Consistent with the premise that overreaching creditors should not be permitted to seize all of a debtor’s property, the Bankruptcy Code turns to Colorado state law in determining property exemptions (i.e. what a debtor can keep). Granted, a significant portion of the debtor’s property can be liquidated and sold by either creditors or the trustee to pay your debts. Many would be filers, fearful of losing their home, car or retirement savings, never take that next step in speaking with an experienced Denver bankruptcy lawyer in order to keep their property while getting a fresh start from the weight of crippling debt. The Law Office of David M. Serafin will advise you within either the context of a chapter 7 or chapter 13 the best way to maximize your exemptions.
However, compared to many states, Colorado allows for fairly generous property exemptions for both chapter 7 and chapter 13 cases.
While hardly an exhaustive list, the following are the most noteworthy Colorado exemptions:
- $60,000 homestead exemption. This increases to $90,000 for the elderly (60 or older) or disabled.
- $5,000 motor vehicle exemption. This increases to $10,000 for the elderly (60 or older) or disabled. (There is no equity in leased vehicles.)
- Over $1 million exemption for ERISA qualified retirement accounts and IRAs.
- $20,000 exemption for tools of trade – used primary for work.
- $2,000 exemption for jewelry.
- 100% exemption in personal injury cases for proceeds attributable to pain and suffering, but only a 75% exemption for lost wages.
- 75% exemption (after mandatory payroll deductions) for wages.
Aside from the homestead exemption which “runs with the land” and which cannot be used by each spouse, these exemptions are doubled for joint filers.
In determining the value of the property, the amount originally paid is irrelevant. What matters is the value of the property the day bankruptcy is filed. Vehicles and furniture in particular tend to rapidly depreciate.
You also need to determine the equity in the property and factor in any costs of sale. For instance, pretend you own a house (you intend to keep) originally purchased for $350,000 but which has gone down in value to $300,000 on the date of the bankruptcy petition. The balance owed on the mortgage is $200,000. So, there’s a $100,000 of equity. Assuming you’re under 60 years of age and not disabled, you can subtract both the $60,000 Colorado homestead exemption PLUS costs of sale thereby leaving less than $40,000 of non-exempt (i.e. not protected) equity.
Here, you might ask what will happen if you have too much equity in your home. In the foregoing example, regardless of income, a chapter 13 payment plan to pay back unsecured creditors the extra, unprotected equity may be preferable to prevent a chapter 7 trustee from liquidating the home. In comparison, if this same home is worth $260,000 or less, a chapter 7 (if the debtor is eligible) is optimal as the homestead exemption fully protects the home. Other options for when you have too much equity in your home would be to either sell the house or obtain a second mortgage (particularly as a second home payment reduces your monthly disposable income under the Means Test) prior to filing for bankruptcy.
Conversely, you also have the option of surrendering the home and discharging any deficiency if there is no equity to protect. (Surrender is obviously not the best option for properties with significant equity.)
Please also note that the Colorado Bankruptcy Exemptions protect a property from being taken and sold. This does necessary prevent the income generated from an otherwise exempt property from being considered in determiningeligibility or factored into the Means Test. An example of this dichotomy is income from a protected retirement account.
Knowing in advance of a bankruptcy filing what property can be liquidated by a chapter 7 trustee will allow you to protect your most cherished belongings. An experienced Denver bankruptcy lawyer, David M. Serafin will fight to ensure that you keep as much property as possible.