There are two common types of bankruptcy that individuals can file, Chapter 7 and Chapter 13. The main difference between them is that in Chapter 7, your unsecured debts are all wiped out, whereas in Chapter 13, you must create a repayment plan to pay off those debts.
Chapter 7 bankruptcy is commonly known as ‘liquidation bankruptcy’ because the state can seize eligible property that you own to pay off some or all of your debts.
So one of the biggest questions people have is what they are allowed to keep when they file for Chapter 7, and what property can be liquidated.
The biggest advantage you have in filing Chapter 7 is that you can wipe away all unsecured debt such as medical bills, bank loans, credit card debt, deficiency judgments and phone bills.
But Chapter 7 bankruptcy doesn’t absolve you of debts like alimony, student loans, court fines, child support and most types of unpaid taxes.
We think it’s important for you to understand exactly what you can keep if you file for Chapter 7.
Property You Can Protect In Chapter 7 Bankruptcy
In Colorado, state law allows you to protect some property from liquidation, but there are specific conditions.
For example, if you own a home and you are not behind on your payments, you may be able to keep your house if it has equity, which means that your home is valued at higher price than what you still owe on it.
Colorado considers equity as an asset, which theoretically means that the state can seize your home for sale in a Chapter 7 bankruptcy, but the Homestead Exemption gives you $60,000 in equity that is protected, which increases to $90,000 for the disabled or the elderly.
This means that if you have more than $60,000 of equity, the exemption lets you keep your home. However, any equity less than this amount means that the state can sell your home to pay off a creditor.
State law also lets you protect vehicles under specific conditions.
The exemption for vehicles in Colorado is $5,000 for able-bodied applicants, and $10,000 for the disabled or the elderly. So if you own a car that is worth $30,000, and your loan is $15,000, your equity in the vehicle is $15,000, which means you can keep the vehicle.
Hire A Law Firm With Experience
Filing for Chapter 7 bankruptcy can be a traumatic experience, even though it can help you wipe the slate clean and get a fresh start. To ensure that you file your application properly, and that you’re aware of all the implications and consequences of Chapter 7 bankruptcy, it’s important that you hire an experienced lawyer who can provide you with sound advice and recommend the best course of action. The law office of Kinnaird & Kinnaird P.C. has helped hundreds of clients navigate their way through bankruptcy and emerge on stronger financial footing. Please contact us today to schedule a consultation.