Bankruptcy is a safety valve, not a punishment. It is a process for rebuilding after a period of financial trouble. To that end, bankruptcy allows businesses and individuals to retain the possessions they need to get back on their feet.
A qualified bankruptcy attorney can explain how the process works, including which of your possessions and accounts are exempt, which means they’re out of reach of creditors and the bankruptcy court. In South Carolina, state law dictates a person’s exemptions in bankruptcy.
Understanding Exemptions for Your Financial Fresh Start
A big part of filing for bankruptcy is planning: knowing how much of your debt will be paid, what assets you’re able to keep, and the timeline for getting the bankruptcy discharged.
Exemptions are part of that planning. Bankruptcy courts can require that you sell valuable assets like second homes, collectible cars, and expensive jewelry to pay creditors. But exemptions apply to specific items and accounts, so they can’t be liquidated to settle debts.
It’s important to understand state vs. federal exemption rules.South Carolina has established bankruptcy exemption rules for residents that differ from the federal exemptions, although retirement accounts and some benefit payments are still protected by federal rules.
Items that are protected (exempt) in South Carolina include:
- Homestead equity. This is the value of your primary home, minus your mortgage or liens (it also applies to a burial plot). If you file alone, it’s up to $76,125; the protected value is up to $152,250 if you’re married, filing jointly, and are co-owners of the property (figures adjusted for inflation).
- Vehicle equity. The state allows one vehicle to be exempt, and the value of the exemption is set at about $7,600 per person filing.
- Household goods and personal property. The items you need to live and work, such as appliances, clothing, books, and basic furniture may be retained if they don’t exceed about $6,100 in total.
- Jewelry. The total value may not exceed $1,525.
- Work tools. These are the items you need to earn a living, such as a computer, a phone, mechanical items, workshop items, etc. The total value of tools may not exceed $2,275.
- Health aids and medical equipment. Items that you need to maintain your health, such as a special bed, stairlift, wheelchair, or air purifier, are completely exempt.
- Wildcard and cash exemptions. These are flexible, allowing the filer to decide how they should be applied:
- South Carolina allows about $7,600 of value that can be applied any way the filer chooses. For instance, you can add it to the exemption on your home, to protect a higher value amount, or you may exempt an heirloom possession that would otherwise be liquidated.
- If you do not have a home or do not use the homestead exemption, the amount allowed may be applied to your cash assets, potentially allowing you to retain $83,725 that would otherwise be directed to pay off debts.
- Retirement accounts and employee benefits. Federal and South Carolina bankruptcy rules both allow individuals to keep their retirement accounts, whether 401(k), 403(b), and/or IRA accounts up to federal limits. Pension and tax exempt retirement plans are also protected from bankruptcy liquidation.
- Public benefits. Social security, unemployment compensation, veterans’ benefits, workers’ compensation, and child support and alimony are all exempt from bankruptcy liquidation and creditors’ claims.
If you have been a South Carolina resident for at least two years before filing bankruptcy, your residency is covered by South Carolina exemptions. If you’ve moved to the state more recently, residency rules are more complicated.
Filing a Schedule C document with the accurate valuation and categorization of your exemptions is crucial to receiving the exemption protections you desire.
Consulting an Expert for Critical Guidance
Bankruptcy is more than filing paperwork and following the court’s directions. It’s a strategy that requires planning and deep knowledge of the current exemptions and how to apply them. That’s why consulting with a professional bankruptcy attorney from Lam Law Firm is important: to ensure you can retain the assets you need. Call for a consultation today.
