Colorado Debt Relief: Your Guide to State Laws and Managing Debt

If you have debt in Colorado — whether it’s outstanding student loans, credit card balances that got out of control or hefty medical bills you didn’t plan for — you are far from alone. Americans are increasingly spending more of their disposable income and falling short on saving for retirement, and their debt problems aren’t going away.

However, the debt picture for Coloradans is bleaker than it is in many other states. As you can see from the table below, Colorado ranks in the top 10 states for the amount of credit card, mortgage and student debt per capita that residents carry on average.

In this article, we’ll cover what you need to know about managing debt in Colorado, including debt relief programs and resources, dealing with debt collectors and paying down what you owe.

• Debt in Colorado: At a glance
• Debt collection in Colorado
• Colorado debt relief programs
• Payday lending laws in Colorado
• Tips to tackle debt in Colorado
• Filing for bankruptcy in Colorado
• The bottom line

Debt in Colorado: At a glance

Debt collection in Colorado

If your bills are way past due, your creditors may sell your debts to a collector or collection agency, a third-party individual or company that buys outstanding debt and tries to collect what’s owed.

The Fair Debt Collection Practices Act (FDCPA) is a federal law that determines how and when debt collectors can contact you. The law also defines what information a collector must provide you about your outstanding debt, including the name of your creditor and how much you owe.

While the FDCPA offers general guidelines, most states have their own debt collection laws — and they’re a little different in every state. Some offer more consumer protection than others, and they vary in terms of licensing and regulating collection agencies.

Colorado has several codes in place to protect consumers and regulate debt collection practices. The Colorado Fair Debt Collection Practices Act prohibits collection agencies from harassing borrowers or using unfair or misleading tactics to collect debts. Plus, it stipulates that collectors cannot continue to bug you about a debt if you are complying with a payment agreement.

Additionally, Colorado residents do have some cover for their income and assets in the case of collection actions. Basically, a certain amount of the value your house, car and wages (as well as other types of property) is safe from creditors in the state: $75,000 of your home, $7,500 of your car and 75% of your income. Colorado does not offer any protection or exemptions for bank accounts, which means those funds are fair game for collection efforts.

Responding to collection letters

If you get calls or letters from debt collectors, first stop and take a breath. It won’t help to ignore them, but acting too rashly could also be detrimental. Some collection efforts are inaccurate or invalid, as debt collectors often have very little information and may pursue you for debts that aren’t yours or already have been discharged.

Here’s how to respond to collection letters:

1. Don’t ignore them. Ignoring calls and letters won’t make them go away. You’ll want to get the details of the collection request to decide how to handle it. Don’t give away any personal information or accept any special offers from collectors.
2. Validate the debt. This means verifying with the original creditor (not the collector) that the debt belongs to you and was never paid — and confirming the date and amount of the bill. This forces the collector to provide details and prove that its claim is accurate. You can send a validation letter requesting the information, which also creates a paper trail. If you do this in writing within 30 days of receiving notice of your debt, the collector cannot pursue you any further until they provide you with this information.
3. Make sure the debt is collectible. Review the statute of limitations for Colorado, which we discuss below. This can help you decide whether and how much to pay off.
4. Work out a payment plan. If the debt is yours and you’re legally required to pay it, you may be able to work out an agreement with the collection agency. Some may accept less than what you owe to settle, while others will negotiate terms you can afford.
5. Send a cease and desist letter (if the debt isn’t yours). If collectors continue to call about a debt that doesn’t belong to you, send a letter asking them to stop.

If you’re being harassed by debt collectors, you can file a complaint with Colorado’s Office of the Attorney General, the Federal Trade Commission (FTC) and/or the Consumer Financial Protection Bureau (CFPB).  

Understanding Colorado’s statute of limitations

The statute of limitations is the time within which a debt collector can sue you for unpaid debts. After this period expires, the court can no longer order you to repay your old debt, and in most cases, it doesn’t make sense to do so.

In Colorado, most types of debt have a statute of limitations of six years. The exception is debt on your auto loan, which has a statute of limitations of just four years.

Once the statute of limitations passes, the debt becomes time-barred. Debt collectors can no longer garnish your wages or place a lien against your home or car. You still legally owe these debts, however, and collectors can still hound you with calls and letters in an attempt to get you to pay.

This is where it’s important to be careful not to make a payment on debt that has outrun its statute of limitations. The reason for this is that paying even a small amount on a time-barred debt can bump your statute-of-limitations timeline back to zero — and enable collectors to sue you. And you can bet they’ll continue to hound you for time-barred debts in hopes that you’ll do just that.

If you’re contacted about an old debt, or if you are served with a lawsuit, don’t act until you can speak with a credit counselor or an attorney about the best course of action. In general, paying off old debts in collections won’t do your credit much good, even if the debts haven’t yet passed their statute of limitations. So weigh your priorities carefully when choosing whether to throw extra funds toward paying off older debts or newer ones.

Colorado debt relief programs

Tackling your debt — or simply knowing where to begin — may seem like an overwhelming task, but you don’t have to go it alone. Seek out nonprofit organizations, as well as Colorado-based and national resources, that help with debt relief.

You can find local nonprofit credit counseling agencies through the National Foundation for Credit Counseling (NFCC) for help with budgeting and managing your debt. Organizations like Denver-based mpowered offer financial education classes. If you need legal assistance with financial issues, the Colorado attorney general’s office refers you to the nonprofit Colorado Legal Services.

The Colorado Uniform Debt Management Services Act (DMSA) regulates debt relief programs in the Centennial State, including setting rates for credit counseling services and disclosure requirements for providers. You can file a complaint with the state if a debt management provider violates your rights, and you may also be able to sue for damages.

In addition to nonprofit credit counselors, there are some national debt relief companies that will negotiate with your creditors for a fee. With this approach, you usually put money into an escrow account (instead of paying lenders directly) while the organization works to settle your debt for less than what you owe. Beware of companies that offer special “deals,” charge upfront fees or make bold promises that seem unrealistic.

Here are a few of the debt relief companies that can help settle your debt:

• National Debt Relief: National Debt Relief is among the most transparent debt relief companies when it comes to fees — though not necessarily the cheapest. It serves customers in 41 states and charge 20-25% for settlement of debts of $7,500 or more.
• Accredited Debt Relief: Accredited Debt Relief doesn’t directly settle debt — instead, it matches you with a debt relief company if you live in one of the 18 states it serves. Expect to pay 5-7% per year in fees.
• New Era Debt Solutions: New Era Debt Solutions will work with you on accounts for which you have at least $750 in debt. It serves 43 states and charges 14-20% in fees.

Nonprofit credit counseling agencies have a more holistic approach to debt management, so weigh your options before you pay for relief or settlement services.

Payday lending laws in Colorado

If you’re in debt, it’s tempting to take any steps necessary to pay off what you owe. While a payday loan may seem like a quick and easy fix, it’s likely to keep you trapped in debt longer.

Payday loans provide fast cash (usually in small amounts) at sky-high interest rates and with short repayment terms. Here are the basics for payday loans in Colorado:

• Maximum loan amount: $500
• Maximum loan term: None (minimum loan term is six months)
• Finance charges: 36% annual percentage rate (APR)

As the name implies, payday loans are designed to cover you from one paycheck to the next. In many states, this means the maximum loan term is anywhere from two to four weeks. You’re generally required to write a postdated check or provide the lender access to your bank account.

Colorado gives borrowers at least six months to pay off these loans, which makes it less likely that you’ll have to default or renew. While payday lenders could previously assess monthly maintenance fees and finance charges in addition to interest, Colorado voters approved a measure in November 2018 capping payday loan rates (including fees) at 36%. The new rule took effect on Feb. 1, 2019.

Some states prohibit payday lending altogether, and we don’t recommend it as a viable solution for your financial troubles.

Tips to tackle debt in Colorado

If you have troublesome debt, you aren’t without options. Depending on the type of debt you’re carrying and how much you owe, there are several repayment strategies to consider.

Consolidate your debt

One option to consider is debt consolidation. With this option, you’ll roll one or more unsecured debts, such as outstanding medical expenses or credit card balances, into another form of debt. Personal loans are common vehicles for debt consolidation.

This is a good option if you’re overwhelmed by numerous debt payments, as debt consolidation can offer more manageable monthly payments and fewer checks to write each month. Plus, debt consolidation may also come with lower interest rates. Consolidating your debt can potentially also boost your credit score by lowering your utilization rate.

The downside of a debt consolidation loan is that you’re still taking on more debt, even as you pay some off. You have to make regular payments, and you’ll owe interest — personal loans may come with high APRs if you have poor credit. Also, keep in mind that while consolidation works well for a lot of unsecured debt, it may not be the best option for other types, including auto and student loans.

Refinance

If you have a mortgage or car loan, you may be able to tackle some of your debt through refinancing. The idea here is that you could potentially get a new loan with a lower interest rate, or possibly longer term, which would lower your current monthly payments and help you budget in the short term.

Student loans are also good candidates for refinancing. If you have better credit than when you first took out the loan, you could end up with a much better rate. Keep in mind, though, that refinancing your federal student loans disqualifies you from loan forgiveness programs.

Another possibility is a cash-out refinance, which replaces your existing home loan with a new, larger loan (more than you need to pay off your mortgage) and gives you most of the difference in cash. You can use the funds to pay off other debts. The benefit here is that you may be able to get a lower interest rate because it is secured by your home. The downside is that you may have to pay surcharges on the total loan amount — plus, if the refinance increases your loan-to-value ratio significantly, you could get stuck with mortgage insurance.

Of course, there are costs to refinancing, and using your property as collateral, especially for additional unsecured debt, is risky. But if you’re able to qualify and also lower your interest rate, this could be a less expensive option in the long run.

Use a balance transfer card

If your primary debt is on one or more credit cards, a balance transfer card may be the best option for debt consolidation. The idea is to roll over your balances on high-interest cards to a low- or zero-interest card. The best-case scenario is a promotional 0% APR for 12 to 21 months.

Eliminating interest for a period of time sounds like a good deal, but keep in mind that you’ll only be eligible for a promotional offer if you have decent credit. If you are able to qualify, know that these cards may have balance transfer fees, typically around 3%. If you don’t pay off your balance before the promotional period ends, you could get hit with deferred interest on the entire transfer amount.

That said, some balance transfer cards come with additional perks, like travel points and sign-up bonuses. There’s no penalty for paying off your debt quickly if you’re able to, not to mention the relief that comes with cutting down or eliminating hefty interest payments.

Filing for bankruptcy in Colorado

Bankruptcy sounds scary, but for some, it’s a useful option to wipe the financial slate clean and recover more quickly from credit woes. If your debt feels overwhelming, talk to a credit counselor or an attorney about whether filing for bankruptcy is the right strategy for you.

Chapter 7 is the most common type of bankruptcy for individuals (it comprises more than 60% of non-business filings). Chapter 13 is the other common option.

Here’s the difference: In Chapter 7 bankruptcy, your assets are liquidated, or sold, to repay your creditors, and most of your debts are erased in short order. If you file for Chapter 13, on the other hand, you get to keep your property and instead are required set up a payment plan with your creditors that lasts three to five years.

You don’t necessarily get to choose between Chapter 7 and Chapter 13. For example, you have to pass a means test to qualify for Chapter 7. This determines whether you can afford to repay a portion of your debts. If you can’t, Chapter 7 may be the right option for you. But if you do have the ability to pay back your creditors, you aren’t eligible to file for Chapter 7. As long as you meet several specific legal and practical requirements, Chapter 13 may be a better option.

If you’re considering bankruptcy, you should understand the risks and benefits of each type and how they will affect your long-term financial health. For example, while a Chapter 7 filing gets rid of your debts in a few months, the bankruptcy itself remains on your credit report for up to 10 years. With a Chapter 13 bankruptcy, you keep your car, house and other property, but you have to make payments on what you owe. Chapter 13 bankruptcy will remain on your credit report for up to seven years.

The District of Colorado of the U.S. Bankruptcy Court offers bankruptcy information and resources for residents, and the Denver Bar Association has monthly clinics for those taking a DIY route to bankruptcy. If you’d prefer professional representation, you can search for an attorney through the Colorado Bar Association as well as low-cost or pro bono help via Colorado Legal Services, Metro Volunteer Lawyers and other local legal aid organizations.

The bottom line

Coloradans are no strangers to debt, but that doesn’t mean debt is inevitable or unmanageable. There are debt relief options for Colorado residents so you don’t have to accept your current situation or continue to dig yourself deeper into debt.

The information in this article is accurate as of the date of publishing.