Bankruptcy exemptions help bankruptcy filers protect the property they own so they don't have to start over with nothing after their debts are discharged. Colorado has opted out of the federal bankruptcy exemptions, so residents must use the state exemptions instead. Fortunately, Colorado has generous bankruptcy exemptions.
What Are the Colorado Bankruptcy Exemptions, and Why Are They Important in a Chapter 7 Bankruptcy?
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 nonbankruptcy exemptions.
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Does Colorado Allow Filers 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 aren't permitted to use the federal exemptions.
Fortunately, Colorado has generous bankruptcy exemptions. And Colorado filers can also use the federal nonbankruptcy 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, 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 $75,000 of the equity in your home or mobile home.
This amount increases to $105,000 for homeowners who are 60 or older or 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.
Colorado allows bankruptcy filers to exempt up to $7,500 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 $7,500 or less, you can keep you car!
Some filers can protect even more equity. If you're over age 60 or have a disability, you can exempt up to $12,500 in car equity. If you're married, you can exempt up to $15,000 in vehicle 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 as well, which allows you to exempt up to $30,000.
This exemption has some limits though. Bankruptcy filers can only use this exemption to protect up two two motor vehicles per filer. The exemption also 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 $3,000.
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 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.
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 protection 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 $30,000 worth of your tools of trade. If it's not your main source of income, you can exempt up to $10,000.
State exemptions and the federal nonbankruptcy exemptions protect some money benefits, pensions and retirement accounts, and insurance benefits.
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.
As of April 1, 2022, 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.
Veteran's 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.
The lesser of the following two amounts is exempt under the law:
Up to 30 times the state or federal hourly wage (minimum), or
75% of disposable earnings a week.
You can protect life insurance proceeds if your insurance policy prohibits using the proceeds to pay creditors.
Fraternal benefit society benefits are exempt.
The cash surrender value of life insurance up to $100,000 is exempt. But note that contributions made in the past 48 months are excluded.
You can protect a group life insurance policy or its proceeds.
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. 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 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. If you aren't sure how to apply exemptions to your property, you can meet with a bankruptcy attorney in Colorado to review your case.
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.