In bankruptcy, a homestead exemption protects equity in your home. Here you'll find specific information about the homestead exemption in Colorado.
Under the Colorado exemption system, homeowners can exempt up to $75,000 of their home or other property covered by the homestead exemption. The homestead exemption is $105,000 if the homeowner, his or her spouse, or dependent is disabled or 60 years of age or older.
Example 1. If you own a house worth $120,000 and you have a mortgage balance of $80,000, you have $40,000 of equity in the property. If you file a Chapter 7 bankruptcy, you can use the Colorado homestead exemption to protect your entire equity.
Example 2. If your mortgage was only $20,000, then you could only exempt $75,000 of your $100,000 of equity. In that case, the bankruptcy trustee would likely sell your house, give you $75,000 from the proceeds for your exemption and use the rest of the proceeds to pay his or her fees and your creditors.
Some states allow married couples to double the amount of their homestead exemption if they are filing a joint bankruptcy. However, in Colorado, you cannot double the homestead exemption even though you can double your other exemptions.
In Colorado, the homestead exemption applies to real property, such as your home or condominium. It will also protect a mobile home, manufactured home, or house trailer. You must occupy the property in order to take advantage of the homestead exemption.
The homestead exemption also applies to sale proceeds of the property. The sale proceeds are exempt for two years after they are received. Also, a deceased owner's spouse or children can claim the homestead exemption.
Some states allow bankruptcy filers to use the federal bankruptcy exemptions instead of the state exemptions. Colorado is not one of those states. If you reside in Colorado you must use the state exemptions.
(To learn more about which state exemptions apply to you, see Which Exemptions Can You Use in Bankruptcy?)
In Colorado the homestead exemption is usually automatic – you don't have to file a homestead declaration in order to claim the homestead exemption in bankruptcy. However, with regard to certain older obligations incurred prior to July 1, 1975, the homestead exemption may not be available unless a homestead declaration is recorded.
Colorado's homestead exemption is found in the Colorado state statutes at Colorado Revised Statutes § 38-41-201 through § 38-41-209. To learn how to find state statutes, check Laws and Legal Research.
Colorado's exemption amounts, including the homestead exemption, are adjusted periodically to account for inflation. You can find Colorado's statutes here.