There are several types of exemptions that allow you to keep particular assets even if you are filing for bankruptcy. When you file for Chapter 7 in the state, you may be required to give up part or all of the money you get from any lawsuits. Your lawsuit proceeds may be exempted, meaning that you can keep them safe from bankruptcy creditors. However, Colorado has limited safety net.
Through Chapter 7, you can discharge the majority of your debts. In exchange for this wiping out your debts, however, the bankruptcy trustee may mandate that you turn over some of your property. This property will then be sold and distributed out to creditors to help pay part of all of your debts. Money that you have received from a lawsuit or settlement is typically considered part of your bankruptcy estate. This includes money you have already received, money you are waiting to receive, and money you may be entitled to receive. You need to include details about this in your bankruptcy papers even if you don’t intend to file a lawsuit at the present time or the future.
Colorado law does protect some settlement money related to compensation for damaged property, so long as it would have been protected under Colorado’s exemption laws. If you have received funds as a result of a personal injury lawsuit, you may be able to protect this award from some of the creditors in your bankruptcy. You should always consult with an attorney first before filing bankruptcy so that you know exactly what protections are afforded by bankruptcy as well as what you may be responsible for.