South Carolina Bankruptcy Exemptions
The purpose of bankruptcy is to give you a fresh start; and it would not be much of a fresh start if you lost all of your assets. Accordingly, you can claim bankruptcy exemptions to help you to protect most (in some cases all) of your assets. When you file Chapter 7 bankruptcy, a trustee is appointed to examine your assets to determine if liquidation of the assets would pay your creditors. If an asset does not have sufficient equity to provide a meaningful distribution to your creditors, the bankruptcy trustee will not sell it to pay your creditors. The property you are allowed to keep in a Chapter 7 bankruptcy depends on many factors including the value of the asset, whether it has a lien, if is individually or jointly owned, the exemption you are allowed to claim, among other factors.
For example, if you had an individually-owned primary residence worth $250,000.00 with a mortgage of $190,000.00, the equity in bankruptcy would be calculated as follows:
$250,000.00 value
Less $190,000.00 mortgage
Less $17,500.00 sales expenses
Less $63,250 exemption
= <$20,750.00>
As you can see, in this example, the house has negative equity and it would have to be worth significantly more or the mortgage significantly less for the house to start having equity for bankruptcy purposes.
Even if you cannot fully exempt an asset, the trustee might still choose to abandon the asset if liquidating it would not produce a “meaningful distribution” to your creditors. This might happen when the property value is only slightly greater than the exemption amount after taking into account the costs and fees associated with selling the asset. Although “meaningful distribution” is not necessarily defined, an example would be if you owned an asset with $1,000.00 of equity after the liens/ sales expenses/ exemptions but you had $100,000.00 in debt. The potential distribution to your creditors would only be around 1%. In this situation, the trustee might choose to abandon the asset as the 1% distribution would not likely be considered “meaningful” and/ or a sale for that small amount would probably not be worth the time/ costs involved.
If an asset does have significant equity above the expenses and exemptions and a sale would produce a meaningful distribution to your creditors, your choices would be as follows:
1. Allow the trustee to sell the asset and pay you your exemption. For example, if the trustee sold your home, you would receive $63,250 for your homestead exemption (and possibly more if you are entitled to a wildcard exemption) from the sale. In this situation, you could use the money to buy possibly buy a more-affordable home if needed, you would be discharged of your debts, and some money would go to your creditors, which is not a bad outcome.
2. You can make the trustee an offer to purchase the property at a discount. For example, if you had an asset with $10,000.00 of equity in an asset, you might offer the trustee $9,000.00 to settle the matter. Considering the time value of money and other factors, the trustee might rather sell the property to you than try to find a buyer, pay a sales agent etc. You would need to demonstrate that you are not using funds that are a part of the bankruptcy estate, such as post-filing wages, or a loan from a family member or friend.
3. You can file Chapter 13 bankruptcy to reorganize your debts.
As an aside, you must be living in South Carolina for two (2) years in order to claim SC exemptions.
Many assets, such as retirement accounts, are completely exempt. Exemptions are complicated and you should consult a bankruptcy attorney to help with a liquidation analysis, but the main SC exemptions for the purposes of calculating equity are as follows:
S.C. Code Ann. § 15-41-30(A)(1)(a) Homestead $63,250 individual ; $126,475 joint
S.C. Code Ann. § 15-41-30(A)(2) Motor vehicle $6,325 individual; $12,650 joint
S.C. Code Ann. § 15-41-30(A)(3) Household furnishings and goods $5,050 individual; $10,100 joint
S.C. Code Ann. § 15-41-30(A)(4) Jewelry $1,275 individual; $2,550 joint
S.C. Code Ann. § 15-41-30(A)(5) Cash & liquid assets, only if not claiming homestead $6,325 individual; $12,650 joint
S.C. Code Ann. § 15-41-30(A)(6) Tools of trade, $1,900 individual $3,800 joint
S.C. Code Ann. § 15-41-30(A)(7) Any property of unused exemptions (known as wildcard) $6,325 individual; $12,650 joint