In my previous blog post I described the changes to the Colorado Exemption Law effective July 1, 2015 and how it will affect the Homestead Exemption and Motor Vehicle Exemption. Some of the other exemptions that will be affected and how they affect your ability to file Chapter or Chapter 13 Bankruptcy are described below.
WHOLE LIFE INSURANCE EXEMPTION
Prior to July 1, 2015 if you had a Whole (sometimes called Variable) Life insurance policy that accumulated a cash value, you could not protect any increase in value do to payments made in the 4 years prior to filing. This caused a lot problems as many people looked at it as a savings or retirement plan. It was also very confusing and difficult to calculate the increase because you had to get a breakdown of how the insurance company allocated premium payments between the life insurance and the investment portion. As of July 1, 2015 the law has changed so that the “Cash surrender value of policies or certificates of life insurance that have been owned by a debtor for a continuous, unexpired period of forty-eight months or more, to the extent of one hundred thousand dollars…” is exempt. However, this bankruptcy exemption does not apply for “extraordinary money” contributed to a policy or certificate of life insurance during the forty-eight months prior to the filing of the Chapter 7 Bankruptcy or Chapter 13 Bankruptcy. In other words, “contributing monetary contributions or loan payments in excess of those contractually required under the policy or certificate of insurance” .The idea appears to be to prevent people from dumping extra money into the policy, or using extra money to pay down loans against the cash value of the policy in the 48 months prior to filing in an effort to protect funds that might not otherwise be protected.
The amendments to the exemption statute has increased the protection for both public and private disability benefits due, or any proceeds thereof from three thousand dollars per month to four thousand dollars per month. Any claim or proceeds in excess of this amount is subject to garnishment. For purposes of Chapter 7 Bankruptcy or Chapter 13 Bankruptcy it is still considered income when determining whether you are above or below the median income and when preparing Schedules I and J (income and expenses) of the bankruptcy petition. It also appears that if you have accumulated disability benefits over time that exceed $4,000 that the amount that you have saved over the $4,000 may be subject garnishment because the statute specifically references “proceeds thereof”. You should always segregate disability benefits and for that matter social security benefits into an account separate from other sources of income so that there is no question regarding the source of the funds and the protection afforded the funds As with all changes to the law, we will need to see how the Courts interpret the law..