Understanding Delaware Bankruptcy Exemptions

When dealing with bankruptcy in Delaware, it’s crucial to understand the state’s exemption laws. These laws determine which of your assets are protected and cannot be taken to pay off creditors. It will also affect which chapter in bankruptcy you file. Let’s review some of the exemptions offered by Delaware.

Filing for Bankruptcy in Delaware

The amount of bankruptcy filings in Delaware is minimal when compared to other states, but that is also because the state has a relatively small population that sneaks past 1 million people.

For the year ending in 2024, 228 Chapter 7 bankruptcies were filed, and 136 Chapter 13 cases were filed. See the U.S. Court’s statistics.

Applying the Delaware Homestead Bankruptcy Exemptions to Your Case

The Delaware homestead exemption protects equity in your primary residence.  Specifically, you can protect up to $200,000 of equity in your real property or manufactured home that serves as your principal residence.  Delaware Code: Exemptions in Bankruptcy and Insolvency. Section 4914(c)(1). Now, let’s review how exemptions work.

First, start with the value of the asset. In this case, a home in Delaware. Per Zillow, the average home price in Delaware is $383,515. The average mortgage balance is $219,998. This means the home has $163,517 in equity. Since the equity amount is below the exemption limit of $200,000, this home would be fully exempt.

Note that in researching the exemptions, I routinely find errors in the amount of exempt property. This includes using AI. So I recommend you double and triple-check your work through multiple sites to always have the most updated figures.

Also, because exemptions vary per state, note that Delaware does not allow married couples filing jointly to double this exemption.  

To determine if you can apply the homestead exemptions of Delaware to your case, you must comply with the residency requirements that are reviewed below. You also must own the home for at least 1,215 days per Section 522 of the Bankruptcy Code.

Motor Vehicle Exemption

The equity protection for a car is substantial at $25,000 per filer. Considering the rate of depreciation for cars, chances are that the debtor’s vehicle will also be protected. Delaware Code Title 10, Section 4914(d).

Personal Property Exemptions

The following are fully exempt: “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.” Exempt Property. Section 4902. Delaware Code Title 10.

With a lot in a burial ground being protected, that is important, especially for elderly debtors who, many times, have paid off their lot and then can’t afford to buy it back from the trustee. I’ve seen this issue endless times in Florida, where a cemetery plot is categorized as real estate.

Delaware also offers substantial protection with their wildcard exemption. This means if personal property doesn’t fall within a specific category, an additional $25,000 can be exempted.

Tools of the Trade Exemptions for Business Owners

Not every state offers the protection of the tools of the trade exemption. This is another exemption afforded to business owners. In this case, Delaware allows exemptions for tools necessary for your business, including a vehicle, up to $25,000 each. See Delaware Code Title 10, Section 4914(c)(2).

It is important to note that the tools of trade exemptions are much lower in New Castle and Sussex Counties ($150) and Kent County ($100). See section 4902(b).

• Here’s What You Need to Know About the Tools of the Trade Exemption

State vs. Federal Exemptions: Important Dates to Know

Delaware requires debtors to use the state’s exemption laws. However, there are exemptions at the federal level as well. This is critical because to use the exemptions of Delaware, you must meet their residency requirements. One unique aspect of bankruptcy is that you might have to apply the laws of a prior state if you meet the requirements of residency. This is critical because you have to plan to determine which state’s exemptions favor you.

The Residency Requirements

To know which state exemptions you must apply in bankruptcy, you have to focus on the 730-day and 180-day rules. Specifically, if you have lived in Delaware for 730 days (two years), then you would be covered by Delaware’s exemption laws.

If you have not lived in Delaware for the full 730 days, the 180-day rule comes into play. This means you would file in the state where you have lived a majority of the time over the last 180 days.

• How the 730 Day Rule and 180 Day Rule Works

For example, suppose you have lived in Delaware for 200 days. You would use the exemptions of where you previously resided, but you would be allowed to file in Delaware. In this scenario, you should compare the exemptions of both states and strategize based on which exemptions favor you.

For additional information on the Delaware Bankruptcy Court System, please follow this link. Contact information on the Delaware Bankruptcy Trustees can be found via this link.

Colleges and universities can purchase my bankruptcy law textbook directly from Routledge Publishing. For paralegals and students buying single copies, you can do so via Amazon Books. To access my YouTube channel, click this link. You can also listen to my podcast on Spotify.

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Please note that the information on this site does not constitute legal advice and should be considered for informational purposes only.