When a person files for bankruptcy under both Chapter 7 and Chapter 13 bankruptcy, the court appoints an official known as a “trustee”. The trustee has the authority to sell the person’s property and use the proceeds to pay off the person’s creditors.
Bankruptcy exemptions are property and assets that a person is allowed to keep. The trustee is not allowed to sell property that is exempt. In addition to specific items of property, bankruptcy laws specify the maximum value of the items that the person can rescue from a trustee’s sale to benefit creditors.
Each state has designated exemptions and federal law has a system of exemptions as well. Most states require a person seeking bankruptcy protection to use the state’s exemptions. Some states, however, allow a person to choose either the state or the federal exemptions. Examples of common exemptions are a set amount of equity in a person’s house and car, and retirement accounts.
In a Chapter 7 bankruptcy proceeding, the trustee will sell property that is not exempt and use the proceeds to pay off creditors. In a Chapter 13 bankruptcy proceeding, the trustee does not sell property that is not exempt, but allows the debtor to keep the property by paying the value of non-exempt property to their creditors. There is less risk that a person will lose their property in a Chapter 13 bankruptcy.
What Are the Bankruptcy Exemptions in Colorado?
Colorado law requires the use of its state exemption system rather than federal bankruptcy exemptions. Some of the most important exemptions under Colorado law are listed below. The amounts listed may be higher for a married couple. It is best to consult an experienced bankruptcy attorney for more information on filing bankruptcy and declaring exemptions in Colorado. Exemptions in Colorado may include:
Homestead, which is equity in a dwelling used as residence:
- Up to $75,000, up to $105,000 if the owner or their spouse or dependent is 60 years of age or older or disabled;
- In the alternative, equity in a house trailer or motorhome coach used as a residence of up to $3,500, or equity in a mobile home of up to $6,000;
Automobile, which is equity in a car, truck, motorcycle or bicycle
- Up to $7,500 in as many as two motor vehicles or bicycles;
- $12,500 if the debtor is elderly/disabled;
- Up to $3,000 in household goods, furnishings and appliances;
- Up to $2,000 in clothing;
- Up to $2,500 in jewelry;
- Up to $2,000 in a library, family pictures, and school books;
- Up to $600 in fuel;
- Professionally prescribed health aids;
- Individual or family burial sites, including mausoleum spaces;
- 75% of unpaid earnings;
- Earned income tax refunds;
Tools of the trade
- Up to $30,000 in trade implements;
- A professional library of up to $3,000;
- Livestock and agricultural materials up to $50,000;
- Life insurance
- Cash surrender value of life insurance
- Fraternal society benefits
- Homeowner’s insurance up to homestead exemption amount
Pensions and Retirement
- IRAs and other retirement plans exempted by Internal Revenue Code, no limit on the value;
- Public employee, firefighter, and police retirement benefits;
- Federal employee retirement benefits;
- Unemployment compensation payments;
- Workers compensation payments;
- Public assistance;
- Social security;
- Veteran’s benefits;
- Crime victim’s compensation;
- Disability benefits up to $200 a month or the entire amount if paid as a lump sum;
- Child support if it is kept separate from other assets for the benefit of the child;
- Personal injury recovery: money damages collected from a personal injury lawsuit.
What if I Have a Dispute or Conflict Regarding Bankruptcy Exemptions?
If a person owns a home that is worth $150,000 and has a mortgage of $75,000, then the person has $75,000 worth of equity in the home. The person would be able to keep the home in a Chapter 7 bankruptcy in Colorado, because the entire value of their equity is covered by the exemption.
However, if the person owns a home worth $200,000 and has a mortgage of $75,000, then the person has $125,000 worth of equity in the home. The bankruptcy trustee would sell this home, give the person the $75,000 for the value of their equity that is exempt and use the remaining $50,000 from the sale to pay the person’s creditors.
It is possible for a person seeking bankruptcy protection to object to the classification of property as non-exempt. A person might also object to a trustee’s valuation of property or the trustee’s valuation of the exempt portion of property. These issues, classification and valuation, and others as well, can be litigated through a trial. The person might have to produce expert witnesses to testify about the character of the property or its value or other evidence of its character or value. Then the ruling of the court would decide the issue.
Other issues can arise, such as the timing of claims of exemptions. These issues can be litigated in bankruptcy court.
What Does a Bankruptcy Lawyer Do?
A bankruptcy lawyer can help their clients with various tasks and services. For instance, they can research the laws in a given area or surrounding a certain topic if the person has specific questions about their bankruptcy filing. Bankruptcy laws are subject to frequent changes, so this skill is highly useful for those dealing with bankruptcy issues.
In addition, bankruptcy can also involve conflicts with other parties, including lenders, and other people who are owed a debt. A bankruptcy lawyer can help provide representation and intervention in such cases, helping to protect the debtor against illegal collections or collections efforts that involve fraud.
Lastly, bankruptcy can also overlap with other issues, such as property ownership and other rights. A bankruptcy lawyer can help review the debtor’s possessions, as well as their legal rights to ownership, usage, and other rights toward the property. In the event of a conflict over property, a bankruptcy lawyer can help provide representation, or they can refer the case to a specialist if more specific legal services are needed.
Again, Colorado bankruptcy laws may be subject to frequent change from year to year, so it’s best to consult with a lawyer and hire them if you have any issues, disputes, or claims that need settling.
Do I Need a Colorado Bankruptcy Lawyer?
Bankruptcy law is complicated and technical. It is a good idea to speak with an experienced Colorado bankruptcy attorney before you file for bankruptcy protection. Filings that are not complete or accurate filings may result in seizure of exempt property, or in other financial losses.
An experienced bankruptcy lawyer can help you analyze your situation and determine if Chapter 7 or Chapter 13 is the better choice for you. A lawyer can help you arrange your financial situation to your advantage before you start the bankruptcy process. They can also inform you fully of the consequences of filing and what to expect from the process. An experienced bankruptcy lawyer can be of great help to a person who is overwhelmed by debt and looking for relief in bankruptcy court.