In the United States there are 94 District Courts which uphold the federal laws including those adhering to bankruptcy. Delaware is home to one such court and rules on 4 different types of bankruptcies for the state. They are Chapter 7, Chapter 11, Chapter 12 and Chapter 13.
Chapter 7 bankruptcy is what many petitioners use to eliminate as much debt as possible. It is an attractive option for those with a lower or inconsistent income and few assets to liquidate. A person may only file for Chapter 7 if they are found to have an income less than the median of workers in Delaware. This is determined through a means test which uses proof of income from the most recent 6 months to compare to others of the state. A person with income lower than the median may be eligible for Chapter 7, but still has the option to file Chapter 13.
Chapter 13 bankruptcies are unlike Chapter 7; instead of wiping debts clean for the petitioner, Chapter 13 provides structure and a repayment option usually carried out in 3 to 5 years. With Chapter 13, a debtor may minimize debts and keep more of their assets as long as they follow the payment plan.
Another type of reorganization bankruptcy is Chapter 11. Within this chapter's code, a business may file for bankruptcy but remain in operation while they repay their debts. This is also typically done within a 3 to 5 year time period. Chapter 12 is a specific code for family farmers and fishermen to repay debt and keep many of their assets from being liquidated.
According to the 2005 Bankruptcy Act, each petitioner must complete credit counseling within 6 months prior to filing for bankruptcy. This allows people to understand their options and find other avenues to repay debt if they so wish.
First, a petitioner will determine if they are eligible for Chapter 7 or Chapter 13 bankruptcy by a means test comparing their income with the median income of the state. A person with less income can file Chapter 7, and those above the median can file for Chapter 13.
Next, the documentation for court must be gathered. This includes paperwork from recent major financial transactions, a list of debts, a list of assets and possessions, loan information, titles to vehicles, a list of property and investments, tax returns from the previous 2 years and monthly living expenses.
A petitioner must then find out what items from their assets are exempt according to Delaware's terms and conditions and begin filing the forms necessary for court. Some people find it helpful to hire legal counsel during this time, while others choose to file without it. The schedule of documents is then sent to the court. The cost for filing Chapter 7 is $306 and Chapter 13 is $281.
At this time the court appoints a trustee to use non-exempt assets to repay a portion of the petitioner's debt. There is an automatic stay enforced so creditors and collectors are in violation if they contact the debtor.
Lastly, the petitioner must fulfill the federal requirement to complete a financial management instructional course after filing.
The district court for bankruptcy filing and hearings is located on 824 Market St. N, 3rd Floor, Wilmington, DE 19801. This location holds proceedings for all bankruptcies in the state.