What Are the Delaware Bankruptcy Exemptions?

What Are the Delaware Bankruptcy Exemptions and Why Do They Matter?

If you're thinking about filing Chapter 7 bankruptcy in Delaware, it's important to understand how bankruptcy exemptions work. Exemptions are laws that let you protect certain property — like your car, your home, or your personal belongings — up to specific dollar amounts.

This matters because, in a Chapter 7 case, the bankruptcy trustee can sell your nonexempt property to help pay off your unsecured debts, like credit cards or medical bills. But that doesn't mean you lose everything. Bankruptcy laws are designed to give you a fresh start, not leave you with nothing.

Exemptions help you keep the things you need to live and work. This might include your bed, your clothes, your kitchen appliances, or a modest car. These are the basics that allow you to move forward once your case is over.

That said, exemptions don’t usually cover luxury items or extra property like vacation homes or valuable collectibles. Property that isn’t protected by an exemption may be sold by the trustee, with the money going to your creditors.

Can You Use Federal Bankruptcy Exemptions in Delaware?

No, Delaware doesn’t allow you to use the federal bankruptcy exemptions. Each state has its own set of bankruptcy exemptions, and states get to decide whether to offer the federal exemptions as an option. Only a handful of states do. Delaware, like most states, has opted out.

If you're filing for bankruptcy in Delaware, you'll use Delaware’s state exemptions. However, some people also qualify to use certain federal nonbankruptcy exemptions. These are separate from the main federal bankruptcy exemptions and may help protect things like veterans' benefits or Social Security income, depending on your situation.

There’s one exception where you might not use Delaware’s exemptions, even if you live there now. If you moved to Delaware less than two years ago, you may have to use the exemptions from the state you lived in before.

If you haven’t lived in Delaware that long, you'll need to figure out where you lived during the 180 days (about six months) before that two-year mark. The state where you lived for the majority of that six-month window is usually the one whose exemptions you'll need to use.

What Are Delaware's Bankruptcy Exemptions?

Under the Delaware state exemptions, married couples filing jointly can double the exemption amount for some exempt property when they both have an ownership interest, including motor vehicles and tools of the trade. They can’t double the exemption of their homestead. The exemption limit stated below has the same ceiling, whether you file as an individual or jointly. 

Delaware Homestead Exemption

Delaware offers a very generous homestead exemption to protect the equity in your home. With this exemption, you can protect up to $200,000 of equity in real property or a manufactured home used as a principal residence.

Additionally, any interest that a debtor has in real estate held as a tenant by the entirety is exempt under the homestead provision. Keep in mind that married couples can’t double this exemption. 

Also, this homestead exemption is completely unavailable if the debtor owes a debt arising from:

• A violation of state or federal securities law

• Fraud, deceit, or manipulation in a fiduciary capacity or in connection with the purchase or sale of a security registered under federal law

• Any criminal act, intentional tort, or willful or reckless misconduct that caused serious physical injury or death to another individual in the prior five years

Motor Vehicle Exemption

Delaware filers can protect up to $25,000 of equity in a motor vehicle, if necessary for your employment. Married couples filing jointly can each protect one vehicle for this purpose, up to the stated amount. 

Personal Property Exemptions

Delaware protects up to $25,000 total in equity for most of your personal and real property, not including your primary home or retirement accounts. This means that everything else you own—like furniture, electronics, tools, vehicles, and non-homestead real estate—has to fit within that $25,000 limit to be protected in a Chapter 7 case.

However, some personal items are fully protected under Delaware law no matter how much they're worth. These items don’t count toward the $25,000 limit and include:

• A family Bible and other personal books

• Family photos

• A pew or seat in a place of worship

• A burial plot

• Clothing for you and your family

• A sewing machine or piano for personal use

If you have property that falls outside this list, it may count toward your $25,000 exemption total. Since this exemption has to cover everything from your car (if it’s not fully covered elsewhere) to your household goods, it's important to get a clear picture of what you own and how much it's worth.

Miscellaneous Personal Property Exemptions

Delaware does allow exemptions for tools necessary for your business up to $15,000. As indicated above, these tools of the trade can include your car.

Delaware exemptions also cover the property rights of a business partnership in full.

Delaware also offers a minimal wildcard exemption of an additional $500 for any other personal property if the filer is the head of household. They can’t, however, apply this to tools of the trade.

Money Benefits

Property that you can protect in bankruptcy does not have to always be physical, tangible property. Property can also encompass certain types of money payments or benefits. 

For example, Delaware filers can protect up to 85% of any earned but unpaid wages. Del. Code Ann. tit. 10, § 4913) Also, any funds set aside in an educational savings plan like Delaware college investment plan accounts or Delaware ABLE accounts can be exempt. Del. Code Ann. tit. 10, § 4916. There are some limits to this, however, in that any funds contributed in the year before filing for bankruptcy that exceeds either $5,000 or the average of the two years of contributions, whichever is higher, are not exempt. 

For the college investment plan, you can only protect up to the amount allowed in the Internal Revenue Code. That amount, however, is not a specific dollar amount, rather you are limited to not contributing excessively beyond the amount needed to provide for the qualified higher education expenses of the beneficiary. (Internal Revenue Code § 529(b)(6))

The below life insurance and insurance benefits or proceeds are protected in full or to the amount stated:

• Life insurance proceeds, group life insurance policy or proceeds, and life insurance proceeds if the policy prohibits using them to pay creditors. (Del. Code Ann. tit. 18, § 2725, 2727, 2729)

• Annuity contract proceeds to $350 per month. (Del. Code Ann. tit. 18, § 2728) 

• Fraternal benefit society benefits. (Del. Code Ann. tit. 18, § 6118)

• Health or disability benefits. (Del. Code Ann. tit. 18, § 2726)

Other Delaware Exemptions

Filers in Delaware can also rely on the following public benefits being protected in full. This is the case for all residents of Delaware, whether or not they happen to be in bankruptcy:

• Aid to the blind (Del. Code Ann. tit. 31 § 2309)

• Aid to aged, disabled, AFDC, general assistance (Del. Code Ann. tit. 31 § 513)

• Unemployment compensation (Del. Code Ann., tit. 19, § 3374)

• Workers' compensation (Del. Code Ann., tit. 19, § 2355)

Filers in Delaware can also rely on the protection of pension or retirement benefits, regardless of bankruptcy status as follows:

• Delaware filers who collect a pension after serving on the police force can protect their police officers’ pensions in full. (Del. Code Ann. tit. 11, § 8803)

• State employees' pensions are also fully protected under Delaware exemptions. (Del. Code Ann. tit. 29, § 5503)

• Delaware filers who are volunteer firefighters can exempt their pension in full. (Del. Code Ann. tit. 16, § 6653)

• IRAs, Roth IRAs 401(k)s and other retirement plans, including inherited retirement assets, are also exempt under Del. Code Ann. tit. 10, § 4915. 

There is, however, a federal bankruptcy law to take into account which automatically exempts all tax-exempt pensions and retirement savings accounts from bankruptcy, even if you are using state law exemptions. 11 U.S.C. § 522(b)(3)(C). The law protects up to $1,283,025 of IRAs under section 408 or 408A of the Internal Revenue Code.

Filing Chapter 7 Bankruptcy? 

There are a lot of factors to consider when you’re thinking about filing for bankruptcy. It can be helpful to get legal advice before you make any decision about going forward. The good news is that most bankruptcy attorneys offer a free consultation, so you can meet with a bankruptcy lawyer to discuss your options without commitment. 

Meeting with a bankruptcy attorney allows you to confirm if filing Chapter 7 bankruptcy is the best path to debt relief in your financial circumstances. You might find, based on your priorities and goals, that Chapter 13 bankruptcy is a better choice. If that is the case, you should give careful consideration to hiring a bankruptcy attorney to help you through this long and more complicated process. 

If, however, you are looking to file a straightforward Chapter 7 bankruptcy and you can’t afford to hire an attorney, you can move forward on your own. While this prospect might be intimidating, there are resources available to assist you through the process. You can check out Upsolve’s screening tool to see if you qualify to use their free web app to prepare for your Chapter 7 case.