At the risk of making broad generalizations, I seem to meet with two groups of people during initial consultations: those who think that none of their personal belongings are protected when they file bankruptcy, and those who think that all of their personal belongings are protected when they file bankruptcy.
The law lays somewhere in between.
There are rules that protect certain personal belongings and real estate when you file bankruptcy. Those rules are called exemptions. Assets that have a value (or equity amount – the item’s value minus any loan being paid for the item) under the exemption amount are protected from the bankruptcy court. Assets that have a value above the exemption amount can be sold by the bankruptcy court to pay your creditors. You can also “buy” the unprotected value of the asset from the bankruptcy court to keep it from being sold.
What Happens With Property That Is Not Covered By Colorado Bankruptcy Exemptions
For example, let’s say you have a car that has $2,000 more in equity than we can protect with the vehicle exemption. The bankruptcy court isn’t interested in the car. It’s interested in that $2,000 unprotected equity. Pay the court that $2,000 and you keep your car. Don’t pay the $2,000 and the court will sell your car, pay off the loan, give you the exemption amount and the rest will go to the people you owe money to. And the court will do that even if you need your car to get to work or take your kids to school. That’s the law, folks. In exchange, you’ll get rid of all of your dischargeable debt. Financially speaking, it’s usually a pretty good deal. If it isn’t, we’ll talk about it before your case is filed and you’ll have the chance to consider options for dealing with your debt outside of bankruptcy.
Colorado Governor Jared Polis recently signed into law Senate Bill 22-086 which dramatically increases several of the exemptions bankruptcy filers can use to protect their assets. Here are exemptions that I expect will most benefit our clients:
- The Colorado homestead exemption increased to $250,000 or $350,000 if you’re over 60 years old, disabled, or have a dependent living with you who is over 60 or disabled.
- The vehicle exemption increased to $15,000 or $25,000 if you’re over 60 years old or disabled.
- Health saving accounts are now completely protected.
- For the first time ever, Colorado has a firearms exemption. It protects a firearms collection worth less than $1,000.
- Balances in bank accounts are exempted up to $2,500. This is a cumulative amount for all bank accounts.
- The household goods exemption has increased to $6,000.
All of these exemption amounts except the homestead exemption can be doubled if spouses file together.
The increased homestead exemption is a game changer. I have met with many potential clients in the last year or so who have a great deal of equity in their home, so much that chapter 7 would have been a bad idea and put even chapter 13 out of reach. The new exemption will allow more people to file either chapter 7 or chapter 13 and give them the protection they need.
Beware, there is a lot of information out there about bankruptcy. The best source for reliable information is an experienced bankruptcy attorney. Like us, most of them will offer a free initial discussion to review your financial situation and talk about your options, including bankruptcy. If you’d like to schedule a consultation with us, you can make an appointment by clicking here. We look forward to talking with you!
Check out our YouTube channel!
See what our clients think of on Google!