All About Bankruptcy In Delaware And How It Can Be Avoided
All About Bankruptcy In Delaware And How It Can Be Avoided
As of 2021, Delaware’s total state debt was $5.2 billion, with a per capita debt of $5,341. This includes both general obligation bonds and other forms of debt such as pension obligations. According to the Delaware Economic and Financial Advisory Council, Delaware’s debt service payments in fiscal year 2022 are projected to be $413.4 million, or approximately 4.4% of the state’s general fund budget. Delaware has a relatively high debt burden compared to other states, with a debt-to-GDP ratio of 7.3% as of 2020, which is above the median for U.S. states. According to the American Bankruptcy Institute, there were a total of 4,769 bankruptcy filings in Delaware in 2021. Of those, 4,267 were Chapter 7 bankruptcies, 477 were Chapter 13 bankruptcies, and 25 were Chapter 11 bankruptcies. Compared to other states, Delaware has a relatively low bankruptcy filing rate. In 2021, Delaware had the 7th lowest bankruptcy filing rate in the U.S., with a rate of 2.3 filings per 1,000 people.
Bankruptcy Laws in Delaware
Bankruptcy in the United States is governed by federal law, but there are some state-specific regulations and procedures that can affect the process. In Delaware, bankruptcy cases are filed in the United States Bankruptcy Court for the District of Delaware, which is one of the busiest bankruptcy courts in the country. Here are some key bankruptcy laws and regulations that apply in Delaware:
Chapter 7 bankruptcy:This type of bankruptcy allows individuals to discharge most unsecured debts, such as credit card debt and medical bills. In Delaware, you must pass a means test to qualify for Chapter 7 bankruptcy, which takes into account your income and expenses.
Chapter 13 bankruptcy:This type of bankruptcy allows individuals to reorganize their debts and create a repayment plan over three to five years. In Delaware, you must have a regular source of income and meet certain debt limits to qualify for Chapter 13 bankruptcy.
Bankruptcy exemptions: Delaware allows residents to choose between the federal bankruptcy exemptions or the state exemptions. Exemptions determine which assets you can keep when you file for bankruptcy.
Automatic stay: When you file for bankruptcy in Delaware, an automatic stay goes into effect that stops most collection actions, including foreclosure, repossession, and wage garnishment.
Bankruptcy court: All bankruptcy cases in Delaware are handled by the United States Bankruptcy Court for the District of Delaware. The court has offices in Wilmington and Dover, and all bankruptcy filings and hearings are conducted through the court.
What Types of Bankruptcy Are There for Individuals and Businesses?
There are several types of bankruptcy available for both individuals and businesses in the United States, each with its own rules and requirements. The most common types of bankruptcy are:
For individuals:
Chapter 7 bankruptcy: This type of bankruptcy is also known as “liquidation” bankruptcy and is available to individuals and families with limited income and assets. It involves the sale of non-exempt assets to pay off creditors, and the discharge of most unsecured debts such as credit card debt and medical bills.
Chapter 13 bankruptcy: This type of bankruptcy is also known as “reorganization” bankruptcy and is available to individuals with regular income who have debt that is within certain limits. It involves the creation of a court-supervised repayment plan over three to five years to pay off creditors.
Chapter 11 bankruptcy: This type of bankruptcy is available to individuals with high levels of debt or businesses of any size, including corporations and partnerships. It involves the reorganization of the debtor’s affairs and the creation of a repayment plan over a longer period of time.
For businesses:
Chapter 7 bankruptcy: This type of bankruptcy is available to businesses of any size and involves the liquidation of assets to pay off creditors.
Chapter 11 bankruptcy: This type of bankruptcy is the most common for businesses and involves the reorganization of the company’s finances and operations to allow it to continue operating while repaying creditors over time.
Chapter 13 bankruptcy: This type of bankruptcy is not available to businesses, but may be available to individuals who have a small business or are self-employed.
Things To Keep in Mind When Considering Business Bankruptcy in Delaware
If you are considering filing for business bankruptcy in Delaware, there are several things to keep in mind. Here are some key factors to consider:
Understand your options: Bankruptcy is not the only option for struggling businesses. It’s important to explore all possible options, including negotiating with creditors, restructuring debt, or selling assets to raise cash.
Choose the right type of bankruptcy: Depending on the type of business you have and your financial situation, you may be eligible for different types of bankruptcy. Chapter 7, Chapter 11, and Chapter 13 bankruptcies all have different rules and requirements, so it’s important to work with an experienced bankruptcy attorney to determine which type of bankruptcy is right for your business.
Prepare your paperwork: Filing for bankruptcy requires a lot of paperwork, including financial statements, tax returns, and other financial documents. Make sure you have all of the necessary paperwork organized and ready to go before you file.
Understand the bankruptcy process: Bankruptcy can be a long and complex process, so it’s important to understand what to expect. Work with your bankruptcy attorney to develop a plan for moving through the bankruptcy process as smoothly as possible.
Consider the impact on your business: Bankruptcy can have a significant impact on your business, including the loss of assets and the need to downsize or restructure. It’s important to consider the potential impact on your business before you file for bankruptcy.
Seek professional advice: Bankruptcy is a complex legal process, so it’s important to seek professional advice from an experienced bankruptcy attorney who can guide you through the process and help you make informed decisions.
What Debts Are Not Discharged in Bankruptcy?
While bankruptcy can discharge many types of debts, there are some debts that cannot be discharged under any type of bankruptcy. Here are some common debts that cannot be discharged:
Student loans: Most student loans cannot be discharged in bankruptcy, except in rare cases where the borrower can prove undue hardship.
Taxes: Some taxes, such as income taxes that are less than three years old, cannot be discharged in bankruptcy.
Child support and alimony: Debts related to child support and alimony cannot be discharged in bankruptcy.
Debts arising from fraud or intentional wrongdoing: Debts that were incurred through fraud, embezzlement, or other intentional wrongdoing cannot be discharged in bankruptcy.
Fines and penalties: Debts owed for fines or penalties imposed by government agencies cannot be discharged in bankruptcy.
Debts for personal injury caused by the debtor’s intoxicated driving: Debts incurred as a result of the debtor’s driving while under the influence of drugs or alcohol cannot be discharged in bankruptcy.
How Bankruptcy in Delaware Affects Your Credit Score and Ability to Get Future Loans
Filing for bankruptcy in Delaware can have a significant impact on your credit score and your ability to obtain future loans. When you file for bankruptcy, it appears on your credit report and can remain there for up to ten years. This can negatively affect your credit score and make it difficult for you to obtain credit in the future. The exact impact on your credit score will depend on various factors, such as your credit history and the type of bankruptcy you file for. Generally, filing for bankruptcy can cause your credit score to drop by a significant amount, potentially up to 200 points or more. In terms of obtaining future loans, filing for bankruptcy can make it more challenging to get approved. Lenders may view you as a higher risk borrower and may require you to pay higher interest rates or provide collateral to secure the loan. It’s essential to keep in mind that filing for bankruptcy should be a last resort and should only be considered after exploring all other options
How Does Bankruptcy in Delaware Affect Tax Debt?
Bankruptcy in Delaware can have different implications for tax debts, depending on the specific circumstances of the case. Here are some general guidelines:
Priority taxes: Some tax debts are considered priority debts in bankruptcy, meaning they are given priority over other types of debts. Priority tax debts include taxes that are due within three years of filing for bankruptcy, as well as taxes that were assessed within 240 days of filing. These taxes cannot be discharged in bankruptcy, meaning you will still owe them after the bankruptcy case is over.
Non-priority taxes: Tax debts that do not meet the criteria for priority debts can be discharged in bankruptcy if they meet certain requirements. For example, the tax debt must have been due at least three years before you filed for bankruptcy, and you must have filed a tax return for the debt at least two years before filing. If these requirements are met, the tax debt may be dischargeable.
Tax liens: If the IRS has placed a lien on your property due to unpaid tax debts, bankruptcy may not necessarily remove the lien. However, bankruptcy can help you manage the debt by potentially reducing or eliminating other debts, which may free up funds to pay off the tax lien.
Will You Lose Your Home or Car in Bankruptcy in Delaware?
The rules regarding what property you can keep in bankruptcy in Delaware can be complex and depend on various factors, including the type of bankruptcy you file, the value of your assets, and the exemptions available to you. In Delaware, you can use either the federal bankruptcy exemptions or the state exemptions. The federal bankruptcy exemptions allow you to keep certain types and amounts of property, such as a certain amount of equity in your home and car. The state exemptions, on the other hand, may vary depending on the state. Under the Delaware state exemptions, you can exempt up to $25,000 in equity in your primary residence. Additionally, you can exempt up to $15,000 in equity in your car. If you choose to use the federal exemptions, you can exempt up to $25,150 in equity in your home and up to $4,000 in equity in your car. It’s important to note that if your property is worth more than the exemption amount, you may have to give up some of your property in order to pay off your debts. However, this is not always the case, as bankruptcy laws also allow for certain exemptions and protections.
Statute of Limitations For Collections in Delaware
In Delaware, the statute of limitations for collections on a debt is three years. This means that a creditor has three years from the date of default to file a lawsuit against the debtor in order to collect the debt. Once the statute of limitations has expired, the creditor is no longer able to use the legal system to force payment of the debt. It’s important to note that the statute of limitations can vary depending on the type of debt. For example, the statute of limitations for oral contracts, written contracts, and promissory notes may differ. Additionally, certain actions can toll or extend the statute of limitations, such as making a payment or acknowledging the debt.
Cons of Bankruptcy in Delaware
While bankruptcy can provide a fresh start for individuals and businesses struggling with debt, it also has some potential downsides. Here are some cons of filing for bankruptcy in Delaware:
Impact on credit score: Filing for bankruptcy can have a negative impact on your credit score, which can make it difficult to obtain credit in the future or may result in higher interest rates.
Public record: Bankruptcy filings are public record, which means that anyone can access the information. This may be a concern for individuals who value their privacy.
Possible loss of assets: Depending on the type of bankruptcy you file and the exemptions available to you, you may have to give up some of your assets to pay off your debts. This could include your home, car, or other valuable property.
Cost: Filing for bankruptcy can be expensive, as you will need to pay for court fees, attorney fees, and other expenses associated with the process.
Emotional toll: Filing for bankruptcy can be a stressful and emotional process, as it often involves admitting to financial difficulties and facing the consequences of those difficulties.
People may regret filing for bankruptcy for several reasons, including:
Loss of assets: Depending on the type of bankruptcy, you may have to give up some of your assets to pay off your debts. This can be a difficult decision to make, and some people may regret losing their property.
Impact on credit score: Filing for bankruptcy can have a negative impact on your credit score, which can make it difficult to obtain credit in the future or may result in higher interest rates.
Stigma: There is often a social stigma attached to bankruptcy, and some people may feel embarrassed or ashamed of filing for bankruptcy.
Emotional toll: Filing for bankruptcy can be a stressful and emotional process, as it often involves admitting to financial difficulties and facing the consequences of those difficulties.
Limited options: After filing for bankruptcy, some people may find that they have limited options for obtaining credit or purchasing a home.
Don’t Qualify For Bankruptcy in Delaware? Don’t Panic
If you do not qualify for bankruptcy in Delaware, you may want to explore other alternatives for managing your debt. An alternative to consider is debt settlement. Debt settlement involves negotiating with creditors to settle your debts for less than the full amount owed. This can be a good option if you have a significant amount of debt but cannot qualify for bankruptcy.
There are some potential benefits to debt settlement over bankruptcy that may make it a more favorable option for some individuals.
No bankruptcy on your credit report: Filing for bankruptcy shows on your credit report for up to 10 years. On the other hand, debt settlement does not show as a bankruptcy.
Cost: Filing for bankruptcy can be expensive, with filing fees, attorney fees, and other costs adding up quickly.
Emotional Impact: People report horror stories of the negative emotional impact of BK.
With a bankruptcy for the rest of their life: Employers or lenders can ask if someone has filed BK for the rest of their life. It is much less likely to be asked if one ever used debt settlement to pay back an agreed to amount.
Control: With debt settlement, you may have more control over the process and negotiations with your creditors, whereas with bankruptcy, a court will make the final decision.
Less severe consequences: Filing for bankruptcy can have significant consequences, such as the liquidation of your assets, whereas debt settlement may allow you to negotiate a more manageable repayment plan while keeping your assets.
CuraDebt, a professional debt settlement firm, is a great alternative to bankruptcy. We have a team of debt professionals who are ready to help you better understand and potentially eliminate your debts. Contact us today for your free consultation. 1-877-850-3328