The purpose of bankruptcy is to give an honest but unfortunate debtor a fresh start; and it would not be much of a a fresh start if you lost all of your assets in the process. Accordingly, you can claim certain bankruptcy exemptions to help you to protect most, and in most 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 the asset 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 have an individually-owned primary residence worth $250,000.00 with a mortgage of $190,000.00, the equity for bankruptcy would be calculated as follows:
$250,000.00 value
Less $190,000.00 mortgage
Less $17,500.00 sales expenses
Less $67,100 exemption
= <$24,600.00> Negative Equity
As you can see, in the above 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. The trustee would most likely abandon the asset.
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 might be if you own an asset with $1,000.00 of equity after the liens/ sales expenses/ exemptions; but you have $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 a 1% distribution might not likely be considered “meaningful” and/ or a sale for that small amount might 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, a couple of options might be as follows:
1. File Chapter 13 bankruptcy to reorganize your debts instead of 7; or pursue another option such as a debt settlement.
2. Make the trustee a settlement offer (offer to purchase the property at a discount). For example, if you have an asset with $10,000.00 of equity, you might offer the trustee $8,000.00 to settle the matter rather than liquidate. Considering the time value of money and other factors, the trustee might rather sell the property to you rather than try to find a buyer, pay a sales agent etc. Among other factors and considerations, 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) to purchase the equity.
3. Allow the trustee to sell the asset and pay you your exemption. For example, if the trustee sold your home, you would receive $67,100 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 might not be a bad outcome.
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 (assuming they were properly set up and are a result of ordinary/ proper contributions).
Exemptions and the related options involved are very complicated and nothing here should be be construed as legal advice; you should consult a bankruptcy attorney to advise.
The main SC exemptions are as follows:
As of 8/24/2022
S.C. Code Ann. § 15-41-30(A)(1)(a) Homestead $67,100 individual; $134,175 joint
S.C. Code Ann. § 15-41-30(A)(2) Motor vehicle $6,700 individual; $13,400 joint
S.C. Code Ann. § 15-41-30(A)(3) Household furnishings and goods $5,375 individual; $10,750 joint
S.C. Code Ann. § 15-41-30(A)(4) Jewelry $1,350 individual; $2,700 joint
S.C. Code Ann. § 15-41-30(A)(5) Cash & liquid assets, only if not claiming homestead $6,700 individual; $13,400 joint
S.C. Code Ann. § 15-41-30(A)(7) Any property of unused exemptions (known as wildcard) $6,700 individual; $13,400 joint
FULL LIST OF SOUTH CAROLINA BANKRUPTCY EXEMPTIONS 2022
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