Another good reason to file Chapter 13 bankruptcy is to protect non-exempt property. Many people who have faced a short-term unexpected financial catastrophe (like divorce, a failed business, or huge medical bills) have spent a lifetime accumulating property. Certain property is not protected in Chapter 7 bankruptcy. A good example would be the small business owner with a successful liquor store worth $100,000 or more; or perhaps the older couple that bought their home 30 years ago and are now sitting on a $250,000 unencumbered property.
A discussion about Chapter 7 bankruptcy exemptions is located here. However, in general, Colorado law protects the following property:
- $60,000 worth of equity in your home (or in reality, a little more than $60,000 worth of equity when the hypothetical costs of sale are calculated)
- If you are elderly or disabled, the limit is $90,000.
- $5,000 per motor vehicle for each debtor ($10,000 per debtor if elderly or disabled)
- 100% of the money held in an ERISA-qualified retirement account (for example, your 401(k) or IRA account)
- $3,000 worth of household goods per debtor (value is calculated at replacement value for like-kind goods; in other words, what would it cost to purchase a 10 year old washer today?)
- Many other exemptions specific to your situation are available.
- $20,000 in tools of the trade for self-employed debtors
- That PORTION of income tax refunds ONLY ATTRIBUTABLE to earned income tax credit or child tax credit
Depending on where you’ve lived in the past three years, the law of another state might apply which could be favorable or unfavorable to your case. Your bankruptcy attorney must carefully consider these issues before the case is filed. Indeed, we see people who balk at paying an attorney for bankruptcy then they find out at their bankruptcy hearing that they’re going to lose thousands of dollars in money or property due to that decision. Most of the time, we can find a way to protect your property in Chapter 7 but if not we can protect your property in Chapter 13 bankruptcy.