Once your debt gets to a point where you can’t manage it anymore, bankruptcy can be the best solution because it doesn’t just give you temporary relief. Instead, it offers a potential discharge of your unsecured debt, which means a financial clean slate. You can rework your budget and rebuild your credit score with smart financial decisions.
Many people put off filing for bankruptcy far longer than they should because they worry about how bankruptcy will affect their homeownership. While it is true that Chapter 7 bankruptcy does sometimes require the liquidation of personal assets before a discharge, some of your property is exempt from liquidation. Your primary residence or homestead is one such exemption.
In other words, you can protect at least some of your home’s value when you file for bankruptcy, which may make a Chapter 7 filing a great solution with limited liability for you.
How much equity does Colorado allow you to exempt?
There are both federal and state exemptions for bankruptcy proceedings. Colorado is not one of the states that allow filers to choose between federal exemptions and state exemptions. Only the state exemptions are available.
In Colorado, an individual can protect up to $75,000 worth of accumulated equity in their primary residence in most cases. However, the amount of the exemption increases to $105,000 if the person filing is elderly or disabled, has an elderly or disabled spouse, or is an elderly or disabled dependent of the owner on record.
What happens if you have more equity than the homestead exemption allows?
As previously noted, the homestead exemption protects your equity from liquidation in Chapter 7 proceedings. If you qualify for Chapter 7 and still want to file it despite having more equity than you can protect, the courts will expect you to cash out that equity or refinance your home to use some of the accumulated value in your home to repay your creditors before they will give you a discharge.
Those who could potentially lose substantial amounts of equity may find that Chapter 13 bankruptcy might be a better choice. Talking about your needs and assets with a lawyer can help you make the best decision for resolving your unsecured debt.