Debt can be a overwhelming and stressful situation. South Carolina residents are not immune to this problem. The Washington Post reports South Carolina ranked seventh highest of all states in average credit card debt per capita. That means we have a lot of people in this state struggling with debt, many unsure of their legal options in climbing out of it.
The Common Types of Bankruptcy
Bankruptcy is a legal process through the federal courts which allows an individual to legally discharge his or her debts. Some debts - such as alimony and child support - are not dischargeable. Eligible debtors may discharge eligible debts and protect eligible assets from seizure with exemptions allowed by state and federal law.
The two most common types of bankruptcy are Chapter 7 and Chapter 13 bankruptcy (so named after their positions in the federal bankruptcy code). In a Chapter 7 bankruptcy, an individual files a petition with the court asking for a discharge of his or her debt. If the court determines that: (1) the debtor is eligible, (2) the debt is eligible, and (3) all of the debtor’s assets are protected by an exemption, then a discharge of the debts will be ordered. Businesses can file for Chapter 7 bankruptcy, but they cannot protect their assets. The bankruptcy merely makes the liquidation process more orderly and timely.
In a Chapter 13 bankruptcy, an individual or a business files a petition with the court. In this case, the petition proposes a payment plan by which some creditors will receive partial payment of the debts owed to them. If the debtor faithfully adheres to the payment plan, his or her remaining debt will be discharged by the court at the end of the specified period. Most Chapter 13 repayment plans require payments for three to five years.
The Unexpected Benefits of Bankruptcy
While bankruptcy is not the right answer for every financial situation, it should be seriously considered as a solution to excessive debt. There are many benefits to filing for bankruptcy:
Immediate relief from debt collection: Filing for bankruptcy invokes an automatic stay of debt collection practices. This means that collection agencies cannot call or otherwise harass a debtor while his or her bankruptcy is pending. The automatic stay can even prevent repossessions from occurring until after the bankruptcy case is resolved. This immediate relief enables many debtors to better address their financial affairs.
Improved debt to income ratio:A successful bankruptcy can actually improve a person’s debt to income ratio. By legally discharging debt, the ratio becomes more favorable. Debt to income ratio is an important part of many credit ratings and financing decisions. While bankruptcy is reported to the credit bureaus, many debtors eventually have an improved credit score and credit ratings. This is largely due to the improved debt to income ratio, as well as a new history of timely payments. Chapter 7 bankruptcies are reported to the credit bureaus for ten years, while Chapter 13 bankruptcies are reported for seven years. This does not mean that the debtor’s credit history or credit score cannot improve during that time period.
Protection of assets: While many debtors are concerned about losing personal property to the bankruptcy court, this is a highly preventable problem. Title 15 of the Code of Laws Of South Carolina provides many exemptions for personal property, retirement accounts, social security benefits, home equity, vehicle equity, and other property. By carefully applying these exemptions to all assets prior to filing a bankruptcy petition, debtors can ensure that their assets will be protected throughout the bankruptcy proceedings.
If you or a loved one is overwhelmed by debt, schedule a consultation with an experienced South Carolina bankruptcy attorney today. He or she will help you explore the many options available to help ease your financial burden.