The Key Differences Between Chapter 7 and Chapter 13 Bankruptcy in South Carolina

When navigating financial difficulties, understanding the various bankruptcy options available is crucial. In South Carolina, the two most common types of consumer bankruptcy are Chapter 7 and Chapter 13. Each has its benefits and drawbacks, making it essential to comprehend their key differences.

1. Definition and Purpose

Chapter 7 bankruptcy, often referred to as "liquidation bankruptcy," allows individuals to eliminate most of their unsecured debts, such as credit card debt and medical bills. It provides a fresh start by liquidating non-exempt assets to pay creditors.

In contrast, Chapter 13 bankruptcy is known as "reorganization bankruptcy." It enables individuals to keep their assets while establishing a repayment plan to pay back a portion or all of their debts over three to five years. This option is ideal for those with a regular income who want to avoid foreclosure or repossession.

2. Eligibility Requirements

Eligibility for Chapter 7 bankruptcy is determined by a means test, which evaluates an individual's income, expenses, and household size. If the individual's income is below the median income for their state, they can file for Chapter 7.

Chapter 13 bankruptcy, on the other hand, has its own set of criteria. Individuals must have a regular income, and there are limits on how much debt they can have, which is adjusted periodically. For unsecured debts, the limit is $465,275, while secured debts must be below $1,395,875.

3. Impact on Assets

In Chapter 7, a trustee is appointed to oversee the liquidation of non-exempt assets. However, many personal belongings and home equity are often exempt, meaning most debtors can keep essential assets. The process typically lasts 3 to 6 months.

Conversely, Chapter 13 allows the debtor to keep all their assets, as long as they adhere to the repayment plan. This means individuals can retain their homes and vehicles while gradually paying off their debts over the repayment term.

4. Duration and Discharge of Debts

Chapter 7 bankruptcy generally provides a quicker discharge of debts, often within a few months. However, it's important to note that not all debts can be discharged under this chapter, such as student loans, tax obligations, and family support payments.

In Chapter 13, the debt discharge occurs only after the completion of the repayment plan, which typically lasts 3 to 5 years. Nonetheless, this various plan can provide a structured way to manage debts and prevent creditor harassment.

5. Credit Impact

Both types of bankruptcy have significant impacts on an individual's credit score. A Chapter 7 bankruptcy remains on a credit report for 10 years, while Chapter 13 stays for 7 years. However, the long-term benefit of federal bankruptcy relief often outweighs the immediate negative impact on credit.

Conclusion

Deciding between Chapter 7 and Chapter 13 bankruptcy in South Carolina requires careful consideration of personal financial circumstances. Understanding their distinct features helps individuals make informed decisions for their financial futures. Consulting with a qualified bankruptcy attorney can provide guidance tailored to individual situations, ensuring the best route is taken for debt relief.