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Kentucky Debt Relief: Guide to State Laws and Managing Debt

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Average household debt loads in Kentucky are below the national average. However, the state’s credit default rates — measuring debts more than 90 days delinquent — are higher than the national average, according to New York Federal Reserve data. That means residents of Kentucky are more likely than average Americans to experience a run-in with a debt collector.

Unfortunately for Kentucky residents struggling with high debt loads, the state has limited consumer protections. But even in the Bluegrass State, debtors have options. This article outlines the resources and protections available for people in Kentucky who are working to repay their debt.

Debt in Kentucky: At a glance

Kentucky debt
Type Per capita balance, 2018 Rank out of 50 states (1 is highest) Change from 2017 (%) U.S. per capita balance
Credit card debt $2,330 48 2.2% $3,220
Student loan debt $4,870 37 5.0% $5,390
Auto debt $3,950 42 4.5% $4,700
Mortgage debt* $19,840 46 -0.8% $33,680
*First-lien debt only
Source: Federal Reserve Bank of New York, March 2019

Debt collection in Kentucky

Kentucky doesn’t have state laws that limit debt collection practices, but the federal Fair Debt Collections Practices Act (FDCPA) applies in the state. That means that debt collectors in Kentucky have to comply with federal laws surrounding debt collection.

The FDCPA protects consumers who owe money from abusive debt collection practices. If a debt collector in Kentucky is contacting you and making it difficult to do your job or fulfill family obligations, the FDCPA has protections for you. Under the FDCPA, you have the right to:

  • Place parameters around when and how a debt collector can contact you. For example, you may tell them not to contact you at work or at times that are inconvenient for you. They are also not allowed to call you before 8 a.m. or after 9 p.m.
  • Avoid threats from debt collectors about arrest, personal harm or increased interest charges.
  • Tell a debt collector to stop contacting you.

If you legitimately owe a debt, be aware that a debt collector may still sue you, even if you request that they cease contact with you or you ignore them. If the collector wins a court judgment against you, your bank accounts or wages could be garnished.

Responding to contact from debt collectors

Verify the debt is yours.  If you get a call from a debt collector, your first step is to understand why the collector is calling you. Debt collectors usually call because they think you are past due on a debt or because they bought a debt that you owe. However, you may not recognize the debt. Before you start making payments or blocking a debt collector’s calls, ask to “validate the debt.”

Validating the debt means asking for more information about the debt in questions. This way you can confirm whether the debt is yours. The best way to get more information is to send a letter to the collector. The letter will ask the collector for specific details about the debt in question, such as the name of the original creditor, the original account number, how much you owe and more. The Consumer Financial Protection Bureau (CFPB) has a sample letter that you can use to request more information from the debt collector.

Don’t ignore their calls. Whether you owe the debt in collections, you don’t want to ignore debt collectors. If you ignore a debt collector, they could sue you. If the lawsuit is successful, the debt collectors could garnish your bank account or your wages. Rather than letting a debt go to court, engage with the debt collectors on your own terms. For example, you can ask for more information on the debt, and you can ask debt collectors to contact you via certain methods.

Report bad actors to state or federal authorities. If a debt collector is harassing you, it’s important to understand your rights. Again, debt collectors cannot contact you before 8 a.m. or after 9 p.m., and they cannot contact you at work if you’ve asked them not to do so. When a debt collector oversteps those boundaries, you can submit a complaint to Kentucky’s Department of Financial Institutions (DFI).

To submit a complaint in Kentucky, download form from the DFI website. The form asks you to explain the complaint and to include copies of documents backing your claim. It also asks you to explain your desired resolution.

Once you’ve completed the form, you can submit it by emailing [email protected] or by mailing it to 1025 Capital Center Drive, Suite 200, Frankfort, KY 40601. If you have other questions, or you need help understanding the form, you can call Department of Financial Institutions at 844-354-0613

Understanding Kentucky’s statute of limitations

If you’ve got debt collectors contacting you about old debts, it’s important to understand Kentucky’s statute of limitations on debt collections. The statute of limitations in this case is the length of time that a debt collector can sue you after you’ve defaulted on a debt. While you still legally owe a debt after the statute of limitations has expired, a debt collector has no legal means to collect the debt. At that point, it’s up to you to choose whether to repay it.

For many types of debt, Kentucky has an unusually long statute of limitations. In fact, in some cases, an old debt may still be collectible even after it falls off your credit report. If a debt collector contacts you about a very old debt, consider talking to a lawyer to learn about your options.

Kentucky Statute of Limitations on Debt
Mortgage debt 15 years (10 years for mortgages written before July 15, 2014)
Medical debt 15 years  (10 years for mortgages written before July 15, 2014)
Credit card 5 years
Auto loan debt 4 years
State tax debt 10 years


Debts that are older than the statute of limitations are called time-barred debts. Debt collectors can still contact you about a time-barred debt, but the collector cannot sue you. Once the statute of limitations passes, you still legally owe the money, but debt collectors can’t pursue you in court.The best practice with a time-barred debt is to consult an attorney. Don’t pay any money or make any promises to pay until an attorney has explained your options.

Kentucky debt-relief programs

If you’re a Kentucky resident who struggles to make ends meet each month, there are a number of Kentucky debt relief programs that can help you stay above water. In 2008, the Kentucky General Assembly established the Kentucky Homeownership Protection Center. The center offers free resources that can help homeowners avoid foreclosure.

More recently, Kentucky established a directory of registered debt adjusters nationwide. Debt adjusters are licensed professionals who can help you deal with delinquent or overwhelming debt. In Kentucky, debt adjusters may be for-profit companies. However, at LendingTree, we recommend working with non-profit debt counselors (such as those found through the National Foundation for Credit Counseling).

If you choose to work with a for-profit debt adjuster (such as a debt settlement company), be sure to check reviews on the Better Business Bureau website. LendingTree also has an overview of major national debt relief companies that you can reference.

You should also be sure that the company does not overcharge you for its services. In Kentucky, debt adjusters can charge up to $75 for an initial consultation. Following the set-up, the adjuster can only charge you more money after it has completed work for you.

Aside from fees, there are a few other red flags to look out for when choosing a Kentucky debt relief company. Be wary of companies that offer you special deals, make promises that don’t seem realistic or promote special government programs.

Payday lending laws in Kentucky

In Kentucky, most lenders can charge a maximum interest fee of 36% annual percentage rate (APR). However, payday lenders are exempt from this law. In Kentucky, payday loans carry extremely high interest rates. The maximum fee on these loans is $15 for every $100 on a 14- day loan. That’s equivalent to a 390% APR on the loans.

With this loophole, payday lending has become big business in Kentucky. The state has over 500 check-cashing outlets (that issue payday loans), and it generated over $117 million in payday lending fees in 2015.

Because Kentucky allows borrowers to have up to two payday loans at a time, you can take out up to 52 payday loans in a year. But even with Kentucky’s regulation, it’s still possible to get caught in a payday lending cycle. In fact, the average payday borrower in Kentucky is in debt for over 200 days each year.

In summary, here are the main points to remember about payday lending laws in Kentucky:

  • Maximum loan amount: $500
  • Loan term: 14 days
  • Finance charges: $15 for every $100 borrowed (for 14 days)
  • Maximum number of payday loans: Two at a time

If you’re struggling with payday loans, reach out to a credit counselor at a non-profit credit counseling agency. The counselor can help you create a plan to get out of these exploitative loans.

Tips to tackle debt in Kentucky

Whether you’re struggling to make your minimum monthly payments or you just want to get rid of your debt, you have options. These are a few strategies for you to consider when paying off debt.

Consolidate your debt

If you’ve got high-interest credit card debt, medical debt or payday loans, you may be able to consolidate that debt by using a debt consolidation loan. A debt consolidation loan allows you to pay off all your high-interest, unsecured debt by taking out a single personal loan, if you qualify for one.

In addition to offering a single payment, personal loans have many benefits for people with debt. Often, a debt consolidation loan will have a lower interest rate than credit cards or payday loans. Additionally, personal loans amortize over time. That means you’ll definitely pay off your debt over a set period of time.

However, personal loans have drawbacks, too. For example, some people find themselves in credit card trouble again after taking out a personal loan. It’s important to address underlying issues (such as insufficient earnings or overspending) before using a consolidation loan to address debt payoff.

Work with a credit counselor

Another option for people struggling with debt is working with a non-profit credit counselor. Non-profit credit counselors may help you set up a debt management plan. Under a debt management plan, you pay a credit counseling company, and the company pays off the debt. The credit counseling company may be able to negotiate reduced interest rates and fees in exchange for your agreement to be on the repayment plan. Kentucky strictly regulates the rates that debt adjusters can charge, but it’s still important to research credit counseling companies through the Better Business Bureau.


If car or house payments are making it tough for you to make ends meet, refinancing could offer some help with your cash flow. Refinancing a car allows you to stretch out existing loan payments over a longer period of time.

Refinancing your home is also an option for those looking to tackle their debt. Depending on how much equity you have in your house, you may qualify for a cash-out refinance. You can use the cash-out refinance to pay off higher-interest debts like credit card debt, auto loans and more.

Whether you’re refinancing a car or a house, it’s important to understand that you’re taking out a new loan. That means you want your credit to be in great shape before you apply for a refinance.

If you’ve got student loans, refinancing to a lower interest rate or a longer repayment period could make sense. But borrowers need to be very cautious with refinancing student loans —  especially Federal student loans. Federal student loans offer special privileges such as income-driven repayment plans, and deferment in some cases. By contrast, most private student loans don’t offer those protections. If you’re struggling with cash flow, an income-driven repayment plan may make more sense than refinancing your student loans.

Take out a HELOC or home equity loan

If you’ve got higher-interest debt such as a private student loan or credit card balances, and you own a home, you may qualify to pay off that debt by taking out a home equity line of credit (HELOC) or home equity loan. Because HELOCs and home equity loans are backed by your home, banks may offer relatively low interest rates on the loan.

However, borrowers need to be careful when using a HELOC or home equity loan. If you default on these loans, you could lose your home. When taking out a HELOC, be sure you can handle paying off the loan without going into credit card debt again. You don’t take out a home equity loan to pay down debt only to run up credit card balances again.

Use a balance transfer card

If you’ve got a great credit score, you may qualify for a balance transfer credit card with a 0% promotional interest rate. When you take out a balance transfer credit card, you’ll transfer a credit card balance from a high-interest credit card to a credit card with a low promotional rate. Usually, you’ll only have to pay a low balance transfer fee.

By transferring your high-interest credit card debt to a low- or no-interest debt, you’ll be able to pay off your credit card debt faster.

The advantage of balance transfer credit cards is that they give cardholders an easy way to make progress on repaying their debt. During the 0% promotional period, all of your payments go toward paying down debt.

Balance transfer credit cards make sense from a mathematical point of view, but they come with risks. For example, you may not pay off the entire balance before the promotional period ends. When that happens, the interest rate on your credit card rises and you’re stuck with high-interest debt again. In some cases, you may be tempted to run up even more debt when you have such a low interest rate. Before taking out a balance transfer credit card, it’s important to make a plan for paying off the credit card debt for good.

Avoid foreclosure

With average monthly mortgage payments of just $765 as of 2017, Kentucky residents have some of the lowest in the nation. But that doesn’t mean that every resident is easily paying off his or her house. If you’re behind on your mortgage payments, contact the Kentucky Homeownership Protection Center to find free advice. The center will help you find a U.S. Housing and Urban Development (HUD)-approved counselor who can help you explore alternatives to foreclosure. Depending on your income and credit score, you may be able to modify your loan, refinance your mortgage, find an option for forbearance or determine other options.

Filing for bankruptcy in Kentucky

If you’re feeling overwhelmed by debt and you don’t see any way to pay back everything you owe, you may be a candidate for bankruptcy. As of March 2019, Kentucky was ranked No. 2 among U.S. states in greatest annual per capita increase in bankruptcy filings, and No. 7 in largest number of filings per capita so far this year, according to data from the American Bankruptcy Institute. People who don’t own businesses generally file for Chapter 7 (liquidation) bankruptcy or Chapter 13 (payment plan) bankruptcy.

In Kentucky, two-thirds of filers file for Chapter 7 bankruptcy. Under Chapter 7 bankruptcy, a filer must sell off most of his or her assets to pay creditors. Once you’ve filed for bankruptcy and sold off your assets to pay your creditors, the bankruptcy is completed and you’ll have a “clean slate” when it comes to your debts. However, you credit score will be damaged.

Although Chapter 7 filers have to sell most of their assets during bankruptcy, Kentucky protects some assets for filers in this process. For example, bankruptcy filers in Kentucky can keep the money they already have in their retirement accounts. Kentucky also allows filers to keep up to $5,000 of home equity, $2,500 in car equity, and up to $3,000 worth of personal property (such as furniture).

As an alternative to Chapter 7 bankruptcy, you may want to consider Chapter 13 bankruptcy. Under Chapter 13, filers get to keep all their assets; however, they must repay some or all of their debts over a period of three to five years.

Before filing for bankruptcy, you’ll need to have credit counseling and complete a debtor’s education course. It’s also important to speak to a bankruptcy attorney before filing for bankruptcy. You can find one through the National Association of Bankruptcy Attorneys website. If you don’t have enough money to pay for an attorney, you may be able to find help from Kentucky’s Legal Aid Programs.

The bottom line

When it comes to tackling debt in Kentucky, it’s important to know your options and make a plan to get out of debt. If your debt situation is complicated, or you’re feeling paralyzed by debt, consider reaching out to a professional before making your plan. A debt attorney or a credit counselor can help you understand the tools you have available to pay off your debt and live a fiscally healthy life.

The information in this article is accurate as of the date of publishing.


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