Business Debt Restructuring in Kentucky: 7 Laws That Change Your Leverage (2026)

The One Kentucky Rule That Runs Your Way, and the Six That Do Not

Almost everything written about merchant cash advance restructuring was written for New York, where the confession of judgment shaped how the industry collects and how its paper gets priced, and very little of that analysis survives the trip to Kentucky. The Commonwealth resolved the question in one sentence that has been on the books in some form since the 1942 recodification and was last amended effective July 14, 2018: a power of attorney to confess judgment, given before an action is instituted, is void. There is no consumer carve-out in the section because Kentucky never needed one. It did not narrow the device for households and leave it standing for companies, which is the compromise a number of states reached, and that single drafting choice is why a Kentucky file gets worked differently from an Ohio or Pennsylvania file sitting next to it on the same desk.

What that buys you is time, and time is the only currency in a workout. A funder holding paper it can turn into a judgment at a filing counter is underwriting near-certain recovery and prices the file accordingly, which is why those balances get sold and assigned and pursued with so little interest in what you can actually pay. A funder that has to draft a complaint, serve your registered agent, absorb an answer, and survive whatever a Kentucky litigator puts in front of the circuit judge is spending months of billable time before it owns anything it can execute on, and every one of those months is a month in which a reasonable number looks better to its recovery desk than a trial date does.

The other six bodies of law give most of that back. Kentucky’s interest ceiling evaporates above a principal amount that nearly every advance clears on the day it funds, and two separate sections forbid your entity from raising usury as a defense in the first place. No Kentucky agency has ever seen your funding agreement or licensed the person who sold it to you. Your operating account carries no exemption of any kind, because the exemption statute is written for individuals and your company is not one. The Consumer Protection Act declares the conduct unlawful and then withholds the private action from you. And the homestead a personal guarantor stands on is five thousand dollars, a number the General Assembly last touched in 1980.

1. The Confession Clause in Your Agreement Is Dead Paper Here

Read KRS 372.140 before you read anything else in the funding agreement. Subsection (1) provides that, except as provided in KRS 457.150, any power of attorney to confess judgment or to suffer judgment to pass by default or otherwise, and any release of errors, given before an action is instituted, is void. Subsection (2) closes the practical loophole by providing that no person shall appear for a defendant under any such power in any court in this state, which means the confessing attorney the clause appoints has no standing to walk in and admit your liability. The section applies to instruments, not to parties, so it makes no difference that the maker is a limited liability company rather than a household.

The single cross-reference is worth thirty seconds of your time, because it occasionally gets waved at owners as though it were a loophole. KRS 457.150 sits inside the Uniform Power of Attorney Act and concerns exoneration of an agent, providing that a clause relieving an agent of liability for breach of duty binds the principal except where the agent acted dishonestly, with an improper motive, or with reckless indifference to the purposes of the power, or where the clause came out of an abuse of a confidential or fiduciary relationship. It is about the agent’s own liability to the person who signed the power. It has nothing to say about confessing a commercial debt, and it does not revive a cognovit clause buried in a receivables purchase agreement.

From the recovery desk on the other side of the table the difference is measured in weeks and dollars rather than in principle. In the states that still permit the device, a disputed balance becomes an enforceable judgment in roughly a week, with no answer, no discovery and no motion practice, and the collection lawyer moves straight to the bank. In Kentucky the same balance has to be pleaded, served and won, and a defendant with a genuine reconciliation record or a genuine recharacterization argument can make that year expensive enough that the funder starts looking at the number you proposed. Funders who work Kentucky paper regularly already know this, which is precisely why the ones who do not know it are the ones who will not move.

What KRS 372.140 does not do is erase the clause from the page. It is almost certainly still printed in your agreement, because the document was drafted for a funder that underwrites out of another state and was never edited for the Commonwealth, and it usually travels with a choice of law clause and a forum selection clause pointing at the same place. Those two provisions, and not the confession clause itself, are the real route around Kentucky law, and the question worth answering in the first week is whether the funder intends to sue you here or to obtain a judgment elsewhere and bring the result back. Our page on defending an MCA claim in Kentucky covers what that fight looks like once a complaint is actually on file.

2. The Interest Ceiling Ends at Fifteen Thousand Dollars

KRS 360.010(1) sets Kentucky’s legal rate of interest at eight percent per annum and then immediately gives it away. Parties may agree in writing to more, and the section splits the permission by size: under paragraph (a), where the original principal amount is fifteen thousand dollars or less, the rate may not exceed four percent above the discount rate on ninety day commercial paper at the Federal Reserve Bank for the district where the transaction is consummated, or nineteen percent, whichever is less. Under paragraph (b), where the original principal amount exceeds fifteen thousand dollars, the parties may agree to any rate at all. Almost no advance a funder writes is under fifteen thousand dollars, so paragraph (b) is the operative rule and the eight percent figure is a headline with nothing behind it.

Two more sections finish the job, and they are the reason a Kentucky usury argument usually ends before it starts. KRS 360.025(1) provides that no corporation shall plead or set up the taking of more than the legal rate of interest as a defense to any action to enforce payment of a mortgage, bond, note or other obligation it executed or assumed, and KRS 360.027(1) extends the same bar to a limited partnership, a limited liability company, and a business or statutory trust. Each carries one narrow exception, for an entity whose principal asset is the ownership of a one or two family dwelling. Your operating company is not that entity. KRS 360.010(2) then binds any party who assumes or guarantees the obligation to the rate expressed in the writing and states that no Kentucky law prescribing or limiting interest rates applies to the agreement or to the charges connected with it.

The remedy Kentucky does provide sits at KRS 360.020(1), and it is worth knowing so that you can price it correctly at zero in most files. Knowingly taking, receiving, reserving or charging a rate greater than KRS 360.010 allows forfeits the entire interest the instrument carries, and a person who has paid the excessive rate may recover twice the interest paid, provided the action is commenced within two years from the time the usurious transaction occurred. Read against KRS 360.025 and KRS 360.027, that remedy belongs to a natural person or to a general partnership, not to the corporation or limited liability company that signed for the money, and no adviser who quotes you the eight percent figure without reaching those two sections has finished the chapter.

One number does follow the file after judgment, and Kentucky changed it recently in a way most summaries still get backwards. KRS 360.040(1) sets post-judgment interest at six percent compounded annually from the date the judgment is entered, a figure the General Assembly reduced in 2017 Ky. Acts ch. 17, sec. 1, and the Legislative Research Commission note records that the amendment applies to all judgments entered on or after June 29, 2017. Subsection (3) is the part that matters to you: a judgment rendered on a contract, promissory note, or other written obligation bears interest at the rate established in that writing. KRS 360.010(3) feeds that subsection by fixing the post-default rate as the contract rate. A funder that wrote a punitive default rate into the agreement is entitled to carry it onto the judgment, and over four or five years that compounding is a materially larger number than the one the court entered.

3. Nobody Registers Your Funder, and the Broker Fee Is a Separate Question

As of August 2026 there is no Kentucky commercial financing disclosure statute. KRS chapter 286, the Kentucky Financial Services Code, runs through thirteen subtitles covering banks, consumer loan companies, savings and loan associations, credit unions, industrial loan corporations, mortgage loan companies, deferred deposit, title pledge, money transmitters, student loan servicing and virtual currency kiosks, and none of them reaches a purchase of future receivables from a Kentucky business. House Bill 680 in the 2025 Regular Session would have added a new subtitle creating the Kentucky Commercial Financing Disclosure Law, with provider registration and cost disclosure for contracts entered on or after January 1, 2026, and it was referred to the House Banking and Insurance Committee on February 26, 2025 and never moved. The statute database published by the Legislative Research Commission, updated August 3, 2026 and current through the 2026 Regular Session, still contains no such law.

Kentucky does have something most states in this position do not. The Loan Broker Act at KRS 367.380 to 367.389 makes it unlawful under KRS 367.381(1) for a loan broker to assess or collect an advance fee from a borrower, with advance fee defined at KRS 367.380(1) as any consideration assessed or collected prior to the closing of a loan. KRS 367.381(2) separately bars unfair, false, misleading or deceptive representations in the offer or sale of a loan broker’s services. A borrower who suffers a loss of money or property may recover up to three times actual damages under KRS 367.387(1), with attorney fees available to the prevailing party, and KRS 367.383 extends that liability to the broker’s principals. The penalty provision is the part nobody expects: under KRS 367.993(2) a knowing violation of KRS 367.381 is a Class C felony, which KRS 532.060(2)(c) sets at not less than five nor more than ten years.

Then read the exemption, because it is where most of these theories die. KRS 367.380(4)(b)2 provides that a person extending or arranging credit, or offering to extend or arrange credit, to a partnership or corporation exclusively for commercial or business purposes is not a loan broker, and paragraph (b)4 extends the exclusion to that person’s affiliates. Two textual questions survive that language and neither has been answered by any Kentucky appellate decision we could locate. The first is whether a broker who places a purchase of future receivables is arranging credit at all, and whether the merchant is a borrower within KRS 367.380(3), which reaches a person obtaining or desiring to obtain a loan of money, a credit card, or a line of credit. The second is that the exemption names partnerships and corporations, and a sole proprietorship is neither.

Do not confuse any of this with the federal rule, because the federal rule is not there. The Telemarketing Sales Rule advance fee ban at 16 C.F.R. 310.4(a)(5) sits inside a regime that exempts business to business calls under 16 C.F.R. 310.6(b)(7), so a Kentucky owner who wired a broker four thousand dollars in underwriting fees before anything funded has a state law theory to develop and no federal one. Whether it goes anywhere depends on documents you may still have: the fee agreement, the wire confirmation, the recorded pitch if there was one, and the difference between the amount the broker said would fund and the amount that actually landed. Get those in front of Kentucky counsel before assuming the money is gone.

4. Chapter 378A Changed the Word and Deleted the Preference Rule

Kentucky adopted the Uniform Voidable Transactions Act in 2015 Ky. Acts ch. 37 and it took effect on January 1, 2016 as KRS chapter 378A, titled by KRS 378A.005 the Kentucky Uniform Voidable Transactions Act. The vocabulary shift is a fast way to tell whether the memo in front of you was written for this state or copied from a neighbor: a Kentucky judge asks whether a transfer is voidable, not whether it is fraudulent, and a brief citing KRS chapter 378 is citing a chapter that no longer exists. KRS 378A.100 also fixes which state’s version applies, providing that the claim is governed by the local law of the jurisdiction where the debtor was located when the transfer was made, with an organization located at its single place of business or, if it has several, at its chief executive office.

The repeal that came with the adoption matters more than the renaming, and it is the thing Kentucky practitioners still occasionally get wrong. The old KRS 378.060, carrying the catchline preferential conveyance, encumbrance or other act in contemplation of insolvency, was repealed by 2015 Ky. Acts ch. 37, sec. 16, effective January 1, 2016, along with the rest of chapter 378. That statute had given Kentucky creditors a preference remedy with no federal bankruptcy filing required, and its disappearance means a payment you made to one creditor ahead of another is now attacked, if at all, under the voidable transaction tests rather than under a standalone preference rule.

Those tests live in two sections and they read the way the uniform act reads everywhere. KRS 378A.040(1)(a) reaches a transfer made or obligation incurred with actual intent to hinder, delay, or defraud any creditor, whether that creditor’s claim arose before or after; paragraph (1)(b) needs no intent and asks only whether reasonably equivalent value came back and whether the remaining assets were unreasonably small for the business you were about to conduct or you should have believed the debts were beyond your ability to pay. KRS 378A.040(2) lists eleven badges a court may weigh, and the eleventh describes an MCA workout pattern exactly: whether the debtor transferred the essential assets of the business to a lienor that transferred those assets to an insider. KRS 378A.050(1) adds the insolvency version for creditors who existed first, and KRS 378A.050(2) reaches a transfer to an insider on an antecedent debt where the insider had reasonable cause to believe you were insolvent.

None of that is a reason to freeze, and it is emphatically not a reason to reorganize quietly and explain later. KRS 378A.070(1) lets a creditor obtain avoidance to the extent necessary to satisfy the claim, an attachment against the transferred asset or other property of the transferee, an injunction against further disposition, appointment of a receiver, or any other relief the circumstances require, and subsection (2) lets a judgment creditor levy on the transferred asset itself. The workable discipline is arithmetic rather than nerve: build a dated schedule of every distribution, member loan repayment, equipment sale and intercompany transfer for the last four years, put a value next to each one, and hand it to counsel before anybody drafts a plan, because the schedule decides what the plan is permitted to contain.

5. Kentucky Exempts Individuals, and Your Company Is Not One

Start with the sentence that decides how much of your operating account survives a judgment. KRS 427.010(1) opens by exempting the listed personal property of an individual debtor resident in this state, and every dollar figure that follows hangs off that phrase. A Kentucky limited liability company or corporation is not an individual debtor, so there is no protected floor in the business account, no wildcard, and nothing corresponding to the small cash exemptions other states give an entity. Whatever is in the account when the order is served is available, and the merchant processing reserve and the receivables your customers owe you are available on the same theory.

The mechanics are quick and they require almost nothing of the creditor. KRS 426.030 bars execution for ten days after the judgment is rendered unless the court orders otherwise, and after that KRS 425.501(1) lets the judgment creditor obtain a garnishment order by filing an affidavit in the same action showing the date of the judgment, the amount due, and that a named person holds property belonging to, or is indebted to, the judgment debtor. Subsection (2) provides that no bond is required. Subsection (3) requires the order to be served on the garnishee, a copy delivered or mailed to the judgment debtor, and a ten dollar processing fee paid by the judgment plaintiff that the garnishee keeps whether or not it turns out to hold anything. Subsection (6) allows successive orders against the same or other garnishees until the judgment is satisfied, which is how a bank account gets hit again the month after you refill it.

The judgment itself is durable, and Kentucky rewrote the lien half of that answer recently. Under KRS 426.720(1) a final money judgment becomes a lien on real estate in a given county only after the creditor files a notice of judgment lien with that county clerk, sends a copy to the judgment debtor, and certifies the mailing, and the notice has to reprint the text of KRS 427.060 and tell you that you may be entitled to claim it. For judgments entered on or after June 29, 2023 the lien expires ten years after entry under KRS 426.720(2)(b), and KRS 426.720(3)(b) lets the creditor postpone that expiration by filing a renewal notice at least one hundred twenty days before it runs. The underlying judgment lives longer: KRS 413.090(1) gives fifteen years for an action upon a judgment, computed from the date of the last execution, and KRS 426.035 confirms an execution may issue at any time until collection is barred.

Two other tools belong in the same picture because they are what happens after the account comes back empty. KRS 426.381(1) lets a creditor whose execution was returned with no property found redocket the case by supplemental petition, join anyone believed to be indebted to you or holding your property, move the matter to the equity docket, and take discovery, and KRS 426.384 lets the court use its contempt power to enforce the surrender of what is found. On the earnings side, KRS 425.008, created by 2026 Ky. Acts ch. 98, sec. 3 and effective July 15, 2026, now requires an earnings garnishment served on an employer to carry the debtor’s name, address, the amount owed, the judgment identifiers and the creditor agent’s contact details on a single page, with sensitive identifiers moved to a separate addendum. Our page on what a lien freeze does to an operating account covers the banking side of the same week.

6. The Consumer Protection Act Names the Conduct and Then Locks You Out

The prohibition itself is broad enough to cover your funder. KRS 367.170(1) declares unfair, false, misleading, or deceptive acts or practices in the conduct of any trade or commerce unlawful, subsection (2) instructs that unfair means unconscionable, and KRS 367.110(2) defines trade and commerce to include the advertising, offering for sale, or distribution of any services and any property, tangible or intangible, and any trade or commerce directly or indirectly affecting the people of this Commonwealth. KRS 367.110(1) defines person to include corporations, trusts, partnerships and any other legal entity. Nothing in any of that is limited to households, and an owner who reads only those sections walks away believing the claim is available.

The private action is where the Commonwealth closes the door, and it does so in seven words. KRS 367.220(1) gives the right to sue to any person who purchases or leases goods or services primarily for personal, family or household purposes and thereby suffers an ascertainable loss of money or property. Your company did not buy financing for a personal, family or household purpose, so the standing requirement is not satisfied and no amount of unconscionable conduct changes that. The rest of the section is written for the plaintiff who does qualify: the clerk mails a copy of the complaint to the Attorney General under subsection (2), fees may go to the prevailing party under subsection (3), and subsection (5) requires suit within two years of the violation or one year after any Attorney General action terminates, whichever is later.

What remains open is public enforcement rather than your enforcement, and the distinction is not academic when a broker is running a pattern. Under KRS 367.190(1) the Attorney General may move in circuit court for a restraining order or a temporary or permanent injunction against a practice declared unlawful by KRS 367.170, and subsection (3) removes the ordinary equitable burdens by providing that it is unnecessary to allege or prove either an inadequate remedy at law or irreparable injury. Violating an injunction issued under that section carries a civil penalty of up to twenty five thousand dollars per violation under KRS 367.990(1). A complaint to the Office of Consumer Protection costs you nothing and occasionally moves a funder that a demand letter did not, though it recovers nothing for your company directly.

So the live Kentucky claims sit outside chapter 367 for most files, and they have their own clocks. An action on a written contract executed after July 15, 2014 must be commenced within ten years under KRS 413.160, an action for relief or damages on the ground of fraud or mistake within five years under KRS 413.120(11), and an action upon a liability created by statute, where the statute fixes no other time, within five years under KRS 413.120(2). Breach of contract, fraud in the inducement, and the argument that the agreement is a loan rather than a purchase are what a Kentucky complaint is usually built from, with the loan broker theory added where a broker took money before funding.

7. Five Thousand Dollars of Home, Set in 1980 and Never Raised

Once the personal guaranty becomes a judgment against you individually, KRS 427.060 is the whole of your residential protection. It exempts an individual debtor’s aggregate interest, not to exceed five thousand dollars in value, in real or personal property that the debtor or a dependent uses as a permanent residence in this state, or in a burial plot, from sale under execution, attachment or judgment. The figure comes from 1980 Ky. Acts ch. 236, sec. 4, effective April 9, 1980, and the section contains no inflation adjustment and no mechanism for one, so it is the same five thousand dollars it was when it was written. Two exceptions cut further: the exemption does not apply against a mortgage the homeowner gave or against purchase money, and it does not apply at all if the debt or liability existed before the property was purchased or the improvements were erected.

The personal property schedule beside it is equally thin. KRS 427.010(1) protects household furnishings, jewelry, personal clothing and ornaments up to three thousand dollars, farming tools, equipment and livestock up to three thousand dollars, one motor vehicle and its necessary accessories up to two thousand five hundred dollars, professionally prescribed health aids, and funds in a health savings account. KRS 427.005(4) narrows the household category by excluding works of art, antiques, jewelry other than wedding rings, and electronic entertainment equipment beyond one television and one radio. Tools necessary in a trade get three hundred dollars under KRS 427.030, and the professional library, office equipment and instruments of a minister, attorney, physician, surgeon, chiropractor, veterinarian or dentist get one thousand dollars under KRS 427.040. KRS 427.010(4) removes all of it to the extent of any balance owed on a lien you voluntarily granted.

Wages follow the federal formula and Kentucky has not improved on it. KRS 427.010(2) caps garnishment of aggregate disposable earnings for a workweek at the lesser of twenty five percent of disposable earnings or the amount by which those earnings exceed thirty times the federal minimum hourly wage, with disposable earnings defined at KRS 427.005(2) as what remains after deductions required by law. Kentucky’s own minimum wage under KRS 337.275(1) has been seven dollars and twenty five cents since July 1, 2009 and tracks the federal figure, which puts the weekly protected floor at two hundred seventeen dollars and fifty cents. KRS 427.140 does provide that an employer may not discharge an employee over a garnishment for a single indebtedness, which is worth knowing if the guaranty judgment lands while you are drawing a salary somewhere else.

There is one route to better numbers and it only opens in a bankruptcy case. KRS 427.170 authorizes an individual debtor domiciled in Kentucky to elect the federal exemptions at 11 U.S.C. 522(d), and Kentucky is therefore not an opt-out state. Under the figures effective April 1, 2025 that election protects $31,575 of homestead under 522(d)(1), $5,025 in a motor vehicle, $3,175 in tools of the trade, and a wildcard of $1,675 plus up to $15,800 of any unused homestead amount. KRS 427.160 adds a further one thousand dollar general exemption that by its own terms applies solely in a federal bankruptcy proceeding. None of that helps against a circuit court execution, where the operative homestead number stays at five thousand dollars, and the gap between the two sets is often the single largest factor in whether a guarantor should be settling or filing. Our page on what a personal guaranty actually exposes works through the same decision.

How an Out of State Judgment Reaches a Kentucky Circuit Court

KRS 372.140 governs what a Kentucky court may do with a confession clause. It does not govern what Kentucky must do with a judgment another state has already entered, and that gap is the reason the clause is still printed in your agreement. KRS 426.950 defines a foreign judgment as any judgment, decree or order of a court of the United States or of any other court entitled to full faith and credit in the Commonwealth, and KRS 426.955 lets an authenticated copy be filed with the clerk of any Kentucky court of competent jurisdiction, whereupon the clerk treats it the same as a judgment of a Kentucky court and it becomes enforceable in like manner.

The same section is the one that gives you something to work with, because it provides that the filed judgment is subject to the same procedures, defenses and proceedings for reopening, vacating, or staying as a judgment rendered here. KRS 426.960(1) requires the creditor to file an affidavit with the debtor’s last known post office address, subsection (2) requires the clerk to mail notice of the filing, and subsection (3) provides that no execution or other process for enforcement may issue until twenty days after the judgment is filed. Those twenty days are the entire window, and they run from the filing rather than from the day the envelope reaches you.

What can be argued inside that window is narrow and jurisdictional rather than substantive. Full faith and credit under U.S. Const. art. IV, sec. 1 and 28 U.S.C. 1738 does not let a Kentucky judge reexamine the merits of a New York judgment because Kentucky would have decided the case differently, and the Supreme Court held in Durfee v. Duke, 375 U.S. 106 (1963) that a judgment is conclusive where the rendering court had jurisdiction, with jurisdictional questions themselves preclusive only when they were fully and fairly litigated and finally decided. A confessed judgment entered without your appearance is, by definition, a judgment where nothing was litigated, which is why the personal jurisdiction and service questions are the ones Kentucky counsel goes at. KRS 426.965 separately allows a stay on proof that an appeal is pending or that security has been posted.

What Builds a Kentucky File When There Is No Regulator to Call

In a disclosure state a negotiator opens with a regulatory defect the funder would rather not see documented. Kentucky has no such opening, so the leverage has to be assembled out of the agreement and the transaction record, and the assembly is the work. The reconciliation history is first: every written request you made, every response or silence, and the actual deposit volumes for the months in question, because a reconciliation obligation that was never honored is the evidence underneath a recharacterization argument. Then the lien picture, since KRS 355.9-322(1)(a) ranks conflicting perfected security interests by priority in time of filing or perfection, and the funder holding the oldest financing statement on your receivables is in a different negotiating position from the fourth one in line. Then KRS 355.9-406(1), which is what lets a funder redirect your customers’ payments once it sends a signed notification, and which explains why a quiet default becomes a public one.

It is also worth knowing what Kentucky does and does not license on your side of the table. Chapter 380 requires registration and imposes contract and disclosure duties on a person engaged in debt adjusting, which KRS 380.010(3) defines to include settlement, modification and acting as an intermediary between a debtor and creditors for consideration, but KRS 380.010(5) defines debtor as an individual who resides in Kentucky. The Commonwealth regulates the adjustment of a person’s debts and has written nothing about the resolution of a company’s commercial obligations. That is a real gap on both sides, and it is one reason to ask any firm you speak with what it actually does, who does the legal work, and how it is paid.

If the balances are large enough that no settlement math closes, the federal option is the one worth pricing next, and Kentucky sits in the Eastern and Western Districts. Subchapter V of chapter 11 is the version built for operating small businesses, and eligibility turns on the debt cap in 11 U.S.C. 101(51D), which stands at $3,424,000 for cases filed on or after April 1, 2025 under the adjustment published at 90 Fed. Reg. 8941 and does not change again until April 1, 2028. The chapter 11 filing fee is $1,167 plus a $571 administrative fee. The same arithmetic argues the other way at the small end, and it is worth saying plainly: with one modest advance, cash on hand, and a funder already returning calls, hiring anybody is the wrong answer, and a firm that tells you otherwise is optimizing for its own enrollment rather than your outcome.

Who Should You Call? Our Top-Rated Business Debt Firms

One firm on this list works the entire lifecycle of a business debt file, from stopping the daily debits through attorney-led negotiation, UCC lien removal, and a signed release. The other two cover broader debt categories that often sit alongside the advances. Choose accordingly.