The Wildcard Exemption May Protect Property That Isn’t Covered By Other Exemptions
If you research bankruptcy, you know that when you file, your assets will either be classified as “exempt” or “non-exempt”. Exempt property cannot be sold or otherwise liquidated and distributed to your creditors. Conversely, the bankruptcy trustee will be on the lookout for any non-exempt property for you to turnover, so that she can sell it and pay off your creditors.
What property is exempt or non-exempt is found in state and federal law. Some states, including Colorado, are “opt-out” states, meaning that you can only use the state exemptions, most of which can be found at Colorado Revised Statutes Section 13-54-102. If you have lived in Colorado for less than 2 1/2 years, you might be able to use federal exemption law. However, that depends on the exemption law of the state you lived in previously.
What Can Be Included?
The federal bankruptcy exemptions are fairly generous and include what bankruptcy attorneys refer to as the “wildcard exemption”. Bankruptcy Code Section 522(d)(5) states that the following property is protected from creditors:
The debtor’s aggregate interest in any property, not to exceed in value $1,150 plus up to $10,825 of any unused amount of the exemption provided under paragraph (1) of this subsection.
As indicated, 522(d)(5) must be read in conjunction with Code Section 522(d)(1), which states:
The debtor’s aggregate interest, not to exceed $21,625 in value, in real property or personal property that the debtor or a dependent of the debtor uses as a residence, in a cooperative that owns property that the debtor or a dependent of the debtor uses as a residence, or in a burial plot for the debtor or a dependent of the debtor.
What that means is that if you have any equity in your home, $21,625 of it is exempt, per 522(d)(1). If you have less equity in it than that, say $10,000, you can use the remaining $11,625 to protect other property, per 522(d)(5). The benefit of the wildcard exemption is that you can use it to protect any kind of property, including cash or tax refunds, which are non-exempt under Colorado law.
Keep in mind, there is a split of authority as to whether the debtor has to own a home in order to use the wildcard exemption. This is an unsettled issue in Colorado.
Talk To A Colorado Bankruptcy Lawyer About Whether You Can Use The Wildcard Exemption
Before you file bankruptcy, you should schedule a free consultation with a bankruptcy attorney to discuss what property is protected. Surprisingly, most people keep all of their belongings.