Certain property is exempt from seizure by general creditors.
There are several categories of exemptions available to Kentucky
debtors. Different exemptions apply to non-bankruptcy debtors and debtors in
the process of seeking bankruptcy protection. Certain exemptions are provided
by Kentucky law and others are
provided by federal law. Different exemptions apply to tax debts and non-tax
debts. Most Kentucky
non-bankruptcy non-tax debt exemptions otherwise available do not provide
protection for claims of child support obligations. Many federal exemptions do not apply to debts
to the federal government.
The following is a rough outline of available exemptions
under Kentucky and federal law.
As with all things legal, the devil is in the details and the opportunity for
serious complications is nearly endless.
Kentucky Non-Bankruptcy Exemptions
This is a fairly comprehensive list of Kentucky
statutory non-bankruptcy exemptions. A few, like exemptions for state bonuses
paid to World War I veterans, have been omitted. Additional specific federal
exemptions are listed below.
- Alimony support or separate maintenance
- An award under a crime victim's reparation law;
- Payment received for wrongful death of an individual the debtor was a dependent to the extent reasonably necessary for support of debtor and debtor's dependents;
- Up to $7,500 paid for personal injury, with qualifications;
- Compensation for loss of future earnings to the extent reasonably necessary for support and maintenance;
- Payments received from an exempt pension;
- Individual retirement accounts, and other types of retirement plans, with some exceptions;
- Household furnishings, jewelry and personal clothing not to exceed $3,000 in value;
- Tools, equipment and livestock of a person engaged in farming, not exceeding $3,000;
- One motor vehicle and its necessary accessories, not exceeding in the aggregate $2,500;
- Professionally prescribed health aids for the debtor, or a dependent of the debtor;
- The tools, not exceeding $300 in value, of any individual debtor necessary in his trade;
- The professional library and office equipment of a minister, attorney, physician, surgeon, chiropractor, veterinarian, or dentist, necessary in the practice of such profession, and not exceeding $1,000 in value;
- Homestead or burial plot not to exceed $5,000 in value, total;
- Certain life insurance benefits;
- Certain police or firefighter’s pension fund benefits;
- Worker’s compensation benefits;
- Certain retirement annuity benefits for public school and university teachers and employees;
- Participation in Kentucky Educational Savings Plan Trust;
- Wages of work-release prisoners, with exceptions;
KRS 427.045 - Exemptions
not applicable to claims for child support, provides:
“The exemptions provided in KRS 342.180 and KRS 427.010 to 427.040 shall not apply for executions, attachments, or garnishments, issued for the collection of maintenance of minor children.”
Federal Non-Bankruptcy
Exemptions
Most of the following exemptions are not available as against
child support or tax collections. Many are nevertheless subject to
administrative offset for the collection of non-tax debts to the United
States.
- Social Security Benefits - Old Age, Survivors and Disability Benefits
- Supplemental Security Income (SSI) Benefits
- Veterans’ Benefits
- Civil Service and Federal Retirement and Disability Benefits
- CIA Retirement benefits
- Crop insurance
- Military Annuities and Survivors’ Benefits
- Student Assistance - Federal Work Study program benefits
- Railroad Retirement Benefits
- Merchant Seamen Wages
- Longshoremen’s and Harbor Workers’ Death and Disability Benefits
- Foreign Service Retirement and Disability Benefits
Exempt Funds after
Deposit into Bank Account
Question: Can a
general creditor successfully garnish exempt payments once the money has been
deposited into a debtor’s bank account?
Answer: Maybe yes
and maybe no. It depends.
In Matthews v. Lewis, Ky., 617 S.W.2d 43 (1981), the
Kentucky Supreme Court answered the question for one type of exempt payment, A
bank account containing worker’s compensation payments continue to be exempt
from execution, attachment and garnishment. The court wrote:
“We hold that unless they provide clearly to the contrary, Kentucky's exemption statutes, including but not limited to KRS 342.180, extend protection to deposits in bank checking accounts so long as those deposits can be identified as or traced to payments of exempt funds.”
Although the Matthews case should provide debtors
considerable encouragement with similar statutory exemptions, each statutory
exemption is subject to the proviso the statute may, “clearly provide to the
contrary.”
For example, Kentucky’s
Transitional Assistance Program (KTAP) provides in KRS 205.220(3):
"Public assistance shall not be assignable and shall be exempt from levy or execution. Furthermore, no assignment, pledge or encumbrance of any right to benefits due or payable under this chapter shall be valid. Public assistance benefits, as long as they are not mingled with other funds of the recipient, shall be exempt from any remedy for the collection of all debts, liens and encumbrances. No waiver of any exemption provided for in this subsection shall be valid.” [emphasis added]
Matthews v. Lewis, did not impose the no-mingling of
funds requirement generally. This specific statute added the requirement.
Wage Exemptions Are
Not Exemptions
The federal Consumer Credit Protection Act (CCPA)
limits the amount of a debtor’s wages that can be garnished. Kentucky
has enacted statutory law virtually identical to the CCPA wage garnishment
limits in KRS 427.010(2). Although this has been lumped in KRS Chapter 427 with
other genuine exemption provisions, for codification purposes, this accident of
proximity does not really mean much.
This statutory limit on wage garnishments is not an
exemption and it does not protect wages after they have been paid to the
employee. If the wages actually paid to an employee are deposited into a bank
account, they are subject to a bank garnishment, in Kentucky.
See: Brown v. Commonwealth
of Kentucky, 40 S.W.3d
873 (Ky.
App. 1999)
See also: Notes on Kentucky's exemption laws.
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