Exemption Laws for Colorado Bankruptcy Cases

Exemption laws allow debtors to protect certain property from creditors and are found under federal and state law. In general, bankruptcy exemptions are determined under section 522 of the U.S. Bankruptcy Code (title 11 of the United States Code)—cited as 11 U.S.C. § 522. Section 522(d) sets forth the federal bankruptcy exemption scheme. Alternatively, property may be claimed exempt under federal non-bankruptcy law and under state or local "law that is applicable on the date of the filing of the petition" to the place used as the debtor's domicile for exemption purposes. 11 U.S.C. § 522(b)(3)(A)

If a debtor has lived continuously in Colorado for the 2 years immediately before filing bankruptcy, then Colorado exemptions apply. If not, then things get trickier. 
Under section 522(b)(3)(A) of the Bankruptcy Code, property protected for the debtor's benefit in bankruptcy includes any property exempt under:
  • Federal law other than under the federal bankruptcy exemption scheme set for under § 522(d) (for example, federal exemptions for social security benefits or qualified retirement) or 
  • State or local law applicable on the date of the filing of the bankruptcy petition to either
    • the place in which the debtor’s domicile has been located for the 730 days immediately preceding the date of the filing of the petition ("730-day rule") or
    • if the debtor’s domicile has not been located in a single State for such 730-day period, the place in which the debtor’s domicile was located either 
      • for 180 days immediately preceding the 730-day period or 
      • for a longer portion of such 180-day period than in any other place ("180-day rule").
If no state exemptions are applicable or available, then under § 522(b)(2)the federal bankruptcy exemptions listed under § 522(d) apply by default ("default rule"). For more information about how to determine which exemptions apply as well as what exemptions may be available in other states, see John R. Bates' ExemptionsExpress web site. Like much of the COBankruptcyLaw Library, the information on the ExemptionsExpress site is intended for use by attorneys and should not be used without a full understanding of the law. 

In sum, bankruptcy exemptions are based on which laws apply to the place used as a debtor's domicile for exemption purposes. The analysis starts by determining the place used as the exemption domicile before determining the applicable law.

Where is the exemption domicile? 

During bankruptcy reform in 2005, Congress wanted to discourage debtors from playing games by moving to more favorable places for bankruptcy. Before bankruptcy reform, for example, O.J. Simpson moved from California before filing bankruptcy to take advantage of an unlimited homestead exemption available in Florida. To deal with such "problems," Congress decided that, if a debtor has moved within 2 years of filing bankruptcy, the place used as the debtor's domicile for bankruptcy exemption purposes probably should not be the same as the debtor's place of residence on the date of the filing of the bankruptcy petition. 

The exemption domicile is determined by where a debtor lived for the two to two-and-a-half years before filing bankruptcy. If a debtor has lived only in Colorado for the full two years immediately before filing bankruptcy, then under the 730-day rule, Colorado bankruptcy exemptions apply without question. If a debtor has not lived in Colorado for the full 730 days before filing bankruptcy, then under the 180-day rule, the exemptions available are based on the law of the exemption domicile, which is the place where the debtor lived for the most time between day 731 and day 910 before bankruptcy – the 180 days before the 730 days prepetition. In some cases, state law may restrict whether exemptions are available to non-residents. If no state exemptions are applicable or available, then according to section 522(b)(2)the federal bankruptcy exemptions under § 522(d) apply by default. 

Residence for voting purposes is determined by C.R.S. §§ 1-2-102 and 31-10-201. Residence for motor vehicle registration purposes is determined in the same manner. C.R.S. § 42-6-139For purposes of drivers' licenses and of motor vehicle taxation and regulation in Colorado, a "resident" is defined as "any person who owns or operates any business in this state or any person who has resided within this state continuously for a period of ninety days or has obtained gainful employment within this state, whichever shall occur first." C.R.S. § 42-1-102(81).
The exemption domicile is something new since bankruptcy reform in 2005. The next concern has been around for long before that. After determining the exemption domicile, one must then determine what bankruptcy exemptions are available in that place.

Which federal or state laws apply? 

In general, bankruptcy exemptions are determined under section 522 of the Bankruptcy Code. As a starting point, exemptions used in bankruptcy cases are based on the federal bankruptcy exemption scheme listed under § 522(d) unless not authorized by applicable state law. See 11 U.S.C. § 522(b)(2)According to section 13-54-107 of the Colorado Revised Statutes (C.R.S.), exemptions "authorized to be claimed by residents of this state shall be limited to those exemptions expressly provided by the statutes of this state." C.R.S. § 13-54-107Colorado has "opted out" of the federal bankruptcy exemption scheme, so the federal bankruptcy exemptions listed under § 522(d) usually are "denied" to residents of Colorado. 

Even though Colorado has "opted-out" of the federal bankruptcy exemption scheme, any exemptions available under federal non-bankruptcy law are available to Colorado residents. See 11 U.S.C. § 522(b)(3)(A). Unlike Colorado, some states allow residents to choose between either the state exemptions or the federal bankruptcy exemptions. Finally, according to § 522(b)(2), the federal bankruptcy exemptions listed under § 522(d) apply if no state exemptions are available in a bankruptcy case. 

Are Colorado exemptions available to former residents of Colorado under section 522(b)(3)(A) of the Bankruptcy Code? 

Bankruptcy courts in other states have tried to interpret Colorado law, and some have concluded that Colorado exemptions are not available in bankruptcy to former residents of Colorado because "Colorado exemptions are limited to residents of Colorado." As of the most recent revision of this web page, there does not appear to be any Colorado law clearly stating that Colorado exemptions are limited to current residents of Colorado. Neither the homestead and exemption laws provision of the Colorado Constitution nor the personal property exemption statute makes reference to any residency requirement. The annotations to the Colorado personal property exemption statute found at C.R.S. § 13-54-102 do not cite to any court case limiting the state exemptions to current residents. Colorado law states only, in opting out of the federal exemption scheme under 11 U.S.C. § 522, that Colorado residents are limited to using Colorado exemptions and may not use the federal bankruptcy exemptions.

The provisions of § 522 specifically (and other parts of the Bankruptcy Code in general) contain qualifications on what property may or may not be exempt or protected by a debtor in bankruptcy. Advice concerning bankruptcy exemptions should only be sought from and provided by an attorney—not by a bankruptcy petition preparer, who is barred by law from providing legal advice. See 11 U.S.C. § 110 (penalty for persons who negligently or fraudulently prepare bankruptcy petitions). As stated on the web site for the U.S. Courts, "seeking the advice of a qualified attorney is strongly recommended because bankruptcy has long-term financial and legal outcomes"

Exemption Laws for Colorado Bankruptcy Cases