Chapter 7 Bankruptcy in Colorado: What You Need to Know

Colorado is a gorgeous state. If you’re the outdoorsy type, you’ll feel right at home here among the Rocky Mountains, the desert, and river canyons. If you love a robust downtown, you’ve got Denver, which has consistently ranked as one of the top places to live in America.

With the recession brought on by the coronavirus pandemic, some in this usually prosperous state will find themselves facing financial difficulty. For example, those filing for unemployment in the hard hit hospitality industry increased by 600% in one week.

Coloradans who find themselves struggling to service their personal debts may find relief in the pages of the U.S. Bankruptcy Code.

The Bankruptcy Code is a federal law that governs the process of eliminating, restructuring, and otherwise dealing with overwhelming debt.

There are a few different forms of bankruptcy proceedings, and the Bankruptcy Code deals with each in a separate chapter. Chapter 7 bankruptcy is a popular choice for individuals. This post contains background information about filing Chapter 7 bankruptcy in Colorado, but readers should contact a Colorado bankruptcy attorney to discuss their options before seeking bankruptcy relief.

Chapter 7 Bankruptcy in Colorado: Who can file?

Bankruptcy under Chapter 7 involves the sale — or “liquidation” — of a debtor’s non-exempt property. After the non-exempt property is sold, the bankruptcy trustee uses the proceeds to pay as much of the debtor’s debts as possible. At the conclusion of the case, the debtor is discharged from liability for most remaining unsecured debts.

Although the Bankruptcy Code is a federal law that applies throughout the United States, it nonetheless allows each state to define what property is exempt from liquidation when that state’s residents file for bankruptcy. The Bankruptcy Code includes its own list of exemptions, but states can enact alternative lists. Some states have opted out of the federal list, requiring debtors to use the state exemptions when filing for bankruptcy. Others have enacted their own exemptions list, but allow debtors to choose between federal and state exemptions.

Venue in bankruptcy cases is generally determined by where the debtor has lived the longest during the 180 days prior to filing. So, a debtor who qualifies to file bankruptcy under Chapter 7 can do so in the Bankruptcy Court for the District of Colorado if he or she has lived in Colorado longer than anywhere else in the last six months.

However, filing for bankruptcy in Colorado doesn’t necessarily mean that Colorado’s law will determine what property exemptions are available. Likewise, Colorado’s list of exemptions may apply even in cases filed in other states. The Bankruptcy Code requires bankruptcy courts to apply the exemptions law of the state where the debtor lived during the 730 days (i.e., two years) prior to filing. If the debtor lived in more than one state during that time, then the court will apply the law of the state where the debtor lived for most of the six months prior to that two-year period.

See also: How Often Can You File Bankruptcy in Colorado?

Colorado Bankruptcy Exemptions Must Be Used

Under C.R.S. § 13-54-107, Colorado has opted out of the federal bankruptcy exemptions. Consequently, debtors whose bankruptcy cases will use Colorado law to determine exemptions must use the Colorado exemptions. They cannot choose to use the Bankruptcy Code’s federal exemptions instead.

Below are some of the major bankruptcy exemptions provided by Colorado law. Bear in mind that when Colorado limits an exemption to a specified “value,” it is referring to the owner’s equity in the property. The owner’s equity is equal to the fair market value of the property less the amount of any lien on it.

If the debtor’s equity in otherwise-exempt property exceeds the exemption limit specified by law, then that property can be sold by the bankruptcy trustee. However, in that case, the debtor would be entitled to a part of the sales proceeds equal to the exemption amount.

Colorado Bankruptcy Exemptions

Colorado Homestead Exemption

Colorado exempts a debtor’s home up to a value of $75,000, or up to a value of $105,000 if the debtor, the debtor’s spouse, or a dependent of the debtor who lives in the home is at least 60 years old or disabled.

Example: Peter owns a house that is worth $200,000, but subject to a $130,000 mortgage. Accordingly, Peter’s equity in the house is only $70,000. Given the exemption amounts described below, Peter can exempt his house from liquidation.

Colorado Vehicle Exemption

C.R.S. § 13-54-102(1)(j)(I) provides an exemption for up to two motor vehicles or bicycles kept and used by the debtor, up to an aggregate value of $7,500. If the debtor, the debtor’s spouse, or a dependent of the debtor is at least 60 years old or disabled, the exemption applies up to an aggregate value of $12,500. However, subsection (j)(III) clarifies that this exemption does not apply to “snowmobiles, all-terrain vehicles, golf carts, . . . watercraft, travel trailers, tent trailers, or motor homes.”

Colorado Personal Property Exemption

Numerous other items of personal property are exempted by Colorado law under several subsections of C.R.S. § 13-54-102. They include:

• (1)(a): Necessary clothing up to a value of $2,000.
• (1)(b): Watches, jewelry, and similar items up to a value of $2,500.
• (1)(c): A library, family pictures, and school books to the extent of $2,500.
• (1)(e): Household goods — such as furniture, dishes, appliances, musical instruments, and home electronics — to the extent of $3,000.
• (1)(i): The stock in trade, supplies, fixtures, equipment, and other business property used to carry on the debtor’s gainful occupation. If the gainful occupation is the debtor’s primary gainful occupation, this exemption covers up to $30,000; otherwise, it covers up to $10,000.
• (1)(p): Professionally prescribed health aids.

Colorado Wages Exemption

Under C.R.S. § 13-54-104(2)(a)(I), at least 75% of weekly disposable earnings is exempted. Disposable earnings are the sum of compensation for personal labor or services and funds held in or payable from any health, accident, or disability insurance, minus any amounts required by law to be withheld.

Additionally, C.R.S. § 13-54-102(1)(h) exempts any money received as a pension, compensation, or allowance arising out of a person’s services in the armed forces during a time of war or armed conflict.

Colorado Pensions/Retirement Accounts Exemption

C.R.S. § 13-54-102(1)(s) exempts property, including funds, held in any pension, retirement, or deferred compensation plan, including ERISA plans, IRAs, Roth IRAs, and 401(k) plans.

Colorado Bankruptcy Court Location

Chapter 7 bankruptcy cases in Colorado are filed in the United States Bankruptcy Court, District of Colorado. It has one location:

Street address: 721 19th St., Denver, CO 80202

Telephone: (720) 904-7300

Website: http://www.cob.uscourts.gov

While you may be tempted to file bankruptcy by yourself, there are more than a few reasons as to why a pro se bankruptcy is a bad idea. Consult with an experienced bankruptcy attorney today for a free debt evaluation: 877-280-4299.

Rob Cohen

Rob Cohen, the Managing Partner of Cohen & Cohen P.C., is a bankruptcy attorney that practices in Colorado and Wyoming. He serves as a Chapter 7 Bankruptcy Panel Trustee, and has to date administered over 8,000 Chapter 7 bankruptcy estates. Rob is a Certified Consumer Bankruptcy Specialist, and was nominated for Denver Business Journal’s 40 under 40 in both 2014 and 2016.