The Pros and Cons of Filing for Bankruptcy Under Chapter 7 vs. Chapter 13 in South Carolina

Choosing the Best Bankruptcy Process for Your Situation

They say there are only two certainties in life: death and taxes. However, America has a third certainty for most: debt. Over three-quarters of the country has some form of debt, and consumer debt has reached its highest point ever. If you’ve become overburdened, remember there are pros and cons of filing Chapter 7 and Chapter 13 bankruptcy in South Carolina.

In many cases, the bankruptcy requirements for each of these approaches could dictate which option is best for your situation. However, many people are eligible for both filing types – so it really comes down to choosing the approach that offers the most benefits. A legal professional can help with this decision, but understanding the pros and cons of each is also invaluable.

Chapter 7 Bankruptcy

Filing for Chapter 7 bankruptcy begins a process of liquidation. This means that non-exempt properties will be sold to help pay off creditors. While this may not seem ideal, keep in mind that many asset types are protected from liquidation. This is something you should discuss with a professional, but for now, understanding the pros and cons of Chapter 7 bankruptcy in South Carolina can be incredibly beneficial.

Pros of Chapter 7 Bankruptcy

There are various advantages to filing for Chapter 7 protection. Two of the most important relate to the timeframe of the process and the type of debts included. First, this filing typically only takes 3-6 months to conclude. This provides fast relief for those who desperately need it. 

Additionally, the majority of unsecured debts are discharged during the process. This includes credit card debt, medical bills, personal loans, and other debts that are not secured through collateral by creditors.

You’ll also find a few other benefits of Chapter 7 bankruptcy that make it appealing to many:

• No payment plan: Monthly payments to creditors are not required 
• Offers a fresh shart: Debtors can start rebuilding their finances from a relatively clean slate 
• Retirement protection: Most qualified retirement accounts (e.g., 401(k), IRAs) are protected

When weighing the pros and cons of Chapter 7 versus Chapter 13 bankruptcy in South Carolina, the aforementioned benefits often lead people to choose Chapter 7. However, keep in mind that there are also some disadvantages. 

Cons of Chapter 7 Bankruptcy

The drawbacks of Chapter 7 filings are among the primary reasons some people opt for Chapter 13 protection. The unappealing realities of Chapter 7 bankruptcy include:

• Non-exempt assets may be sold off to pay creditors 
• Passing a means test is required to qualify, and certain levels of income could disqualify you 
• Chapter 7 bankruptcy will not fall off your credit report for 10 years 
• While South Carolina has certain exemptions, you may still lose a significant amount of property 
• Not all debts can be discharged under Chapter 7 protection

Chapter 13 Bankruptcy

Unlike its Chapter 7 alternative, Chapter 13 bankruptcy doesn’t liquidate debt. Instead, it reorganizes the debt you owe and allows you to pay it off over time. Many people believe this is the less beneficial approach, but keep in mind that it might be right for your situation.

Additionally, it may be the only option available when someone doesn’t qualify for Chapter 7 protection. Before making any decision about which approach is best, though, take a moment to understand the pros and cons of Chapter 13 bankruptcy.

Pros of Chapter 13 Bankruptcy

The advantages of Chapter 13 bankruptcy in South Carolina appeal to individuals who have some level of income. This is typically due to two specific advantages: the ability to keep assets and a lower impact on credit scores. 

Unlike Chapter 7, Chapter 13 lets debtors keep all their properties as long as they abide by their repayment plan, including non-exempt assets. Additionally, a Chapter 13 filing only stays on a person’s credit report for seven years. This is a full three years sooner than Chapter 7. 

Other benefits include: 

• Debt repayment plan: Debtors can repay creditors over 3-5 years without liquidating assets 
• Foreclosure avoidance: Chapter 13 allows debtors to catch up on missed mortgage payments 
• Debt reduction: By the end of your repayment term, some debts can be reduced or forgiven

At this point, the benefits of Chapter 13 may seem like they’re calling to you. After all, who doesn’t want to keep their properties and avoid unnecessary damage to their credit report? However, keep in mind that there are some drawbacks. 

Cons of Chapter 13 Bankruptcy

Once the disadvantages of Chapter 13 bankruptcy are understood, it makes sense why so many people opt for the alternative. It’s important to discuss the cons of Chapter 13 filings with a legal professional to understand your best option: 

• The repayment process could take up to five years 
• You’ll need steady income to afford monthly payments 
• The court may restrict certain financial decisions (e.g., obtaining new credit) during repayment 
• The long-term nature of Chapter 13 usually means higher legal fees and other costs 
• Adjusting your repayment plan can be difficult if your financial situation worsens

Which Type of Bankruptcy Is Best for South Carolina Residents?

If you feel like your debt is overwhelming and are seeking a fresh start, it’s important to understand the options available to you. Unfortunately, there is no single correct answer as to whether Chapter 7 or Chapter 13 bankruptcy is best for South Carolina residents. It all comes down to individual circumstances.

For most people with little to no disposable income, few assets, and a need for quick relief, Chapter 7 bankruptcy is an ideal approach. For those with a steady income who want to avoid foreclosure and can follow a long-term repayment plan, Chapter 13 bankruptcy might be the better solution.

Sadly, even these basic rules won’t apply to everyone. That’s why it’s advisable to speak with an attorney to better understand the pros and cons of Chapter 7 and Chapter 13 bankruptcy in South Carolina. At The Howze Law Firm, we’re here to assist. Contact us at 803-266-1812 for your free initial evaluation.