Using the Colorado Homestead Exemption in Bankruptcy

In Colorado a homeowner is entitled to a $75,000 homestead exemption on the home he owns and occupies. If the homeowner or his or her spouse is 60 years of age or over, or disabled, the homestead exemption is $105,000. So, how does the homestead exemption protect your home when you file bankruptcy? Basically, it means you get to keep $75,000 or $105,000 in equity on your home.

Let’s say, for example, you are 60 years old, your home is worth $505,000 and you have a mortgage of $400,000 and no other liens. Your home then, has equity of $105,000. Hence, the homestead exemption protects you from your home being sold in a Chapter 7 bankruptcy because the homestead exemption covers the entire amount of the home equity. It also protects you in a Chapter 13 bankruptcy. How? In a Chapter 13 bankruptcy you are required to pay unsecured creditors in the Chapter 13 plan at least the amount they would receive in a Chapter 7 bankruptcy. In this instance the Chapter 13 Trustee cannot assert that additional money should be put into the plan because the home is exempt.

What happens when the equity exceeds the homestead exemption? In many cases a Chapter 13 bankruptcy may be preferable to a Chapter 7 bankruptcy. Discuss your situation with an experienced bankruptcy attorney. Call LONG & LONG P.C. now at 303-832-2655.