DDS Bankruptcy Memo

What happens to my security deposit I have made on the home I am renting if I file a Chapter 7 bankruptcy?

Many debtors are not aware of what personal property is exempt under bankruptcy law and what personal property is not. Depending on whether personal property is exempt or not will determine whether the bankruptcy trustee can seize and liquidate the personal property. The bankruptcy trustee has a fiduciary duty to look out for the best interest of the unsecured creditors. Furthermore, the trustee receives or earns a percentage of the liquidated personal property. Hence, it is of the utmost importance to understand what personal property is exempt and which is not.

It is always recommended to seek out professional assistance when filing for bankruptcy. Only a bar certified attorney should be advising a potential or actual client in connection with a bankruptcy.

To return to the question listed above, pursuant to Colorado Revised Statute 13-54-102(1)(r) which reads:

For purposes of garnishment proceedings pursuant to the provisions of article 54.5 of this title, any amount held by a third party as a security deposit, as defined in section 38-12-102 (2), C.R.S., or any amount held by a third party as a utility deposit to secure payment for utility goods or services used or consumed by the debtor or his dependents...

Debtors are able to retain the security deposits that have been paid to landlords, utility companies, telecom companies and other third parties. The trustee is unable to attack the security deposit and the security deposit is not considered property of the bankrupt estate.

The importance of this exemption demonstrates how a debtor can retain monies even while discharging large sums of debt through a bankruptcy. Bankruptcies can be very advantageous depending on a personʼs set of circumstances.


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