When financial hardship strikes, bankruptcy can provide the fresh start you need. But choosing between Chapter 7 and Chapter 13 bankruptcy isn’t always straightforward. These two options serve different purposes and work best for different financial situations.
Chapter 7 eliminates most unsecured debts quickly. Chapter 13 reorganizes your debts into a manageable payment plan over three to five years. The right choice depends on your income, assets, and specific financial goals.
Understanding Chapter 7 Bankruptcy
Chapter 7, known as “liquidation bankruptcy,” offers the fastest path to debt relief. Most cases complete within three to four months. During this process, a court-appointed trustee reviews your assets and may sell non-exempt (not protected) property to pay creditors.
Who Qualifies for Chapter 7
You must pass the means test to file Chapter 7. This test compares your income to South Carolina’s median income levels. If your household income falls below the median, you automatically qualify. If your income exceeds the median, the means test calculates your disposable income after allowed expenses.
For November 1, 2025, South Carolina’s median income levels are as follows, whether you’re in Myrtle Beach, Charleston, or anywhere else in South Carolina:
- Single person: $63,146
- Two-person household: $81,614
- Three-person household: $93,218
- Four-person household: $113,332
The Chapter 7 Process
After filing, an automatic stay immediately stops creditor collection activities. The trustee schedules a meeting of creditors, typically 30-45 days after filing. You must attend this meeting via Zoom and answer questions about your financial situation under oath.
Most debtors keep their property through bankruptcy exemptions. South Carolina allows you to choose between state exemptions or federal exemptions, whichever provides better protection for your specific assets.
Chapter 7 Pros and Cons
Benefits:
- Quick discharge of debts (within 4 months)
- Discharges most unsecured debts completely
- No repayment plan required
- Keep exempt (protected) property
Drawbacks:
- May lose non-exempt assets
- Limited foreclosure protection
- Income restrictions apply
Understanding Chapter 13 Bankruptcy
Chapter 13 bankruptcy, called “reorganization bankruptcy,” allows you to keep your property while repaying debts through a court-approved payment plan. This option works well for people with regular income who want to catch up on missed payments.
Who Qualifies for Chapter 13
Chapter 13 has no income limitations, making it available to higher earners who don’t qualify for Chapter 7. However, debt limits apply:
- Unsecured debt cannot exceed $526,700
- Secured debt cannot exceed $1,580,125
You must have regular income sufficient to make plan payments while covering basic living expenses.
The Chapter 13 Process
Your payment plan lasts three to five years, depending on your income level. Higher earners (those over median income) typically get five-year plans. You make monthly payments to a trustee, who distributes funds to creditors according to your approved plan.
The plan must pay creditors at least what they would receive in a Chapter 7 liquidation. Priority debts like taxes and child support must be paid in full. Unsecured creditors often receive partial payment.
Chapter 13 Pros and Cons
Benefits:
- Keep all property, including your home
- Stop foreclosure and catch up on missed mortgage payments
- No income restrictions
- Can reduce certain secured debts through valuing the assets at fair market value and paying that amount, rather than the amount owed (ex. paying $15,000 for a car worth $15,000 even if you owe $20,000)
- Three to five years to reorganize finances
Drawbacks:
- Longer process (3-5 years)
- Must make consistent monthly payments
- Total payment often exceeds Chapter 7 costs
- Less debt discharge than Chapter 7
Key Differences That Matter to South Carolinians
Foreclosure Protection
Chapter 7 provides only temporary foreclosure protection. Once your case closes, foreclosure proceedings resume unless you’ve caught up on payments.
Chapter 13 offers superior foreclosure protection. You can stop an ongoing foreclosure and catch up on missed payments through your repayment plan. You can also opt to do a mortage modification through a “portal” where all documents and communications are done within that portal. No more mortgage servicer nonsense about having not received documents or other information. It’s all preserved on the portal. This makes Chapter 13 the better choice for homeowners facing foreclosure who want to keep their homes.
Impact on Credit
Both bankruptcy types initially lower your credit score. Chapter 7 remains on your credit report for 10 years, while Chapter 13 stays for 7 years. However, many people begin rebuilding credit successfully immediately after discharge. How long bankruptcy remains on your credit isn’t that important; your credit score is. Credit scores drastically improve after discharge, and even during the Chapter 13 plan.
Which Option Is Right for You?
Choose Chapter 7 If:
- Your income qualifies under the means test
- You have minimal non-exempt assets
- You want quick debt relief
- You have primarily unsecured debts
- You don’t own a home facing foreclosure
- You have primarily non-consumer debts (those NOT incurred for personal, family, or household purposes–think business debts)
Choose Chapter 13 If:
- Your income exceeds Chapter 7 limits and you can’t “pass” the menas test or totality of circumstances test of section 707(b)
- You want to keep your home and stop foreclosure
- You need to catch up on secured debt payments
- You have significant assets to protect
- You can afford monthly plan payments
Getting Professional Guidance
Bankruptcy law is complex, and the wrong choice can have lasting consequences. Every situation is unique, and what works for your neighbor might not work for you. The means test calculation alone involves numerous variables that affect eligibility.
Common Misconceptions About Bankruptcy
Many people avoid bankruptcy due to misconceptions. You won’t lose everything you own. Most debtors keep their homes, cars, and personal belongings. Bankruptcy doesn’t prevent you from getting credit forever. Many people qualify for credit cards immediately after bankruptcy and mortgages within two to four years after bankruptcy.
Bankruptcy also doesn’t make you a failure. Medical bills, job loss, divorce, and other circumstances beyond your control cause most bankruptcy filings. It’s a legal tool designed to provide relief when life becomes financially overwhelming.
