Kentucky Collection Laws

Highlights

  • The statute of limitations for credit card debt in Kentucky is 5 years.
  • Written contracts have a 4- or 15-year statute of limitations, depending on the circumstances.
  • A judgment-creditor can ask the sheriff to seize your personal property.
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Learn Kentucky's Rules For Garnishment, Liens, and Foreclosure

A lender, collection agent or law firm that owns a collection account is a creditor. The law gives creditors several means of collecting delinquent debt. But before a creditor can start, the creditor must go to court to receive a judgment. See the Bills.com article Served Summons and Complaint to learn more about this process.

The court may grant a judgment to the creditor. A judgment is a declaration by a court the creditor has the legal right to demand a wage garnishment, a levy on the debtor’s bank accounts, a lien on the debtor’s property, and in some states, ask a sheriff to seize the debtor’s personal property. The laws calls these remedies. A creditor granted a judgment is called a judgment-creditor. Which of these tools a judgment-creditor will use depends on the circumstances. We discuss each of these remedies below.

Kentucky Wage Garnishment

The most common remedy judgment-creditors use to enforce judgments is wage garnishment. Here, the judgment-creditor contacts the debtor’s employer and require the employer to deduct a certain portion of the debtor’s wages each pay period and send the money to the creditor. However, several states — Texas, Pennsylvania, and North Carolina — do not allow wage garnishment for the enforcement of most judgments.

Kentucky allows wage garnishment. Kentucky follows federal rules, and exempts 25% of the judgment-debtor's disposable earnings (KRS 425.506).

Garnishment of Social Security benefits or pensions for consumer debt is not allowed under federal law.

Quick tip #1
If you reside in another state, see the Bills.com Wage Garnishment article to learn more.

Levy Bank Accounts in Kentucky

A levy means the creditor has the right to take non-exempt money in a debtor’s account and apply the funds to the balance of the judgment. The procedure for levying bank accounts, as well as what amount, if any, a debtor can claim as exempt from the levy, is governed by state law. Many states exempt certain amounts and certain types of funds from bank levies, so a debtor should review his or her state’s laws to find if a bank account can be levied.

Kentucky allows bank account levy, which state law refers to as "non-wage garnishment" (KRS 425.50.) For bank account attachment, Kentucky courts have held a party to a joint account is presumed to own the entire joint account. Upon notice and objection, the debtor or third-party account tenant may rebut that presumption by proof of separate net contributions to the account, and a showing of an intention that the non-contributor's use of the other's contributions be limited. (Brown v. Commonwealth of Kentucky, 40 S.W.3d 873 (KY App. 1999)).

Kentucky Lien Law

A lien is an encumbrance — a claim — on a property. For example, if the debtor owns a home, a creditor with a judgment has the right to place a lien on the home, meaning that if the debtor sells or refinances the home, the debtor will be required to pay the judgment out of the proceeds of the sale or refinance. If the amount of the judgment is more than the amount of equity in your home, then the lien may prevent the debtor from selling or refinancing until the debtor can pay off the judgment.

In Kentucky, a judgment lien can be attached to real estate or personal property. Execution may be issued 10 days after the entry of judgment. Execution is issued by the clerk of the court to the Sheriff who makes a return of service on the execution within 90 days (KRS 426.010. Kentucky exempts the following:

  • one motor vehicle up to $2,500
  • household furnishings, jewelry, clothing and ornaments up to $3,000
  • tools up to $300
  • homestead up to $5,000
  • retirement plans, pensions and insurance proceeds totally exempt
  • Kentucky has adopted the federal bankruptcy exemptions

See KRS 427 to learn more about Kentucky’s exemptions.

If you reside in another state, see the Bills.com Liens & How to Resolve Them article to learn more.

Kentucky Statute of Limitations

Each state or commonwealth has its own statute of limitations on civil matters. Here are some of Kentucky’s statute of limitations for consumer-related issues:

Account/Type Years Statute
Kentucky statutes of limitations. Source: Bills.com
Credit card 5 KRS 413.120
Spoken contract
Written contract 15* KRS 413.090
Mortgage contract 3 KRS 413.120 and 413.080
Promissory note 5 KRS 413.120
Judgment 15** KRS 413.090
* Kentucky adopted the 4 year Uniform Commercial Code (UCC) statute of limitations with regard to contracts for the sale of goods and lease contracts.
** Can be renewed.

When the statute of limitations clock starts depends on the circumstances and the particular statute. In most states, the clock starts when the action accrues. In Kentucky, the clock starts from the date of default. The clock may be paused (called "tolled") under some circumstances, or renewed.

Kentucky Foreclosure

A lender will foreclose judicially in Kentucky. This takes 150 days, typically. Under Kentucky's anti-deficiency law, a deficiency judgment is entered automatically if the sale proceeds less expenses are not sufficient to cover the debt owed. See KRS Chapter 426 to learn more.

Kentucky Spousal Debt Liability

Kentucky is a "marital property" state, and adopted a few characteristics of community property law. When a Kentucky couple divorces, marital property, which is property or wealth acquired during marriage, in divided in just proportions, most likely equally (KRS Title 35 Chapter 403 et seq). Kentucky is not a community property state, so the general rule is one spouse not liable for the other spouse's separate debt, with the exception of medical debt.

Kentucky follows the doctrine of necessaries for medical debt. In Kentucky, a husband is liable for his wife's medical expenses regardless of their respective financial situations. A wife is not liable for her husband's medical expenses. (See Rhodus v. Proctor, 433 S.W.2d 625; Carpenter v. Hazelrigg, 45 S.W. 666, Atkins v. Atkins' Adm'r, 262 S.W. 268; Somerset Manor, LLC v. Rees, 2011 Ky. App. Unpub. LEXIS 532; and Adams v. Riddle, 2010 Ky. App. Unpub. LEXIS 151.)

Recommendation

Consult with a Kentucky lawyer who is experienced in civil litigation to get precise answers to your questions about liens, levies, garnishment, and foreclosure.

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2 Comments

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  • RM
    Jan, 2014
    RM
    Paducah, KY
    Do you have any information regarding the legality of loans issued by Cash Call aka Western Sky Financial? I know that the state of New York recently sued this particular lending company and won. Any idea if a lawsuit has or will be taking place in Kentucky? Or any information regarding a person's responsibility to repay a loan from this company when the initial loan was for $1,000 but Western Sky charges an interest rate of 233.40% ?
    0 Votes

    • BA
      Jan, 2014
      Bill
      See the Bill.com article Repay Your CashCall or Western Sky Loan? to learn the fours steps you should take to learn how much of your CashCall or Western Sky loan balance you are obligated to repay.
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