Chapter 7 bankruptcy is available to individuals as well as businesses.  Under the bankruptcy code a “person” for the purposes of filing bankruptcy is defined as an individual, partnership, and/or corporation.  A Chapter 7 bankruptcy requires the collection of the individual’s non-exempt property for sale or liquidation and the cash proceeds from its sale is paid on a pro rata basis to creditors with claims against the estate.  The reality is that most people filing for bankruptcy have no non-exempt property to sell.

As a result, Chapter 7 bankruptcy generally eliminates all of an individual’s unsecured debt and unsecured creditors generally receive no payment.  Secured creditors continue to be paid in full if the individual wishes to keep the secured property.  If the individual does not want to keep the secured property, the individual may return the secured property/collateral (for example, a vehicle or house).  Once the secured property is returned, the secured creditor may take no further action against the individual for collection.  The return of the property is considered full and final payment no matter how much is owed and no matter how much the property is worth.

Chapter 13 bankruptcies are designed to restructure the debts of an individual.  In a Chapter 13 bankruptcy case, individuals file a Plan to repay some or all of their debts over a period of time (usually 60 months).  The amount that must be paid to creditors is determined by the individual’s specific income and expenses.  When individuals file a Chapter 13 case, they will begin to make one monthly payment to the Chapter 13 trustee as determined by their Plan.  The trustee will distribute the payment to the creditors.  Once all of the Plan payments are made, the individual will be granted a discharge.