Filing for bankruptcy in South Carolina
Many people assume that if they file for bankruptcy, none of their assets will be protected. However, people in South Carolina may be relieved to find out that “Asset Protection” laws allow them to keep certain assets regardless of their debts to others.
Chapter 7 vs. Chapter 13 bankruptcy
Bankruptcy is a broad term for a Federal law that allows businesses and individuals to escape from debt and pay off their creditors. Although, there are various types of bankruptcy, the two most commonly used are Chapter 7 and Chapter 13.
Under Chapter 7 bankruptcy, a person’s assets may be liquidated with the exception of the most necessary assets. In exchange for discharging the debt, the bankruptcy filer turns all nonexempt property over to the bankruptcy trustee to be sold to pay off the debts.
Chapter 13 bankruptcy results in a debt adjustment plan. The filer normally keeps all property, but pays all disposable income directly to a bankruptcy trustee every month. The trustee makes payments to creditors from this income under a plan the bankruptcy court approves. The debts are usually reduced based on the filer’s disposable income and are usually paid over a three to five year period.
Bankruptcy exemptions in South Carolina
Each state has its own rules about exemptions when debtors file for Chapter 7 or Chapter 13 bankruptcy. Exemptions are what property is safe from the bankruptcy process and creditors. Typical exemptions are things such as homes, cars, insurance policies and retirement accounts. South Carolina law requires that a debtor use specific exemptions laid out in state law. Exemptions have to be claimed at the time of filing for bankruptcy or you may forfeit their protection.
Secured vs. unsecured debt
There are two types of debt: secured and unsecured. Secured debt is when you use property – sometimes known as collateral – like your home to support a loan. An example is using your home equity to finance a car purchase. Unsecured debt is debt that is not secured by property. Some common examples of unsecured debts are credit card debt, medical bills, and lawsuit judgments.
It is very important for debtors to realize that, generally, property that secures a debt is not exempt from creditors even if it falls under the listed exemptions because the individual has voluntarily used that property to secure a loan. For example, a home that secures a mortgage or a car that secures a car loan will not be protected. Unsecured debt, however, would not be paid out of exempt property.
Seek legal advice
Individuals considering filing for bankruptcy should educate themselves about what exemptions they are able to take under South Carolina law. It is advisable to consult an experienced South Carolina bankruptcy attorney to help you devise a bankruptcy plan that will protect as many of your assets as possible while also meeting your legal obligations to your creditors.