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Bill to increase bankruptcy exemption thresholds passes Delaware House, heads to Senate

Delaware Legislative Hall
Delaware Public Media
Delaware Legislative Hall

A bill increasing bankruptcy exemptions to reflect rising home and vehicle prices in Delaware passes in the House.

Delaware’s home bankruptcy exemption has been sitting at $125,000 since 2012, and State Rep. Paul Baumbach says it’s time to increase that threshold to more accurately reflect today’s home prices.

Baumbach’s bill increases the exemption in bankruptcy for a debtor’s personal residence to $200,000, which attorneys have told him will better serve Delawareans who are seeking debt relief.

“They’ve got a client who has the equity – has like $140,000 of equity in the home – but can’t borrow a penny because her income is so low and needs the protections of bankruptcy. But the way the law is written, because she has more than $125,000 of equity in her home – not that she can tap it – she’s ineligible," Baumbach says.

The bill also increases the exemption for vehicles and tools of the trade from $15,000 to $25,000. Tools of the trade refers to equipment a skilled laborer may have for their job like plumbing or automotive tools.

Baumbach explains a $15,000 car does not hold the same value it did 12 years ago, and these thresholds must be updated in order to accurately reflect the modern-day worth of assets.

“The rising cost does not mean she has rising abilities, and that’s where the limits have to keep pace with the rising costs of vehicles and homes and the tools of the trade," he adds.

The bill also exempts worker's compensation under the laws of other states from attachment in bankruptcy proceedings.

Baumbach explains this exemption is currently in place for Delaware in-state worker's compensation awards, but he wanted to expand the forgiveness to out-of-state instances.

"If you were working across state lines, maybe you're working on a bridge in Maryland, and you get injured and you're paid by Maryland worker's compensation, you come back to Delaware — that income is not excluded, and that can jump you over the income limit, and you can't [qualify under] the best bankruptcy chapter where you're debts are forgiven," he says.

The bill passed with near unanimous bipartisan support and now awaits a committee hearing in the Senate.

Before residing in Dover, Delaware, Sarah Petrowich moved around the country with her family, spending eight years in Fairbanks, Alaska, 10 years in Carbondale, Illinois and four years in Indianapolis, Indiana. She graduated from the University of Missouri in 2023 with a dual degree in Journalism and Political Science.