EXEMPTIONS UNDER SOUTH CAROLINA AND BANKRUPTCY LAW

There are many exemptions that exist under South Carolina Law that can be used to protect assets from a creditor and/or Trustee. These exemptions apply whether in a Bankruptcy Case or if a creditor is trying to find assets to pay a judgment using Supplemental Procedures in South Carolina Courts. If property is exempt from creditors, you may still lose the exemption if you are not careful.

  • WAYS TO LOSE AN EXEMPTION

The simplest way to lose property that is exempt under South Carolina or Bankruptcy Law is to fail to claim the exemption. You can do this by giving the money to the creditor or failing to claim the exemption if a creditor or Trustee tries to take the asset.

  • LISTENING TO DEBT COLLECTORS, CREDITORS, FRIENDS, STREET LAWYERS ETC.

    Debt collectors are not required to tell you if property you are about to give them is exempt from levy.  Creditors never will and will often ask you to give them a lien on property that is exempt.

    If you give a creditor a lien on your property, then no exemption will exist.  Friends have heard this and heard that.  Those same friends have heard about open heart surgery but they would never advise you about how that should be done.  Street lawyers sometimes have very good ideas and sometimes have very bad ideas.  The advice that the friend or street lawyer is giving you could help you or hurt you.  Are you really willing to take the risk of finding out whether the advice was good or bad?

  • NEVER GIVE EXEMPT PROPERTY TO SOMEONE ELSE TO HOLD FOR YOU

If you give the exempt property to someone, then you cannot claim the exemption.  This means that a creditor or Trustee can usually require the person holding the money to give it to them.  When the transfer is set aside or avoided, you will not be allowed to claim the exemption in most cases.  Tracing property is easy in this day of tax records, bank accounts and other easy means to see what you are doing with your property.

  • LOSING PROPERTY THAT WAS EXEMPT  BY MERGER OR TRANSMUTATION OF AN ASSET FROM EXEMPT TO NON-EXEMPT PROPERTY IS EASY

Property that is exempt under one of the many different exemption rules will sometimes lose its status as exempt property. This is called transmutation and works something like when you mix sugar and water. If the sugar was exempt property, which a creditor may not take, and water is non-exempt property, which is something a creditor can take, what happens if you mix the sugar and water?

Does the sugar protect the water from being seized by a creditor or can the creditor take the water and sugar that is now dissolved in the water? This is never an easy question to answer and Courts have labored long and hard to decide what happens in this situation. With our Courts loaded with Judges who come from banking and corporate backgrounds, the odds are against a person who is asking the Judge to let the asset be kept by the debtor.

  • AVOIDING THE PROBLEM OF MERGER OR TRANSMUTATION

Fortunately, the merger or transmutation issue can easily be avoided. However, you first need to know which property you hold in South Carolina is exempt from a creditor claim. Meeting with competent counsel who is familiar with exemptions is the first step in determining if something that you are about to receive is exempt property.

  • IDENTIFYING WHICH ASSETS ARE EXEMPT UNDER SOUTH CAROLINA LAW OR FEDERAL LAW IS THE MOST IMPORTANT STEP YOU CAN TAKE TO PROTECT AN ASSET

Once you have identified exempt assets, never mix an exempt asset with non-exempt assets. An easy example of this is someone who is receiving both Social Security money and other money, for example, an inheritance. An inheritance is not exempt under South Carolina or Federal Law and creditor might find out about this money and try to take it.  Social Security payments are exempt under Federal Law which protects that money in South Carolina.

  • WHAT CAN YOU DO TO PROTECT THE MAXIMUM AMOUNT OF YOUR ASSETS?

The answer is very simple, but, it is often not done. Simply put the exempt money into one account and your non-exempt money into another account. Spend the non-exempt money first from the account you put non-exempt money in. In the exempt money account, put only additional exempt money. Never put non-exempt money in the exempt money account.

Always spend the non-exempt money first and only take money from the exempt money account when you need it to cover living expenses. Remember, the exempt money cannot be taken by a creditor or Trustee.

If you take money out of the exempt money account, never try to replace the money with money that is non-exempt.

  • Once exempt money or assets lose that status, you often cannot get that status back.

    If you have other questions, feel free to contact me to find out about your rights and exemptions before you pay money to creditors that you need to live on.

About Nathan Davis, Esquire

Born in Charleston, South Carolina, Nathan Davis has been practicing law for many years. Mr. Davis has a wide variety of experiences having practiced domestic relations, criminal law, social security law having also practiced collection law in the past. This knowledge is helpful when someone needs to restart their financial life. The practice is now primarily bankruptcy and debtor representation work, but, Mr. Davis continues to also practice real estate law, trusts and estates and a general litigation practice. I believe that the most important part of representation is trying to leave you better off when the case is finished than when you started. Although I will do as my client directs, I will always tell you if I think that you are making a mistake. Bankruptcy is about a "fresh start". If you do not make changes in what you are doing, you will be doing what you are doing now in the future. There is no shame in bankruptcy or other steps that you may take to start your life over. Too often, people worry more about things than about themselves, their family or their future.
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