What Kind of Property Can My Creditors Take From Me?

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I have been served with notice that a creditor has filed a court action against me. If this action proceeds to a judgment against me, can the creditor take any of my property or any of my wages?
If a creditor obtains a judgment against you, the creditor may try to enforce the judgment by taking your property. This section only involves enforcement of court judgments for money. Note that this section does not involve:
  • Foreclosures of mortgages on real estate.
  • Repossession of property according to a sales contract or loan.
  • Seizure of bank accounts.
  • Mechanics liens or similar liens.
  • Wage garnishments.
  • Judgments for child support.
  • Tax proceedings.
Can the creditor take any of my property?
A creditor who has a judgment against a debtor can take property of a debtor that is not "exempt from execution." An exemption is property that the law protects from seizure to enforce a court judgment. If your property is exempt, then the creditor cannot take it.

NOTE: There is currently some confusion in Kentucky law as to what exemptions apply for debtors. Kentucky recently passed a law that was clearly intended to grant debtors the exemptions allowed under federal law. In a recent court decision, a Kentucky court extended those protections to all debtors in Kentucky, not just those in Kentucky. However, that decision is not yet final. For this reason, this article will provide information regarding both the federal and Kentucky exemptions.

Can creditors take my home?
Kentucky law: If the real estate is your residence (house or mobile home), your exemption is $5,000 per owner. So a married couple can exempt up to $10,000 in the residence. To calculate the exemption, take the market value of the property, and subtract the mortgage(s) or any other lien. An example for an individual homeowner:

  1. Value is $50,000, mortgage is $47,000. Since the net equity (value minus mortgage) is $3,000, or less than the exemption of $5,000 (for a married couple), the property is exempt from the judgment. The creditor cannot take this property.

    Federal law: If the real estate is your residence (house or mobile home), your exemption is $20,200 per owner. So a married couple can exempt up to $40,400 in the residence. The exemption is calculated in the same manner as under Kentucky law.

  2. Value is $50,000, mortgage is $10,000. The net equity is $40,000, the exemption is $40,400 (for a married couple). The non-mortgage creditors can collect nothing.

NOTE: If a married couple owns land jointly, all of the property (regardless of value) is exempt against debts owed by either husband or wife. (This protection does not apply to debts owed jointly by both husband and wife). If you are in this situation, you should talk to an attorney.

What about non-residential real estate or mobile homes?
Kentucky's residential exemption applies to any kind of residence. A mobile home is given the same exemption as residential real estate, $5,000 per person. If you own land but don’t live on it, however, the only exemption you’re allowed is the “personal property” exemption. (See information about this below).

What happens if I want to sell or refinance the property?
The judgment creditor’s lien may be satisfied out of the proceeds of refinance or sale. Sometimes this can be negotiated or dealt with through legal proceedings –you may wish to seek legal advice first.

What about personal property?
Kentucky law: Personal property such as household goods, appliances, and clothing, along with non-residential real estate, is exempt up to $3,000 per person. As with real estate, you first subtract the value of any liens. For example, if your personal property is worth $5,000, and you owe the finance company $3,000, your value is $2,000.

Note: $3,000 is the total exemption you’re allowed for all such property – you don’t get $3,000 per personal property item.

Federal law: Personal property such as household furnishings and goods, wearing appearel, appliances and books is protected up to $10,775 per person. There is also a "wildcard" exemption of $1,075 to which up to $10,125 of unused exemption in the homestead property can be added. As with real estate, you first subtract the value of any liens.

I need my car for work and to get to medical appointments, is it exempt?
Kentucky law: A debtor is generally allowed to exempt the net equity value of one vehicle up to $2500. Again, this value takes into account any liens against the property. For instance, if you vehicle is worth $7500 and you still owe $5000 on it, the remaining $2500 is protected. There is also a second exemption allowed for a motor vehicle that is necessary for a debtor's business with a net equity of $2500. This exemption is typically applied to vehicles specially designed for the debtor's business such as a welder's trucks.Federal law: A debtor is allowed a motor vehicle with a net equity of $3,225.

Are there special exemptions?
There are special exemption for certain kinds of property. These include:

  • Professionally prescribed health aids, regardless of value.
  • Most or all retirement or life insurance – seek the advice of an attorney.
  • Earned income credit refunds (IRS Code §32) received, or to be received.
  • Money in certain educational funds.

What should you do to prevent seizure of your property?
You should make a list of all property you own and its market value. For personal belongings such as clothing, furniture, appliances or other household goods, use the value you might reasonably get for the property at a yard sale. Use the “book value” for your property (available at banks, the library, or online). For your home, you can use appraisals – but be wary of appraisals done for refinancing, which tend to run high.



Reviewed September 2007