Simply put, a Chapter 7 is a “straight discharge” of most, if not all, of your debts. It is pursued because the debtor has, at the time of the filing, no current or foreseeable ability to pay toward any of these debts. Under Chapter 7, the debtor is immediately discharged of the obligation to pay those debts. The debtor may have to surrender certain non-exempt property in exchange for the discharge, but Chapter 7 leads to a prompt and relatively final end. (There is much more to Chapter 7 than this short description provides. Not all debts are dischargeable, and that is explained further here.
A Chapter 13 bankruptcy is pursued when a debtor can pay some, but just not all, of his or her monthly installments on the unsecured debt (again, this is a simplified explanation. Read more details about Chapter 13 by clicking here). Under Chapter 13, the debtor usually retains his or her non-exempt property while paying off, over a three to five year period, as much of his or her debts as possible.
In Chapter 7, the debtor is essentially saying to the judge: “I have only enough money to pay my essential living expenses, and no more. I am drowning in debt and the creditors are breathing down my neck. There is no relief in sight. I need to get a fresh start and protection from my creditors in order to put my life back in order. In exchange for any property the law does not allow me to keep, please discharge me from the obligation to repay my creditors.”
A Chapter 13 debtor’s request is a little different. It is essentially: “I have enough money to pay some of my creditors all of what they want, or all of my creditors some of what they want, but not all of my creditors all of what they want right now. I need to reorganize my finances, and want to pay something back to my creditors. However, because of my current situation (foreclosures or repossessions are imminent, garnishments are being threatened, an overwhelmingly high debt load, a recent job furlough, etc.), I need the protection of the court in order to accomplish this.”