The Difference Between Chapter 7 and Chapter 13 Bankruptcy in South Carolina

The Difference Between Chapter 7 and Chapter 13 Bankruptcy in South Carolina

When individuals in South Carolina face overwhelming debt, they may consider filing for bankruptcy as a potential solution to regain control of their financial situation. Two common types of consumer bankruptcy are Chapter 7 and Chapter 13. Understanding the differences between these two types of bankruptcy is essential for making an informed decision.

Chapter 7 Bankruptcy

Chapter 7 bankruptcy, also known as "liquidation bankruptcy," allows individuals to eliminate most of their unsecured debts, such as credit card debt, medical bills, and personal loans. Here are some key features:

  • Eligibility: To qualify for Chapter 7, individuals must pass the Means Test, which compares their income to the median income in South Carolina. If their income is below the median, they are eligible for Chapter 7.
  • Asset Liquidation: In a Chapter 7 bankruptcy, a trustee is appointed to sell non-exempt assets to pay creditors. However, many individuals can retain their essential assets, such as a primary residence, a car, and certain personal belongings, due to state exemptions.
  • Timeline: The process is relatively quick, typically taking 3 to 6 months from filing to discharge.
  • Debt Discharge: Most unsecured debts are discharged, meaning individuals are no longer legally obligated to pay them.

Chapter 13 Bankruptcy

Chapter 13 bankruptcy, often called "reorganization bankruptcy," is designed for individuals with a regular income who want to restructure their debts instead of liquidating assets. Here are the key features:

  • Eligibility: To file for Chapter 13, individuals must have a regular income and their unsecured debts must be less than $419,275, while secured debts must not exceed $1,257,850 (as of 2023).
  • Repayment Plan: Individuals propose a repayment plan to make installments to creditors over a 3 to 5 year period. This allows them to keep their assets while paying off their debts.
  • Automatic Stay: Filing for Chapter 13 triggers an automatic stay that halts foreclosure proceedings and collections, providing individuals with immediate relief.

Key Differences

While both Chapter 7 and Chapter 13 serve to help individuals in financial distress, there are critical differences:

  • Asset Treatment: Chapter 7 may involve liquidating assets, while Chapter 13 allows individuals to keep their property by restructuring their debts.
  • Debt Discharge Method: Chapter 7 discharges most unsecured debts quickly, while Chapter 13 requires a repayment plan that often includes repaying a portion of unsecured debts.
  • Duration: Chapter 7 is resolved within a few months, whereas Chapter 13 lasts several years due to the repayment plan.

Conclusion

Deciding between Chapter 7 and Chapter 13 bankruptcy in South Carolina requires careful consideration of your financial situation. Chapter 7 offers a quick fresh start by discharging most debts, while Chapter 13 provides a structured repayment approach that allows debtors to retain their assets. Consulting with a qualified bankruptcy attorney can help individuals navigate their options and choose the best path for their financial recovery.