South Carolina Bankruptcy Law: What Happens to Debts in Collections?

When facing financial difficulties in South Carolina, understanding how bankruptcy affects debts in collections is crucial. Bankruptcy provides a legal avenue for individuals to discharge debts and regain financial stability. In this article, we will explore the implications of bankruptcy on debts in collections, including different types of debts, the bankruptcy process, and what happens to your financial obligations once you file.

In South Carolina, as in other states, debtors may find themselves overwhelmed by collections efforts from creditors. When a debtor falls behind on payments, creditors can pursue collections aggressively. This may include phone calls, letters, and even lawsuits to recover what is owed. However, filing for bankruptcy can halt these activities, providing relief to those in distress.

There are two primary types of bankruptcy individuals may file for in South Carolina: Chapter 7 and Chapter 13. Chapter 7 is often referred to as "liquidation bankruptcy" and involves liquidating non-exempt assets to pay off creditors. In contrast, Chapter 13 allows debtors to create a repayment plan to pay off debts over three to five years while retaining their assets.

When a person files for bankruptcy, an automatic stay is triggered, which immediately stops all collection actions. This means that creditors cannot contact you to collect debts, nor can they file lawsuits to pursue collections. This feature of bankruptcy is immensely beneficial for those overwhelmed by creditor harassment and legal proceedings.

Once you file for bankruptcy, the treatment of debts in collections depends on the type of bankruptcy you choose. In a Chapter 7 bankruptcy, most unsecured debts—such as credit card debt, medical bills, and personal loans—can be discharged, meaning you are no longer legally required to pay them. However, certain types of debts, like student loans, child support, and some tax debts, typically cannot be discharged.

Chapter 13 bankruptcy, on the other hand, allows individuals to restructure their debts. Debtors will propose a repayment plan that meets the approval of the court. Debts that are in collections can be included in this plan, allowing individuals to catch up on overdue payments over time. This type of bankruptcy can help you deal with secured debts, such as mortgages and car loans, while allowing you to keep your property.

It’s important to note that not all debts are treated equally in bankruptcy. Secured debts (like mortgages and auto loans) remain attached to the property they finance, even after bankruptcy. If you wish to keep such property, you must continue to make payments on those secured debts.

To navigate the complexities of bankruptcy law in South Carolina, it is advisable to consult with a qualified bankruptcy attorney. They can provide personalized advice based on your financial situation and help you understand the consequences of filing for bankruptcy, including how it affects your debts in collections.

In summary, South Carolina bankruptcy law provides significant protections for those burdened by debts in collections. By filing for either Chapter 7 or Chapter 13 bankruptcy, individuals can effectively halt collection actions and work towards discharging or restructuring their debts. Understanding your rights and options is essential in making informed financial decisions.