What Are the Colorado Bankruptcy Exemptions?

What Are the Colorado Bankruptcy Exemptions?

Dealing with overwhelming credit card debt, medical bills, or other debt can be stressful and scary. Filing bankruptcy helps people get rid of unsecured debts without losing everything they own. In fact, many people who file for Chapter 7 bankruptcy in Colorado are able to protect most, if not all, of their valuable possessions with state exemptions and federal non-bankruptcy exemptions.

Does Colorado Allow You To Use Federal Bankruptcy Exemptions?

While the U.S. Bankruptcy Code operates in basically the same way throughout the country, there's one important exception: States can choose whether to use or "opt out" of the federal exemptions. They can also create their own sets of exemptions. 

Some states allow people to choose between the federal bankruptcy exemptions and state exemptions, but as a Colorado resident, you must use the state exemptions if you’ve been a resident in the state for at least two years.

Fortunately, Colorado has generous bankruptcy exemptions. And Colorado filers can also use the federal non-bankruptcy exemptions. 

Also, unless stated otherwise, married couples in the state filing together can usually double exemption amounts for assets and property that's jointly owned.

Colorado Bankruptcy Exemptions

Whether you're planning to file a Chapter 7 bankruptcy or a Chapter 13 bankruptcy case, note that in order to protect your valuable assets, the bankruptcy court requires that you list and then match all your assets, such as your car and home, to the appropriate exemption. You'll do this in the bankruptcy forms that you file with the bankruptcy court.

Exemptions cover property including clothing, home goods and furnishings, and equity you have in a home or car. If an item is completely covered by an exemption, you get to keep it. The bankruptcy trustee can't take it and sell it to pay back your creditors.

Real Property: The Colorado Homestead Exemption

One of the biggest questions bankruptcy filers have is whether they can protect their homes. Fortunately, in Colorado, there's a homestead exemption that allows you to protect up to $250,000 of the equity in your home or mobile home.

This amount increases to $350,000 for homeowners who are 60 or older, who have a disability, or who have a dependent or spouse with a disability.

Personal Property Exemptions

Colorado's personal property exemptions allow filers to protect many types of personal property and valuable assets. Here are some of the most commonly used personal property exemptions.

Motor Vehicle

Colorado allows bankruptcy filers to exempt up to $15,000 in equity in a motor vehicle they own. You can calculate your equity by subtracting what you still owe on your car loan from the current market value of your car. If that comes to $15,00 or less, you can keep your car.

Some filers can protect even more equity. If you're over age 60 or have a disability, you can exempt up to $25,000 in car equity. If you use your car for work (rather than only using it to get to and from work), you may be able to apply the state’s tools of the trade exemption instead, which allows you to exempt up to $60,000.

The motor vehicle exemption has some limits though. Bankruptcy filers can only use this exemption to protect up to two motor vehicles per filer. The exemption doesn't cover recreational vehicles, motor homes, boats, and ATVs.

Other Personal Property 

• Household goods: Note that your furniture, as well as other household goods, are exempt up to $6,000.

• Clothing: You can protect clothing up to $2,000.

• Fuel and food: You'll get $600 worth of bankruptcy exemptions for this.

• Jewelry/articles of adornment: Up to $2,500 is exempt.

• Family pictures and books: You can protect books and family pictures up to $2,000.

• Livestock and agricultural tools: You can protect up to a total value of $100,000.

• Health aids: All professionally prescribed health aids are fully exempt under the law.

• Burial property and cemeteries: You can protect a burial site or mausoleum space for you and your dependent(s).

In most cases, married couples filing for bankruptcy together can double these exemption amounts.

Tools of the Trade

This exemption protects inventory, tools, fixtures, machinery, and other business items people use for their occupation. If this occupation is your main source of income, you can exempt up to $60,000 worth of your tools of trade. If it's not your main source of income, you can exempt up to $20,000.

Money Benefits

State exemptions and the federal non-bankruptcy exemptions protect some money benefits, pensions and retirement accounts, and insurance benefits.

Pension Exemptions

Pensions for various kinds of employees are exempt, including police officers, firefighters, municipal employees, and employees of city, county, or state government.

Tax-exempt retirement accounts — 403(b)s, 401(k)s, profit-sharing accounts, money purchase plans, SIMPLE IRAs, SEP and defined benefit plans — are exempt under Section 522.

IRAs and Roth IRAs are exempt up to $1,512,350 under federal bankruptcy rules. Colorado filers can use this exemption in addition to the exemptions they’re claiming under Colorado law.

Veterans benefit pensions are exempt if the veteran served in any war or armed conflict. 

Public employees' pensions, deferred compensation, and defined contribution plans are also exempt under the law.

Note that any pension that's covered under federal tax exemptions is considered fully exempt under the law. If you have any pensions or retirement benefits, talk with a Colorado bankruptcy attorney about what you can do to protect these assets.

Insurance

• Life insurance proceeds, if your insurance policy prohibits using the proceeds to pay creditors

• Fraternal benefit society benefits

• The cash surrender value of life insurance, up to $250,000, except contributions made in the past 48 months

• Group life insurance policy or its proceeds

• Homeowners' insurance proceeds, for a year after receipt, up to the homestead amount under the law

• Disability benefits, up to $5,000 a month, or whole amount if received in one lump sum

Alimony and Child Support 

These amounts are exempt if you keep them separate from your other cash assets.

Other Colorado Exemptions

• Partnership property: You can protect certain partnership property under Colo. Rev. Statute § 7–60–125.

• Unemployment compensation: You can protect this fully as long as you don't commingle it with other funds or owe child support orders. 

• Workers’ compensation benefits: Fully exempt under the law unless there's an employer reimbursement or court-ordered support.

Filing Chapter 7 Bankruptcy?

Colorado's exemptions help individuals protect their property when filing Chapter 7 bankruptcy. Since there are so many different kinds of property, exemptions can feel complicated to navigate as a bankruptcy filer. But the good news is that you can get help! If you have a simple Chapter 7 bankruptcy case, you may be able to use Upsolve’s filing tool to file your case for free.

You can also schedule a free consultation with a bankruptcy attorney in Colorado to discuss your property and determine your next best steps.