What Happens to Unsecured Debts in South Carolina Bankruptcy?

When individuals in South Carolina find themselves in financial distress, they may consider filing for bankruptcy as a way to regain control and find relief from their debts. Unsecured debts, such as credit card bills, medical expenses, and personal loans, play a significant role in this process. Understanding what happens to these unsecured debts in bankruptcy is crucial for those navigating their financial options.

In South Carolina, individuals typically file for either Chapter 7 or Chapter 13 bankruptcy. Each option has different implications for how unsecured debts are handled.

Chapter 7 Bankruptcy

Chapter 7 bankruptcy, often referred to as "liquidation bankruptcy," allows individuals to discharge most unsecured debts. This means that the debtor is no longer legally obligated to pay these debts. In South Carolina, this process typically takes about three to six months from filing to discharge.

However, not all unsecured debts are dischargeable. For instance, debts incurred through fraud or certain tax obligations may not be eliminated. Furthermore, individuals must qualify for Chapter 7 bankruptcy based on their income and financial situation, following a means test. If eligible, debtors can retain exempt property while discharging their unsecured debts, allowing them to start fresh.

Chapter 13 Bankruptcy

Chapter 13 bankruptcy functions as a repayment plan. It is designed for individuals with a regular income who wish to pay off their debts over time, typically three to five years. During this period, unsecured debts do not disappear, but they are reorganized. Debtors make monthly payments to a bankruptcy trustee, who distributes the funds to creditors.

In Chapter 13, unsecured debts may be partially discharged, meaning that debtors only need to pay a portion of what they owe, depending on their disposable income and the nature of the debt. Once the repayment plan is completed, any remaining unsecured debt not paid will be discharged. This option allows individuals to protect their assets, such as a home or car, which they might lose in Chapter 7 bankruptcy.

Impact on Credit

Regardless of the bankruptcy chapter filed, it’s essential to understand the long-term effects on credit. Filing for bankruptcy can significantly impact an individual's credit score, leading to challenges in obtaining loans or credit cards in the future.

However, after bankruptcy, many individuals begin to rebuild their credit over time. By managing their finances effectively and ensuring timely payments on any remaining debts, they can gradually improve their credit standing.

Consulting a Bankruptcy Attorney

All in all, dealing with unsecured debts during bankruptcy in South Carolina can be complex. It is highly advisable to consult with a qualified bankruptcy attorney who understands state laws and can provide personalized guidance. They can help individuals assess their financial situation, navigate the bankruptcy process, and make informed decisions that align with their goals.

In conclusion, understanding what happens to unsecured debts during bankruptcy in South Carolina can empower individuals to take control of their financial futures. Whether one chooses Chapter 7 or Chapter 13, knowing the implications can pave the way for a fresh start.