formula by which to segregate the funds attributable to Dr. Mickler's work from those earned by others."
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Reinle v. Commonwealth, 170 S.W.3d 417 (Ky.App.2005) held that proceeds from the forced sale of real property to satisfy a judgment for child support was not "earnings."
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Curl v. Sparkle Brite Inc., 518 S.W.2d 775 (Ky.App.1975) was a decision under prior law (KRS §425.210 Repealed, 1976) recognizing the "right of an employer to set off as against an attaching creditor such amounts which the employer could validly set off against the claim of the employee." There is an unanswered question if this right still exists under the current statutory scheme.
KRS §427.170 - Federal bankruptcy code exemptions applicable in Kentucky (but only in Bankruptcy proceedings).
In 2005 the Kentucky legislature amended K.R.S. 427.170 to read:
An individual debtor domiciled in this state is authorized to exempt from property of said debtor's estate the property specified under 11 U.S.C. sec. 522(d).
Acts ch. 141, sec. 1, effective June 20, 2005
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MPM Financial Group, Inc. v. Morton
In 2007 the Kentucky Court of Appeals decided MPM Financial Group, Inc. v. Morton construing K.R.S. 427.170 to provide a general expansion of property exempt from execution for all purposes, and not just for Bankruptcy purposes.
In August, 2008, the Kentucky Supreme Court granted discretionary review of this decision. Its opinion was rendered June 25, 2009, and reversed the Kentucky Court of Appeals decision. See: MPM Financial Group, Inc. v. Morton, 289 S.W.3d 193 (2009).
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