Chapter 7 of the Colorado bankruptcy code is the most common bankruptcy and is known as a "liquidation" bankruptcy.
Debtors are entitled to "exemptions" so that they are not stripped bare in a bankruptcy filing. There are federal and Colorado bankruptcy exemptions. Exemptions not declared can be lost.
The most important exemption is the "homestead" exemption. The amount in Colorado is $60,000. So you can own a $100,000 house, owe $40,000 on a mortgage (secured creditor) then the balance of $60,000 is exempt from creditors. That equity is not exempt from the IRS if they have filed a proper lien.
Property in excess of exemptions can be liquidated for the benefit of creditors.
Elderly disabled homeowners can exempt up to $90,000 in equity - save their house and discharge their debt.
Now with the Colorado bankruptcy law effective October, 2005, if your income is approximately $47,800.00 or $66,600.00 for husband and wife, you are still qualified to file a chapter 7 liquidation and eliminate your debts.
There are certain kinds of bankruptcy claims that are not dischargeable in a chapter 7, so care must be exercised in the evaluation of the filing to weigh the potential risks in the filing. See Chapter 13.