Protecting Your Assets in Bankruptcy: Colorado Property Exemption Laws
Property you get to keep*
The law of what has come to be called “Asset Protection” is actually a mixture of laws that allow you to keep certain property no matter what, even if you owe money to others. Every state has laws that designate specific property you get to keep so that you can continue living a productive life. That is, even if you owe a trillion dollars to someone, the law won’t make you sell the shirt off your back to pay it. And in Texas and Florida, they won’t even make you sell your million dollar mansion, or in Nevada, your gun.
These rules are called “property exemptions.” They vary from state to state. They designate what property is off limits to your ‘creditors ‘– the legal name for those who claim you owe them money.
When you fill out your bankruptcy forms (Form 6, Schedule C), you will be asked what property you claim as exempt — and a citation of the law that allows it.
This page gives you those citations and gives a brief summary of the exemption.
The help topics on the right provide additional information.
*Exemptions & “secured debts”
Note that property that is collateral for a purchase-money loan (such as a car securing a car loan or a home securing a first mortgage) is not protected by exemptions from repossession actions by that lender. Any equity you may own in the property is protected and may give you certain rights against holders of judgment liens and second or third lien holders.
Let’s repeat that first point before we go further: Exemption laws do NOT protect you from losing property if you’ve voluntarily pledged the property as security for a loan and you don’t make the payments.
Unsecured vs Secured Debts
So… for example. If you owe $30,000 to credit card companies, that debt is “unsecured”. There is no collateral attached to it. No matter what they threaten, the credit card company can’t take any of your exempt property. Likewise, most medical bills and lawsuit settlements are “unsecured” debts. If an unsecured creditor bothers to go to court get a judgment against you, they can get the court to attach a “judgment lien” to your property. But if the property is exempt, you typically can (and should) ask the bankruptcy court to remove that lien from your property (but you have to ask — its not automatic).
Continuing the example … If you were persuaded to pay off your credit cards and other unsecured debts with a lower interest, “secured” loan, say, from a loan consolidation company, you probably pledged your home equity or other property as collateral.
As a general principle, once you’ve voluntarily (i.e. through a contract or signing something) pledged your property as security for a loan, the exemption laws no longer protect you. The creditor can repossess the property you pledged regardless of whether it is protected by an exemption.
Note that this is a general principle, among other factors — more than we can go into here…. That’s why we wrote a book… Specific facts might lead the court to apply other principles to, for example, undo a recent transaction if it unfairly benefited a single specific creditor at the expense of many others.