Colorado Bankruptcy Law and How It Affects Your Vehicle

Colorado bankruptcy law can have a significant impact on various assets, including your vehicle. Understanding how these laws function can help you make informed decisions about managing debt, especially when it relates to your vehicle.

In Colorado, filing for bankruptcy can allow individuals to either reaffirm their debts or discharge them completely. When it comes to vehicles, this median can significantly influence your financial obligations and how you can retain or relinquish your car.

Types of Bankruptcy in Colorado

There are primarily two types of bankruptcy filings for individuals in Colorado: Chapter 7 and Chapter 13.

Chapter 7 Bankruptcy: This type of bankruptcy allows for the discharge of unsecured debts. However, it involves liquidating some assets to repay creditors. Colorado has exempt property laws that may allow you to retain your vehicle if its equity falls under a certain limit.
Chapter 13 Bankruptcy: This type involves creating a repayment plan to pay back all or part of your debts over three to five years. Under this plan, debtors can often retain their vehicles, provided they continue making the agreed payments.

Vehicle Exemptions in Colorado

When filing for bankruptcy, it’s crucial to understand the vehicle exemptions in Colorado. Under state law, individuals can exempt a certain amount of equity in their vehicle:

As of 2023, the vehicle exemption allows you to protect up to $15,000 of equity in one vehicle, or $30,000 if the vehicle is used for work-related purposes.
If your vehicle’s equity exceeds these amounts, it may be subject to liquidation in a Chapter 7 bankruptcy.

To determine your equity, subtract any outstanding loan balance from the current market value of your vehicle. If the equity falls below the exemption thresholds, you can typically retain the vehicle.

Reaffirmation Agreements

In both Chapter 7 and Chapter 13 bankruptcies, you may choose to enter into a reaffirmation agreement for your vehicle loan. This agreement allows you to keep your vehicle while continuing to make payments on the loan. It’s essential to carefully consider this option, as reaffirmation means you are agreeing to remain liable for the debt after bankruptcy.

Impact on Vehicle Loans

Filing for bankruptcy can also affect existing vehicle loans in several ways:

If you choose to retain your vehicle, you must remain current on payments to avoid repossession.
In Chapter 13 bankruptcies, vehicle loan holders must be aware of how the repayment plan impacts their total owed, as the court will prioritize debts during the repayment period.
Creditors may also review your credit history during and after the bankruptcy process, which can impact your eligibility for new vehicle loans in the future.

Conclusion

Navigating Colorado bankruptcy laws requires careful attention to how they affect your vehicle and other assets. It’s essential to consider your financial situation, the equity in your vehicle, and how best to protect your interests during the bankruptcy process. Consulting with an experienced bankruptcy attorney can provide clarity and ensure you make informed choices regarding your vehicle and overall financial health.