Chapter 7 vs Chapter 13
Chapter 7 Bankruptcy
A Chapter 7 bankruptcy is typically filed by people as well as businesses who have little or no income left after paying their basic monthly living expenses (rent, utilities, car payment, food, furniture payments, etc.).
In a Chapter 7 bankruptcy, most unsecured debts are dismissed and the person does not have to repay them. By “unsecure” I mean items that are not secured by any collateral. This includes things like credit cards, medical bills, utility bills, cars that have been repossessed, etc. In other words, if a person owes a bill for something and they don't pay the bill -- can the company come and take something they own? If not, the debt is most likely unsecured. If the company can come and repossess physical items from the person if they don't pay the bill (like a mortgage, car, furniture, etc.) then the debt is normally “secure.”
In addition, if someone has taken a personal loan but listed items they own to secure the collateral -- this debt could also be a secure loan. Normally overdraft protection accounts and personal lines of credit extended without security are considered unsecured debts.
Chapter 13 Bankruptcy
A Chapter 13 bankruptcy is a debt repayment plan. A person must be employed to be granted a Chapter 13 bankruptcy so they can make regular payments to the Bankruptcy Court. The payments they make to the court are then distributed among the creditors.