Colorado Bankruptcy Exemptions

Bankruptcy promises a fresh start—and it works. You'll straighten out your finances and keep the things you need to work and live. But Colorado "exemption laws" protect essential property only, not unnecessary luxury goods. To prevent a costly property loss, you'll want to learn about:

• using Colorado's exemptions and the federal nonbankruptcy exemptions
• what will happen to property you can't protect with an exemption, and
• whether you've lived in Colorado long enough to use Colorado's bankruptcy exemptions.

The information below will help. Also, try our ten-question bankruptcy quiz—it flags areas you'll want to look into further with a local bankruptcy lawyer.

Using Exemptions in a Colorado Bankruptcy

Bankruptcy is a federal process, so it works the same way in every state. And don't worry about losing all of your property in bankruptcy. You'll use Colorado state laws known as "bankruptcy exemptions" and federal nonbankruptcy exemptions to protect your property. The federal bankruptcy exemptions aren't available in Colorado.

Other Colorado Bankruptcy Exemptions

Here are more Colorado exemptions, but it's not an exhaustive list. As with all exemptions, be sure to check for current amounts and qualification requirements.

Colorado Public Benefits and Wage Exemptions

• Crime victims' compensation ( Rev. Stat. § 13-54-102(1)(q).)
• Disability benefits to $4,000 ( Rev. Stat. § 13-54-102(v).)
• Earned income tax credit or refund ( Rev. Stat. § 13-54-102(1)(o).)
• Public assistance ( Rev. Stat. § 26-2-131.)
• Unemployment compensation ( Rev. Stat. § 8-80-103.)
• 80% of earned but unpaid wages or 40 times the federal minimum wage ( Rev. Stat. § 13-54-104.)
• Child support or domestic support obligation ( Rev. Stat. §§ 13-54-102(u); 13-54-102.5.)

Colorado Insurance Exemptions

• Life insurance proceeds or annuity ( Rev. Stat. § 10-7-106.)
• Group life insurance policy or proceeds ( Rev. Stat. § 10-7-205.)
• Fraternal benefit society benefits ( Rev. Stat. § 10-14-403.)
• Life insurance cash surrender value up to $250,000 ( Rev. Stat. § 13-54-102(1).)
• Homeowners' insurance proceeds for one year after received ( Rev. Stat. § 38-41-209.)

Other Colorado Exemptions

• Business partnership property ( Rev. Stat. § 7-60-125.)

What Happens to Property You Can't Exempt in a Colorado Bankruptcy?

It will depend on the chapter you file. In Chapter 7 bankruptcy, you lose property not covered by an exemption. The bankruptcy trustee responsible for managing your case will sell the property for the benefit of your creditors. In Chapter 13 bankruptcy, you can keep all of your property; however, that luxury comes at a price—literally. You'll pay your creditors the value of any property not covered by an exemption in your Chapter 13 repayment plan.

For example, say you own a car outright worth $3,000, and your state has a vehicle exemption of up to $5,000. Here's what would happen in each chapter.

• Chapter 7 Bankruptcy. If you file for Chapter 7 bankruptcy, you will get to keep your car because the exemption would protect the equity fully. In the same example, if your vehicle were worth $15,000, the bankruptcy trustee would sell your vehicle, pay you $5,000 for the exemption, and distribute the rest to your unsecured creditors.
• Chapter 13 Bankruptcy. In Chapter 13, you wouldn't need to pay extra to your creditors through your repayment plan. However, if the car were worth $15,000, you'd need to pay your creditors at least $10,000 (minus sales costs) through your plan.

Keep in mind that these examples don't take into account a vehicle loan. You'll find more information below.

Protecting a Financed Home or Car in a Colorado Bankruptcy

Many people wonder if they can wipe out a home mortgage or car loan and keep the property without paying anything more. The simple answer is "No." Protecting the equity with an exemption will keep the Chapter 7 trustee from selling it, and you won't have to pay extra to keep it in Chapter 13, but there are more steps to take.

First, in a Chapter 7 case, the mortgage or car payment will need to be current. Second, you'll need to be able to continue to make the payment. Why? Because when you purchased it, you gave the lender a property "lien." The lien created a secured debt that allows the lender to take back the property if you don't pay as agreed—even in bankruptcy. So if you're behind on the payment and file for Chapter 7, you'll lose the property. Instead, consider catching up on arrearages in Chapter 13.

For more information, read about how mortgages work in bankruptcy and how to file for bankruptcy without losing a car.

Colorado Bankruptcy Exemption Timing Rules

It's tempting to move to a state with significantly more generous bankruptcy exemptions when filing for bankruptcy. But it doesn't work that way. To prevent people from abusing the system, filers must live in the state for at least two years—otherwise, they must use the previous state's exemptions. Here's how it works.

• If you've made your permanent home (your "domicile") in your current state for at least two years, you can use the state's exemptions (or the federal exemptions if allowed).
• If your domicile hasn't been in the same state for two years, the rules get more complicated, so prepare yourself. In fact, it sounds so strange we'll explain it in three different ways so that you know you didn't read it wrong. Here goes: You'll choose the state that you lived in the longest during the 180 days immediately before the two years before filing.

Did you get that? If not, here's a way to figure it out. Count back two-and-a-half years. Then ask yourself where you lived the longest during the first six months of that two-and-a-half-year period.

Still confused? Let's try an example. Suppose you planned to file on January 1, 2022. Your two-and-a-half-year period would start July 1, 2019, and you'd qualify to use the exemptions of whichever state you resided in the most during the July 1, 2019, through December 31, 2019 period. You wouldn't have to file your case there, but you'd use that state's exemptions. Hopefully, that helps!

Learn more about timing a bankruptcy filing.

Special Homestead Exemption Rules

The homestead exemption protects your ownership interest in your home. You'll need to read your state's homestead statute to determine the specifics, such as the amount of equity and acreage covered, whether the exemption protects a manufactured home, and if you need to file a homestead exemption with the county clerk. But in all states, the property must be your residence. Also, you'll need to comply with a federal timing law—here's the rule:

You must live in the home for more than 40 months before filing for bankruptcy. Otherwise, your homestead exemption is capped at $189,050 if you file on or after April 1, 2022 (the amount changes every three years). This cap won't apply if you bought your home with home sales proceeds from that state.

Find out more in Chapter 7 Homestead Exemption in Bankruptcy.

Navigating Your Colorado Bankruptcy Case

Bankruptcy is an unusual area because it's essentially a qualification process. The laws provide instructions for completing a 50- to 60-page bankruptcy petition, and because all rules apply in every case, you can't skip a step.

One way to keep track of your research is to use the bankruptcy forms as an outline. You'll find links to the exemption-related bankruptcy forms and other exemption resources in the chart below. You can also look at the list of Chapter 7 and 13 bankruptcy forms to see where this topic fits in the bankruptcy scheme. And this handy bankruptcy document checklist will help you gather the things you'll need to complete the petition.

Need More Info?

We want to help you find the answers you need. Go to TheBankruptcySite for more easy-to-understand bankruptcy articles, or consider buying a self-help book like The New Bankruptcy by Attorney Cara O'Neill.

We wholeheartedly encourage research and learning, but online articles can't address all bankruptcy issues or the facts of your case. The best way to protect your assets in bankruptcy is by consulting with a local bankruptcy lawyer.

Updated March 17, 2022