In bankruptcy, a homestead exemption protects equity in your home. Here you'll find specific information about the homestead exemption in Colorado. For general information about how the homestead exemption works in both Chapter 7 and Chapter 13 bankruptcy, read The Homestead Exemption in Bankruptcy. You'll find detailed information about Colorado bankruptcies in Filing for Bankruptcy in Colorado.
Under the Colorado exemption system, homeowners can exempt up to $250,000 of their home or other property covered by the homestead exemption. The homestead exemption is $350,000 if the homeowner, spouse, or dependent is disabled or 60 or older. In Colorado, spouses cannot double the homestead exemption.
Example 1. If you own a house worth $370,000 and have a mortgage balance of $330,000, you have $40,000 of equity in the property. If you file a Chapter 7 bankruptcy, you can use the Colorado homestead exemption to protect all equity.
Example 2. Assume your mortgage is only $20,000 and can only exempt $250,000 of your $350,000 of equity. The Chapter 7 bankruptcy trustee would likely sell your house, give you $250,000 from the proceeds for your exemption, and use any amount remaining after deducting sales costs to pay unsecured creditors. If you wanted to keep the home, you could file for Chapter 13 and pay the $100,000 nonexempt equity portion to unsecured creditors through the Chapter 13 plan.
In Colorado, the homestead exemption applies to real property, such as your home or condominium. It will also protect a mobile home, manufactured home, or house trailer. You must occupy the property in order to take advantage of the homestead exemption.
The homestead exemption also applies to the sale proceeds of the property. The sale proceeds are exempt for two years after they are received. Also, a deceased owner's spouse or children can claim the homestead exemption.
Some states allow bankruptcy filers to use the federal bankruptcy exemptions instead of the state exemptions. Colorado is not one of those states. If you reside in Colorado, you must use the state exemptions. Find out more about choosing the correct bankruptcy exemptions.
In Colorado, the homestead exemption is usually automatic, and you don't have to file a homestead declaration in order to claim the homestead exemption in bankruptcy. However, with regard to certain older obligations incurred prior to July 1, 1975, the homestead exemption might not be available unless a homestead declaration is recorded.
Colorado's homestead exemption is found in the Colorado Revised Statutes § 38-41-201 through § 38-41-209. To learn how to find state statutes, check Laws and Legal Research.
Colorado's exemption amounts, including the homestead exemption, are adjusted periodically for inflation. You can find Colorado's statutes here or consult a bankruptcy attorney for the current homestead amount.
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