Filing for bankruptcy can give you a financial fresh start; individuals typically file under Chapter 7 or Chapter 13. Bankruptcy is governed by federal law, not Delaware state law, though some aspects of your bankruptcy case may be state-specific. For example, Delaware bankruptcy cases must be filed in the United States Bankruptcy Court for the District of Delaware, located in Wilmington.
Chapter 13 Basics
Chapter 13 bankruptcy is, in some ways, like a consolidation loan. As the filer, you submit a proposed repayment plan to the court, and if the court approves your plan, you will make payments to a court-appointed bankruptcy trustee who distributes your payments to your creditors. You must also complete credit counseling and submit schedules of your income, assets, liabilities and expenses. Not everyone qualifies to file under Chapter 13. To qualify, your debts must be below a certain level, and you must also earn a regular income from which you can make payments toward your plan.
Once you file your Chapter 13 bankruptcy case, you receive an automatic stay that postpones creditor collection efforts against you. The bankruptcy court sends notices to your creditors that your case was filed and that a stay is in place. There are a few exceptions to this stay, such as criminal charges and domestic support cases, but most creditors cannot start or continue collection actions, including contacting you to demand payment. Your automatic stay also keeps creditors from trying to collect from your co-debtors on consumer debts.
If you were facing foreclosure prior to filing, the automatic stay pauses the proceedings. At the same time, your repayment plan gives you the chance to catch up on your past-due mortgage payments. Often, Chapter 13 filers are able to prevent foreclosure entirely.
Every state has a list of property that is exempt from a person’s bankruptcy estate for both Chapter 7 and Chapter 13 proceedings. In Chapter 13 cases, these exemptions help determine the total value of assets available to pay your creditors. Unlike many other states, Delaware law requires you to use Delaware's state exemptions rather than the federal exemption list. Exempt property includes personal items, such as clothing and books, vehicles, certain retirement accounts, and up to $50,000 in home equity. Aside from home equity and retirement accounts, the maximum amount in exemptions individuals may receive is $25,000; married couples are limited to a maximum of $50,000.
Since your repayment plan takes place over a three to five year period, your Chapter 13 case will take at least that long to complete. At the end of your case, once you’ve finished all Chapter 13 requirements, including financial counseling, the court grants a discharge of your remaining unpaid debts. However, some debts do not qualify for discharge, such as certain taxes, student loans and domestic support, but the discharge can eliminate your responsibility to repay other debts, even if the debt was only partially paid through your repayment plan.