Jerry Kopel

Homestead Law Changes

April 11, 2007

By Jerry Kopel

Slowly (about as fast as a turtle can climb a mountain) the Colorado homestead exemption increases.

If Sen. Betty Boyd (D) and Reps. Mike Cerbo (D) and Bernie Buescher (D) are successful, SB 158 will raise the homestead exemption from $45,000 to $60,000 for most readers of this column.

Are you elderly or disabled? Then the exemption is $90,000 if the home is occupied by an elderly ( 60 years or older) or disabled owner, spouse, or dependent. "Disabled" means unable to perform as homemaker, wage-earner, or as self-employed.

In the Colorado Territory, residents were well aware of creditors, economic depressions and unemployment.

Authors of our state constitution were primarily Republicans who understood the harsh realities arising from corporate scams. In fact, Article 15 of the 1876 constitution had 15 sections dealing with corporations, many of which sections have been ignored by our state Supreme Court.

Authors of the 1876 constitution wrote Article 18 which was to be the shortest Article. There are only 10 words:

"The general assembly shall pass liberal homestead and exemption laws."

"Liberal" has nothing to do with politics. In Black's Law Dictionary it means "free in giving , generous, not mean or narrow-minded, not literal or strict."

 The original homestead exemption was in our territorial law in 1868. The amount was $2,000, a not unreasonable start. Then the legislature ignored the constitutional mandate for 83 years.

The homestead exemption reached $5,000 in 1951 and then $7,500 in 1973. The exemption went to $20,000 in 1982, sponsored by Sen. Sam Zakhem (R) and Rep. Don Mielke (R); $30,000 in 1991 by Rep. Jerry Kopel (D) and Sen. Jim Rizzuto (D); and $45,000 in 2000 by Sen. Ed Perlmutter (D) and Rep. Matt Smith (R).

Of course the homestead exemption only applies to the equity in the home. Those homeowners who have taken out first and second mortgages in order to pay for the home and other needs, will likely have no equity, since the mortgages often equal the total value of the home.

The homestead exemption mostly comes into play when the debt owing arises from a tort action or medical costs. Here the equity will help the home owner get a fresh start.

In 1981, Colorado legislators decided not to use exemptions provided in federal law for bankruptcy filing by passing CRS 13-54-107, and increasing the exemptions provided by Colorado law.

A federal court decision that followed the 1981 law stated: "When Colorado revised its exemption schedules (in 1981) it sought to meet congressional criticism that most of the state exemption laws are outmoded, designed for more rural times and hopelessly inadequate to serve the needs of and provide a fresh start for modern urban dwellers."

Not everyone in Colorado who files bankruptcy will get the benefit of SB 158. In 2006, Congress passed a new bankruptcy act. In dealing with state exemptions, the act provided:

(1) You still need to be a resident for at least three months and one day.

 

(2) You have to reside in the state (such as Colorado) for about 730 days to get the general exemptions.

 

(3) You need to reside in the state (such as Colorado) for 40 months to get the homestead exemption.

 

(4) As a result, those who don't qualify for Colorado exemptions may have to depend on federal exemptions, or exemptions from a previous state residence.

 

Attorneys in Colorado specializing in bankruptcy law are not certain exactly how (4) above will work. So far, there have been no decisions in several federal cases filed in Colorado. 

In Colorado, the beneficiary of the homestead equity doesn't have to immediately buy another home. The money received must be kept in a separate account to be immune from creditors. Within the following two years, the money must be used to purchase another home and the homestead exemption follows into the new residence.

The Colorado exemption laws are not only for bankruptcy. You don't have to put in those extra years of waiting if a state court finds you owe a sum of money in a civil action. Then Colorado exemption laws apply immediately, including Article 54, part one, Title 23; Article 5, part one, Title 5; and Article 41, part two, Title 38.

There are other portions of SB 158 worth mentioning,  A legislative declaration discusses various exemptions allowed in bankruptcy without recognizing the same benefits apply in state civil actions. I would suggest removing the specific reference to bankruptcy.

The exemption for (1) articles of adornment (such as watches, jewelry) is raised from $1,000 to $2,000. Agriculture equipment is raised from $25,000 to $50,000. Stock in trade is raised from $10,000 to $20,000. Stock in trade and agriculture equipment cannot both be claimed.

The exemption for a car or bike goes from $3,000 to $5,000, but if the car is for an elderly or disabled person, the increase is from $6,000 to $10,000.

Also, there is an exemption for "Any claim for public or private disability benefits due, or any proceeds thereof, not otherwise provided for under law up to $3,000 per month."

The homestead exemption and all the other exemptions mentioned in this column take effect upon signature by the governor. 

(Jerry  Kopel served 22 years in the Colorado House.)