What Are the Colorado Bankruptcy Exemptions?

What Are the Colorado Bankruptcy Exemptions, and Why Are They Important in a Chapter 7 Bankruptcy? 

We all know that dealing with debt, such as credit card debt, can be a frightening experience, particularly when you believe you are about to lose everything, such as your car or home. However, people buried in debt, such as medical debts, need to know that they often have several options available to them. And some of these options can actually help protect their valuable assets, like retirement accounts, from unrelenting debt collectors. Bankruptcy in Colorado is one alternative that a lot of people use to protect their property and get a fresh financial start. 

Exemptions operate as a type of asset protection in Colorado bankruptcy. Specifically, bankruptcy laws in Colorado allow individuals to "exempt" — or protect — many assets, such as their home. These non-exempt assets stay in the bankruptcy estate and can be sold by the bankruptcy trustee for the benefit of your creditors. This means that you can keep your property after the bankruptcy process. Actually, many people who file for Chapter 7 bankruptcy in Colorado are able to protect most, if not all, of their valuable possessions, because of federal and state exemptions. 

That said, keep in mind that the law regarding these specific exemptions may get a little complex to navigate. Here a bankruptcy lawyer can help you make the most of the exemptions.

Does Colorado Allow the Use of Federal Bankruptcy Exemptions?

While the U.S. Bankruptcy Code operates in basically the same way throughout the country, there is one important exception: States have the ability to choose whether their residents can use the federal bankruptcy exemptions or have to use the exemptions available under state law even in a bankruptcy. While some U.S. states allow people to choose between exemptions drafted by state lawmakers and federal bankruptcy exemptions, as a Colorado resident, you are not permitted to use the federal exemptions.

Fortunately, Colorado has generous bankruptcy exemptions that can protect your property. So, you will have to use Colorado’s bankruptcy exemptions and federal nonbankruptcy exemptions, if applicable in your case. Unless stated otherwise, married couples in the state filing together can usually “double” the amount, provided both have an ownership interest in the relevant asset or property.

Colorado Bankruptcy Exemptions

Whether you are planning to file a Chapter 7 bankruptcy or a Chapter 13 bankruptcy, 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 will do this in your bankruptcy schedules that are filed with the bankruptcy court.

The main goal of protecting property through exemptions is to allow a person filing bankruptcy to keep sufficient assets to start anew. The exempt property often includes items like clothing, furnishings, home, and some equity in a car. You have to own an interest in the relevant property in order to claim a bankruptcy exemption in the state. Unsecured creditors can’t reach property that is deemed exempt.

Real Property — The Colorado Homestead Exemption

One of the biggest questions most individuals filing bankruptcy have is whether they can protect their homes. Fortunately, in Colorado, bankruptcy state laws offer you an exemption called the homestead exemption. As a filer, you may protect up to $75,000 of equity in your home or other property that is covered by the state homestead exemption, like a mobile home.

Note that this amount increases to $105,000 in case the homeowner, dependent or spouse is disabled or is at least sixty years of age. Also, the proceeds from a sale are also exempt under certain conditions.

Personal Property Exemptions

Bankruptcy exemptions in Colorado are the means by which individuals who file bankruptcy can protect their belongings. With personal property exemptions, you might be able to protect a wide array of personal property and valuable assets, depending on your circumstances. This type of bankruptcy exemption in Colorado covers your motor vehicle and other important assets. Some of the Colorado bankruptcy exemptions you may use to protect your property in a Chapter 7 bankruptcy case include the following.

Motor Vehicle

In a majority of cases, you won’t lose your motor vehicle during your Chapter 7 bankruptcy in Colorado as long as the equity in the car is fully exempt. Note that the exemption for equity in a motor vehicle is $7,500 per filer. And that is not all; for individuals sixty or over or people with disability it protects $12,500 per filer. And if you file a joint bankruptcy petition with your spouse, then the exemption amount will be doubled. However, it is not all good news in this category. 

This is because the old exemption didn’t place any restriction on the number of cars a filer can claim exempt; however, the new amendment restricts that to 2 vehicles per person filing. In addition, it also limits the exemption to exclude recreational vehicles, motor homes, boats, and ATVs. However, 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. This exemption allows you to exempt up to $30,000 in tools you use for earning a living.

Other Personal Property 

Household goods: Note that your furniture, as well as other household goods are exempt up to $3,000.

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

Fuel and food: You will 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 tools: You can protect up to a total value of $50,000.

Health aids: all professionally prescribed health aids are also fully exempt under the law.

In most cases, married couples filing for bankruptcy protection in the state can double these exemption amounts.

Tools of the Trade

This is another important exemption. The exemption allows people who have inventory, tools, fixtures, machinery, and other business items which are used for a gainful occupation to protect them. Note that the tools of the trade exemption in the state is $30,000 if the occupation is your main source of income. 

On the other hand, if this occupation isn’t the main source of income, then the exemption is $10,000. Note that this is a change from the prior exemption, which offered a $20,000 exemption irrespective of whether the business was the main source of income.

Burial Property and Cemeteries

You can protect a burial site or mausoleum space for you and your dependent. Also, cemetery property owned by or used by a corporation is exempt. These exemptions are covered under Colo. Rev. Statute. §§ 13–54–102(1)(d) and 7–47–106.

Money Benefits

Pension Exemption

Keep in mind that pensions for various kinds of employees are exempt, including police, firefighters, municipal employees, and city, county, and state employees. Tax-exempt retirement accounts, such as 403(b)s, 401(k)s, profit-sharing, as well as money purchase plans, SIMPLE IRAs, SEP and defined benefit plans, are exempt under Section 522. IRAs, as well as Roth IRAs, are exempt up to $1,362,800 under Section § 522(b)(3)(C)(n). This is applicable for cases filed from April 1, 2019, to March 31, 2022, and Colorado filers can use it in addition to the exemptions they’re claiming under Colorado law. Veteran's benefit pension is 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 is 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 on what you can do to protect these assets.

Wage Exemption

The higher of the following amount is exempt under the law:

• Up to thirty times the state or federal hourly wage (minimum) 

• Or 75% of disposable earnings a week.

Insurance

You can protect life insurance proceeds if your insurance policy prohibits using the proceeds to pay creditors. You can use Section 10-7-106. Fraternal benefit society benefits are exempt under Section 10-14-403. The cash surrender value of life insurance up to $100,000 is exempt under Section 13-54-102. However, note that contributions made in the past 48 months would be excluded. 

You can protect group life insurance policy or its proceeds under Section 10-7-205. Under Section 38-41-209 homeowners' insurance proceeds are exempt for a year after receipt, up to the homestead amount under the law. Disability benefits are exempt up to $400 a month under Section 10-16-212. If you received the amount in one lump sum, then the whole amount is exempt under the law.

Alimony and Child Support 

These amounts are exempt if you keep them segregated from your other cash assets. You can exempt the amount under Colo. Rev. Statute §§ 13-54-102(1)(u); 13-54-102(4) and 13-54-102.5.

Other Colorado Exemptions

Partnership Property

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

Unemployment Compensation

You can protect this amount as long as you do not commingle it with other funds. However, keep in mind that it is subject to child support orders. 

Workers’ Compensation Benefits

The amount is exempt under the law other than employer reimbursement as well as court-ordered support.

Filing Chapter 7 Bankruptcy?

Colorado's exemption schedules help individuals use Chapter 7 as a vital asset protection tool. Do you want to find out how bankruptcy in Colorado can affect your assets, such as your home and car, and get a personalized and accurate bankruptcy review? If so, you should meet with a bankruptcy attorney in Colorado to review your matter and safeguard your interests. They can address your specific financial situation with a strategic plan to help put extreme indebtedness behind you. 

From simple to complicated bankruptcy cases, an attorney can always be trusted to:

• Make the most of Colorado Bankruptcy Law, which includes Colorado bankruptcy exemptions

• Effectively and efficiently guide you through bankruptcy

• Help you achieve the best possible outcome for your case

• Help you resolve your case as favorably and efficiently as possible

This will help you enjoy life again and get a fresh start.  Bankruptcy attorneys in the state provide professional bankruptcy representation and also have the knowledge and expertise to protect your assets, like home, from creditors, and the Bankruptcy Court. The attorney will tell you, for example, how non-exempt property is treated under Chapter 7 and Chapter 13. If you are not able to afford a bankruptcy attorney to help you, you can take this simple and short quiz in order to find out if Upsolve’s web app can put you on the right track for long term debt relief.