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The importance of claiming exemptions in personal bankruptcy

Debt can be a scary thing to deal with for Colorado residents. When missed payments start to multiply, interest begins to accumulate and collection agencies come calling, individuals may fear the worst.

Individuals may also be afraid of filing for bankruptcy, out of the thought that they will lose the property they have worked so hard to obtain. While certain forms of personal bankruptcy involve liquidating a person's assets, like Chapter 7, individuals have some recourse to be able to hold back certain property from the process and retain ownership of it.

The property that is held back from bankruptcy, and therefore out of reach of creditors, is called exempt property. Typically, exempt property includes certain things like a set amount of value in a home or automobile, as well as personal effects like clothing and jewelry.

The Bankruptcy Code lists several exemptions that debtors are able to take advantage of, although states are able to choose their own exemptions instead of using the exemptions set forth under federal law. Colorado is one such state that has chosen to enact statutes defining what property is exempt.

While exempt property is addressed by Colorado's statutes, there are still decisions that must be made by individuals in this process. Individuals must claim the exemptions when filing for bankruptcy, otherwise the exemptions may be lost and the property could be at stake in the bankruptcy.

Accordingly, it is important that individuals carefully think through the exemptions they will claim, which can be easier said than done. Because of the importance of claiming exemptions, and knowing what property is exempt and how much the exemption is worth, individuals are urged to consult with a bankruptcy attorney.

Source: United States Bankruptcy Court, District of Colorado, "Frequently Asked Questions," accessed on July 26, 2014

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