Bankruptcy

Why You Won’t Lose All Your Property If You File For Bankruptcy Protection in SC

If I had to pick the top fear - the biggest concern that keeps people who need to file for bankruptcy protection from doing so - I’d have to say it’s this: the fear of losing property. And that’s a sad fact, since the vast majority of bankruptcy debtors in Chapter 7 won’t lose a single piece of property.

Why is that? One word: exemptions. In South Carolina, as in many states, the General Assembly has “opted out” of the federal scheme of bankruptcy exemptions (for more information on those, visit this page on my blog), in lieu of providing exemptions specific to South Carolina. Those exemptions can be found at section 15-41-30 (click here, for HTML version, and scroll down).

The simple fact is that most debtors who file for bankruptcy protection under Chapter 7 don’t have any property that’s not exempt. Most have already tried selling valuable property that’s not a “necessity” in order to try and raise money to pay off debts. (Caution: if you’re contemplating filing for bankruptcy, don’t transfer any assets, especially those subject to security interests!) What’s left usually fits nicely within the dollar limits of the exemptions in the statute, often with lots of room to spare. Also, remember, those exemption limits are on top of security interests. Example: If you own a $200,000 house, and there’s a $175,000 mortgage on it, you’re only using up $25,000 of that $50,000 exemption value.

Of course, some debtors do have property taken by their trustees and sold to generate funds for creditors. But even if the exemptions don’t protect a certain piece of property, you also have to consider (as does the trustee) the cost of liquidating that property. Oftentimes, a trustee will come to the conclusion that a particular piece of property would cost more to liquidate than she would get for the property. It doesn’t make sense in that circumstance to liquidate the property, so the trustee will usually abandon the property back to the bankruptcy estate.

Bottom line: Don’t let this fear stop you from filing, and certainly don’t let it stop you from talking to a bankruptcy lawyer. A good bankruptcy lawyer can help you plan your exemptions to take maximum advantage of the laws and protect as much of your property as necessary.

© 2007 SC Bankruptcy & Consumer Law Blog.