How to File Bankruptcy in South Carolina

Filing a bankruptcy case in South Carolina is much like filing in any other state. Federal law dictates the bankruptcy process, not South Carolina state law. However, South Carolina’s laws do impact the bankruptcy process by determining what property an individual can keep.

The core reason for bankruptcy is the same from state to state – to give the filer a fresh start.

Chapter 7 bankruptcy, Chapter 11 bankruptcy and Chapter 13 bankruptcy are most commonly used by individuals, businesses and other organizations to get out of debt.

Filing bankruptcy can help a debtor who cannot keep up with lenders' demands to make a plan to repay their debts or to have debts discarded. A debtor must file a petition to open a bankruptcy case with the federal bankruptcy court.

The filer can be an individual, a corporation, another type of organization or even a municipality. Federal courts handle bankruptcy cases according to the U.S. Bankruptcy Code Depending on the debtor’s circumstance, there are different types of bankruptcies, which are referred to by chapter.

The different types of bankruptcies are:

• ‌Chapter 7:‌ Known as “liquidation” bankruptcy. The debtor will sell some or all of their property to pay their debt.
• ‌Chapter 13:‌ Known as “reorganization” bankruptcy. It allows the debtor to keep their property if they complete a court-mandated plan to pay their debt within three to five years.
• ‌Chapter 9:‌ Used by municipalities, such as cities, towns and villages to reorganize their debts.
• ‌Chapter 11:‌ Known as "reorganization" bankruptcy, it is used by businesses. The debtor may continue operations as it pays down debt.
• ‌Chapter 12:‌ Gives debt relief to fisherman and family farmers.
• ‌Chapter 15:‌ Provides mechanisms to deal with insolvency cases across multiple countries.

U.S. Bankruptcy Courts are in every state, including South Carolina. The country has 90 bankruptcy districts, which means that many states have more than one district. Each bankruptcy court has a clerk of court's office.

A bankruptcy judge is a court official of the U.S. district court that presides over federal bankruptcy cases. The judge decides on any or all matters of a bankruptcy case, including a debtor’s eligibility to file for bankruptcy and whether or not their debt should be discharged.

The bankruptcy process typically takes place away from the courthouse. In some bankruptcy cases, like those filed under Chapters 7, 12 and 13, and sometimes Chapter 11, the administrative process is carried out by an appointed bankruptcy trustee who oversees the case.

The basic goal of federal bankruptcy laws is to give a debtor a fresh financial start from the weight of debt, per the U.S. Supreme Court, which clarified bankruptcy laws in a 1934 decision, stating: “It gives to the honest but unfortunate debtor…a new opportunity in life and a clear field for future effort, unhampered by the pressure and discouragement of preexisting debt.”

In a Chapter 7 bankruptcy, a bankruptcy trustee takes over the debtor’s assets, liquidating them to give cash to creditors to pay down the filer’s debt. This is subject to the filer’s right to retain certain exempt property and rights of secured creditors.

As there is typically no nonexempt property in the majority of Chapter 7 bankruptcy cases, liquidation of the debtor's assets may not occur (these are known as “no-asset cases.")

Chapter 7 is used by parties who are unable to reorganize their financial affairs through a repayment plan. The debtor's nonexempt property, if any, is liquidated by the trustee, and creditors get the proceeds.

Creditors with an unsecured claim (those who don't have a lien against the debtor’s property, such as utility companies, credit card companies or medical providers), get payment through a bankruptcy estate if the bankruptcy case is an asset case.

In this instance, the creditor would file a proof of claim with the bankruptcy court.

According to the Bankruptcy Code, the debtor must take a "means test" to determine whether they qualify for relief under Chapter 7 bankruptcy. A debtor in a Chapter 7 bankruptcy case will receive a discharge that releases them from personal liability for some debt.

This usually happens just a few months after they file the petition.

Chapter 13 bankruptcy is known as a “wage-earner's plan" because it allows people with regular income to create a plan to pay some or all of their debt. Under this type of bankruptcy, a debtor creates a repayment plan to pay down their debt in installments over a three- to five-year period.

If their current income each month is less than the relevant state median, the period will be three years, unless the bankruptcy court approves a longer amount of time time “for cause.”

If their income is more than that of the applicable state median, they’ll pay off the debt within five years. The repayment plan cannot go over the five-year time limit. During the time the bankruptcy case is open, creditors cannot start or continue collection efforts against the debtor.

Businesses file under Chapter 11 bankruptcy if they wish to continue operating while repaying their creditors. A debtor under Chapter 11 has an exclusive right to file a reorganization plan in the first 120 days after filing for bankruptcy. The filer must give creditors a disclosure statement with information that will enable them to evaluate the debtor’s plan.

A bankruptcy court confirms or denies the debtor’s plan of reorganization. When the plan is confirmed, the debtor can repay a portion of its obligations to creditors, while other debts are discharged.

Through a Chapter 11 bankruptcy, a business can end leases and contracts, recover its assets, and rescale operations to become profitable once again. Chapter 11 allows a business to go through a consolidation period to reduce its debt and reemerge with a reorganized company.

A bankruptcy case in South Carolina starts when the debtor files a bankruptcy petition with the federal bankruptcy court. The party filing must include statements listing their assets, income and liabilities, as well as their creditor’s names and addresses and how much they owe to each.

When they file the petition, debt collection automatically stops against them; creditors cannot contact them demanding payment or garnish their wages.

When the debtor files for bankruptcy, creditors will receive notice of the bankruptcy petition from the court. Some bankruptcy cases allow debtors to reorganize and create a plan to repay creditors, while others involve liquidation of property.

In liquidation bankruptcy cases, there is typically little money available to pay creditors, and debtors are usually granted a "discharge" from the debt.

According to the U.S. Bankruptcy Code, debtors must complete credit counseling before filing a petition, no matter what chapter they file under. They must also take a debtor education course after they file. Both of these will require a Certificate of Completion before any debts can be discharged.

Only organizations that have been approved by the U.S. Trustee Program may issue credit counseling or debtor education course certificates.

South Carolina bankruptcy laws determine what property a debtor can keep in their bankruptcy case. For example, under the South Carolina Homestead Exemption, debtors can protect a maximum $63,250 of real estate or home equity in a residence. If they are married the exemption amount doubles to $134,175.

Under the South Carolina Wildcard Exemption, debtors can apply a maximum of $6,325 of nonexempt property, such as a saving account or a time share. A wildcard exemption protects luxury items that bankruptcy exemptions don’t normally cover.

Some additional exemptions apply when filing bankruptcy in South Carolina, including personal property in the following amounts adjusted for inflation. The original law was last updated in 2008.

These exemptions are also possible under South Carolina law:

• Health aids.
• Retirement accounts: Public and private retirement accounts are typically 100 percent exempt. Exemptions may not apply to inherited accounts.
  
• Government payments: Government benefits, including, veterans disability and Social Security are exempt.
• Life insurance, including accident, disability or illness benefits.
• Alimony and child support.

A bankruptcy discharge releases the individual filing bankruptcy from personal liability for specific debts. It is a permanent order that prohibits creditors from taking any form of collection action against the debtor, such as legal action or initiate any form of communication.

While the debtor is not liable for discharged debts, they are still liable for a valid lien that has not been made unenforceable. These liens remain in effect after the bankruptcy case is over. A creditor may still enforce a lien to recover property secured by it.

The time it takes for a bankruptcy discharge to occur depends on the bankruptcy chapter under which the debtor files. In a Chapter 7 bankruptcy, the bankruptcy court typically grants the debtor’s discharge when the time for filing a complaint objecting to it or the time for filing a motion to dismiss the bankruptcy case for substantial abuse expire.

The period expires 60 days after the first date is set for the meeting of creditors. Typically, this is about four months after the petition is filed with the bankruptcy court.

In Chapters 11, 12 and 13 bankruptcy cases, the bankruptcy court grants the discharge as soon as the debtor completes payments to creditors, which is about four years after the filing date.

The court may deny the debtor's discharge in a Chapter 7 or Chapter 13 bankruptcy case if they do not complete a credit counseling course.

However, the Bankruptcy Code exempts this requirement if the U.S. trustee or bankruptcy administrator does not believe there are adequate credit counseling programs in the debtor’s area, or if the debtor is incapacitated, disabled or serving military duty in a combat zone.