FAQ (Frequently Asked Questions)

Financial problems weigh heavily on most people and families. The leading cause of family disagreements that can lead to divorce are financial problems. Most people are afraid to use their federal privilege of debt relief through bankruptcy. This is the attitude your credit card companies and other creditors want you to have. You should add up your credit card payments that you have made over the years on your smallest credit card loan and see if the total of payments already made is higher than the original amount that you borrowed. You may be surprised to find out that you have already paid back triple what you borrowed but still owe more than half of the original amount. These types of loans were illegal years ago. Life happens…. loss of job, unexpected medical bills, mismanagement of money….. that’s why the bankruptcy laws exist.

No, current law allows you to keep your property subject to certain conditions. The Delaware bankruptcy laws have changed from being very inadequate to most equitable in allowing you to exempt up to $125,000 in home equity, $15,000 for automobiles, household goods and furnishings, clothing, jewelry, bank accounts, stocks and bonds, pension and 401k plans, etc.

Chapter 7 filing is the most common form of bankruptcy. It involves the appointment of a trustee who collects the non-exempt property of the debtor (if any), sells it and distributes the proceeds to the creditors. Usually, there are no assets to distribute. In Delaware  you can  keep up to $25,000 in assets, and up to $125,000 of equity in your home. This form of bankruptcy works well for unsecured debt like credit cards and medical bills. Some debts, such as alimony, child support and most taxes, are not dischargeable.

If your income is greater than the median income, in order to qualify for Chapter 7 bankruptcy, the Means Test comes into play. If it shows that you have sufficient  income to pay a significant portion of your unsecured debts, you may be required to file a Chapter 13 bankruptcy instead. The Means Test is a complex examination of your income and expenses. I don’t want to confuse you with all the details but suffice it to say that you want an experienced Delaware bankruptcy lawyer to help you figure out how best to move forward with Chapter 7 or Chapter 13.

Not all debts are eliminated when you file bankruptcy. Discharge means that the debts are forgiven and you no longer are legally obligated to repay them. The most common types of debts that survive bankruptcy are:

Student Loans

Student loans generally cannot be eliminated in a Chapter 7 bankruptcy. There are a few rare exceptions to this rule, but extreme hardship must be shown.

Most Taxes

This is a very complicated area of bankruptcy law. Some taxes may be discharged under certain circumstances.

Child Support & Alimony

Filing a Chapter 7 will not eliminate back child support or alimony obligations. It also won’t end your obligation to make these types of payments after filing.

Court Fines

DUI fines, parking tickets, speeding tickets and court fines are non-dischargeable in a Chapter 7 bankruptcy.

Divorce Decree Debts

Debts that were ordered to be paid in a Divorce decree or a family court proceeding are not discharged in a Chapter 7 bankruptcy. This includes debts that your former spouse incurred during your marriage.

Chapter 13 allows you to repay your creditors based on what you can afford.  Your creditors must accept the repayment plan according to the terms set forth by the bankruptcy court. You are protected from creditors under the umbrella of bankruptcy during the 3 to 5 year affordable payment plan designed to eliminate your debts. Chapter 13 is much more complex than Chapter 7 and it is best to know all of your options to get the best result. This is not the same as a debt consolidation loan and offers genuine debt relief with proper counsel.

A co-signer has the same protection from creditors as the person who files a Chapter 13 bankruptcy without having to file themselves. If your father co-signs on a credit card account and you then file a Chapter 13 bankruptcy, the credit card company cannot pursue your father if you are eliminating the debt in a Chapter 13 bankruptcy.

Married couples can file bankruptcy jointly, each file separately, or just one spouse files without the other. The spouse who does not file would remain obligated to creditors under any joint obligations. Chapter 13 provides protection from creditors to the non-filing spouse for joint obligations on consumer debts. Whether to file bankruptcy jointly or not depends on a number of factors, that is why over 90% of cases are filed using an experienced bankruptcy lawyer.

When you file Chapter 7 or 13 bankruptcy and get a case number, it triggers an injunction against the continuance of any action by any creditor against you.

11 U.S.C. § 362(a)

Upon the filing of a bankruptcy petition, an “automatic stay” (i.e., an automatic injunction) goes into effect. The automatic stay restrains creditors from taking certain actions against the debtor or against “property of the estate.” Under Section 541, “property of the estate” includes all legal and equitable interests of the debtor as of the filing date. The types of actions which are stayed include the continuation of litigation, the enforcement of judgments, acts to obtain possession or control of property of the estate, and acts to collect claims against the debtor.

Delaware law is difficult for a layman to read but basically you may keep $125,000 equity in your home, $15,000 for a vehicle you use for work, and $25,000 of personal property which could include cash in a checking account. In addition to this retirement accounts, 401K etc. are protected by bankruptcy in Delaware.

If you need to see all of the fine print regarding Delaware’s exempt property law visit our Exempt Property Page. There are some amusing elements to this serious subject written in this section of Delaware bankruptcy law. Below is an excerpt:

§ 4902. Exempt property.

(a) Every person residing within this State shall have exempt from execution or attachment process, or distress for rent, the following articles of personal property: The family Bible, school books and family library, family pictures, a seat or pew in any church or place of public worship, a lot in any burial ground, all the wearing apparel of the debtor and the debtor’s family.

(b) In addition to the articles specifically named in subsection (a) of this section, each person residing in this State shall have exempt the tools, implements and fixtures necessary for carrying on his or her trade or business, not exceeding in value $75 in New Castle and Sussex Counties, and $50 in Kent County.

(c) All sewing machines owned and used by seamstresses or private families, shall be exempt from levy and sale on execution or attachment process and also from distress and sale for rent. This provision shall not apply to persons who keep sewing machines for sale or hire.

(d) All pianos, piano playing attachments and organs leased or hired by any person residing in this State, shall be exempt from levy and sale on execution or from distress for rent due by such person so leasing or hiring any such piano, piano playing attachment, or organ in addition to other goods and chattels exempt by law. The owner of any such piano, piano playing attachment or organ or such owner’s agent, or the person so leasing or hiring the same shall give notice to the landlord or the landlord’s agent that the instrument is hired or leased.