Colorado Bankruptcy Exemptions: Will I Lose My Vehicle(s) in Chapter 7 or 13 Bankruptcy?

September 24, 2010

By: David M. Serafin

Answer: Probably not.

During an initial consult, one of the very first questions I’m asked is whether my client(s) can keep the vehicle. Colorado bankruptcy laws, generally, allow for an exemption for motor vehicles of up to $5,000 equity per person and $10,000 equity for married couples filing jointly. This amount doubles if you’re filing for bankruptcy and are either disabled or 60 years old or over.

For example, if a married couple owns a vehicle with a value of $4,000 and another vehicle worth $6,000, with no loans for either vehicle, the Colorado exemptions provide full protection for both vehicles. For any secured car loans, simply subtract the indebtedness from the vehicle’s fair market value to determine the amount of equity.

But, what if the value of the vehicles exceeds Colorado’s exemptions? In chapter 7, the Trustee can demand that the extra, or non-exempt equity, be paid back to the Bankruptcy Estate for the benefits of the unsecured creditors, with such payments to be made in installments the duration of which we can negotiate on your behalf.

In comparison, in chapter 13, the non-exempt equity can be paid back (interest free) over the course of the 36 to 60 month payment plan. The payment of non-exempt equity (divided by 36 to 60 months) generally would increase the plan payment above that which would otherwise be paid to the Trustee based on a debtor’s disposable income. I recently filed a chapter 13 for a married couple who own 3 vehicles (their adult daughter, who lives out of state, drives the third vehicle), a boat, two snowmobiles and a trailer, and the plan payment allowed them to gradually pay back the non-exempt equity over time. (I don’t necessarily recommend keeping and paying back “luxury items” but the payment plan for this particular couple, who had little disposable income, was very modest.)

Because bankruptcy debtors, like almost everybody else in Colorado, typically use a vehicle for work, an additional “tool of trade” exemption of up to $20,000 may be taken if such vehicle is used for a trade or business. (Particularly with clients in Colorado who own their own business, we frequently take a tools of trade exemption for larger vehicles or trucks used to haul inventory and/or supplies.)

Please note that the standard vehicle exemption and the tool of trade exemptions in Colorado can simultaneously be taken in the same bankruptcy matter, such that up to $30,000 of equity (or $40,000 for the disabled or elderly) can be exempted under the right circumstances.