How to Recover a Debt When the Debtor Won’t Pay in Kentucky
You are owed money, you have asked for it, and the debtor will not pay. Whether it is an unpaid invoice, a personal loan, or a bounced check, the frustration of chasing a debtor is familiar to many Kentucky individuals and businesses. The good news is that Kentucky law provides a structured process for recovering debts — but knowing the right steps to take, and when to take them, makes all the difference.
Start with a Demand Letter
Before filing a lawsuit, send a formal demand letter. This is a written communication that identifies the debt, states the amount owed (including any accrued interest), demands payment by a specific date, and explains the consequences of nonpayment — typically that you will pursue legal action. A well-drafted demand letter accomplishes several things: it creates a paper trail, it sometimes prompts payment without the need for litigation, and it demonstrates to a court that you made a good-faith effort to resolve the matter before suing.
There is no legally required format for a demand letter in Kentucky, but it should be professional, factual, and clear. Send it by certified mail with return receipt requested so you can prove it was delivered.
Filing a Lawsuit
If the demand letter does not produce results, the next step is filing a civil lawsuit. Where you file depends on the amount at stake. For debts of $2,500 or less, you can file in small claims court (a division of Kentucky District Court), which offers a simplified, expedited process. For debts above $2,500 but not exceeding $5,000, District Court has jurisdiction. For debts exceeding $5,000, you file in Circuit Court.
Your complaint should clearly state the basis for the debt (contract, promissory note, account stated, etc.), the amount owed, any interest or fees you are claiming, and what relief you are requesting. Under KRS 360.010, the legal rate of interest in Kentucky is 8% per annum unless a different rate was agreed upon in writing.
Getting a Judgment
If the debtor fails to respond to the lawsuit, you can request a default judgment under CR 55. If the debtor does respond, the case will proceed through discovery and potentially to trial. In many collection cases — particularly those based on a clear written contract or promissory note — you may be able to obtain summary judgment under CR 56 without a full trial, if there is no genuine dispute about the material facts.
Post-Judgment Collection Tools
A judgment is not cash — it is a court order saying the debtor owes you money. Collecting on that judgment requires additional steps if the debtor still refuses to pay.
Judgment Lien: As discussed in KRS 426.720, your judgment automatically becomes a lien on any real property the debtor owns in the county where the judgment was entered. You can extend this lien to other counties by filing an abstract of judgment with the county clerk.
Wage Garnishment: Under KRS 425.506, you can garnish a debtor’s wages by serving a garnishment order on their employer. Kentucky law limits wage garnishment to the lesser of 25% of disposable earnings or the amount by which disposable earnings exceed 30 times the federal minimum hourly wage.
Bank Account Garnishment: You can also garnish funds in the debtor’s bank accounts by serving a garnishment order on the financial institution. The bank must freeze the account and turn over funds up to the amount of the judgment, subject to any applicable exemptions.
Debtor’s Examination: If you do not know what assets the debtor has, you can request a debtor’s examination (sometimes called a “supplemental proceeding”) under CR 69. This requires the debtor to appear in court and answer questions under oath about their income, assets, bank accounts, and property. Failure to appear can result in a contempt finding.
Exempt Property
Not everything a debtor owns can be seized. Kentucky law provides certain exemptions that protect specified property from creditors. These include the homestead exemption (KRS 427.060, protecting $5,000 of equity in a primary residence), personal property exemptions (KRS 427.010), and exemptions for certain retirement accounts and insurance proceeds. Understanding these exemptions is important because attempting to seize exempt property wastes time and resources.
Statute of Limitations on Debt Collection
The time you have to file a lawsuit to collect a debt depends on the type of obligation. Written contracts have a 15-year statute of limitations under KRS 413.090. Oral contracts have a 5-year limitation under KRS 413.120. Once a judgment is entered, it is enforceable for 15 years and can be renewed. Acting promptly protects your rights and improves your chances of collecting.
Consult a Collections Attorney
Debt collection involves legal procedures with specific rules and deadlines. An experienced collections attorney can help you navigate the process efficiently, avoid procedural pitfalls, and maximize your recovery.
Buckles Law Office represents creditors in collection matters throughout Central Kentucky. If you are owed money and need help collecting, call (859) 225-9540.
