Before filing for bankruptcy in South Carolina, it’s crucial to understand the difference between secured and unsecured debt. That’s because the type of debt you have impacts what happens to your property in bankruptcy.
Partnering with an experienced South Carolina bankruptcy attorney provides a source of clear information about the process, including a breakdown of the results of different options you may choose. Having this understanding and a realistic picture of the future is tremendously helpful to planning your recovery from bankruptcy.
How Secured vs. Unsecured Debts Are Treated in Bankruptcy
There are two forms of personal bankruptcy that cover most people, Chapter 7 and Chapter 13. Both offer ways to repay secured debt while writing off most unsecured debt. To be eligible for Chapter 7, your income must be under $63,146 (individual) per year. Chapter 13 is designed for working people who will be required to repay some debt over time.
Secured debt is backed by collateral, a physical asset that is tied to the loan, and which the lender can claim if you default. These include things like mortgages and car loans. These creditors have a legal claim to the asset their debt is tied to.
Unsecured debt is not tied to an asset. This type of debt includes medical bills, credit card balances, personal loans, and utility bills.
What Happens to Secured Debt in Chapter 7 Bankruptcy
If you owe money on a mortgage or car loan, the creditor’s lien on that property survives bankruptcy. That means that your balance on that loan is still due, even if other debts are written off in bankruptcy. If you file Chapter 7 bankruptcy, your options for secured debts include:
- Surrendering the property
- Continuing to make payments
- Making a new agreement (reaffirmation agreement) with the creditor
- Paying the creditor the fair market value of the property to own it outright
What Happens to Unsecured Debt Under Chapter 7
Most unsecured debt is discharged under Chapter 7 bankruptcy, including medical bills, credit card balances, and personal loans. However, there are some categories of unsecured debt that cannot be eliminated this way, including:
- Child support
- Alimony
- Most student loans
- Certain tax debts
These forms of debt survive bankruptcy regardless of the chapter filed. In a Chapter 13 case, unsecured creditors receive a portion of what they are owed through a debtor-created and court-approved repayment plan. The repayment term can be three to five years.
South Carolina’s Exemptions: What You Get to Keep
Exemptions are the cash or possessions that are not touched by bankruptcy. People with significant assets may choose which are liquidated by the order of the bankruptcy trustee assigned to the case. Liquidation means assets are sold to repay creditors, with secured creditors having priority.
In 2026, South Carolina’s exemptions (which could change as of July 1, 2026) included the following:
- Up to $76,125 in home equity for a single person and $152,250 for a couple (same residence)
- Up to $7,600 in equity for a motor vehicle
- Up to $6,100 in household furnishings, goods, and clothing
- Up to $1,525 in jewelry
- Up to $7,600 in cash or other liquid assets, but only if the household exemption is not claimed
- Up to $2,725 in tools, equipment, or occupational implements
- Up to $7,600 applied as a wildcard to any property of the debtor’s choice
- IRAs, 401(k) and other qualified retirement plans are fully exempt, regardless of balance
- Social security, retirement, unemployment compensation, disability or veteran’s benefits, and public assistance are completely exempt
Key Differences: Chapter 7 vs. Chapter 13
Under Chapter 7, a trustee may liquidate non-exempt assets and distribute the proceeds to creditors. Under Chapter 13, you keep your assets but must pay creditors through a structured repayment plan. For South Carolina residents whose mortgage or car loan payments are current, Chapter 13 can provide more flexibility.
Help Understanding Complex Bankruptcy Laws
The complex combination of state and federal exemptions and different forms of bankruptcy can be confusing. A professional bankruptcy attorney from Lam Law Firm can walk you through the options, helping to preserve the assets you value most. Call for a consultation today.
