With the tensioner that all these engines have it would be near impossible for the chain to be merely loose and resting on top of the sprocket teeth. Most likely it is broken allowing the loose piece of chain to be just setting there.
You could probably tell what's up by pulling the valve cover. If you end up feeding a new chain, you will probably find that there is a problem with a guiderail and/or tensioner.
As the other posters have said, you most likely have bent valves. For the price you paid, you have plenty of margin in the car to work with. If you can pull the head yourself and find a good machine shop, you can probably make a good car pretty cheap.