A Chapter 7 bankruptcy and a Chapter 13 bankruptcy are really designed for two types of different debt situations. A Chapter 7 bankruptcy, which is often referred to as a fresh start bankruptcy, is used when a person has only unsecured debts, such as credit card bills and medical bills, or when a person has unsecured debts and also has secured debts, such as a house note or a car note and the secured debts are all current. The Chapter 7 bankruptcy let you get rid of the unsecured debt and keep or reaffirm that secured debt allowing you to get a fresh start being debt free.
A Chapter 13 bankruptcy, which is often referred to as a wage earner bankruptcy is usually used when a person is behind on a secured debt such as a house note or car note and is at risk of having a foreclosure on their house or repossession of a car because they are behind on their monthly payments. With a Chapter 13 bankruptcy, your bankruptcy attorney helps you prepare a plan that allows the person to continue to pay his debts on a monthly basis and pay back the arrears over a period of time, usually in 36 to 60 months. For a Chapter 13 bankruptcy plan to work, the debtor must have a source of income, which is why Chapter 13 bankruptcy has come to be known as a wage earner bankruptcy. The income must be enough money to pay off all the debtor’s monthly bills including the house and the car note and still have enough money left to pay the arrearage.