By Peter Bricks, an Atlanta bankruptcy attorney

I often hear the term said that someone is “too broke to file bankruptcy,” but I do not think most people understand what it really means.

The expression is often meant to imply that the debtor does not really need to file a bankruptcy at the present time because that person is not working or does not have substantial assets. In that case, there is potentially nothing the creditor could collect against the debtor even if it obtained a judgment. The quasi-legal description for this scenario is that the debtor is “judgment proof.”

In that example, the only thing that would make the debtor “too broke to file” is if the debtor wants to file with an attorney and cannot afford the Chapter 7 court costs and attorney fees. The debtor therefore might want to file but cannot afford legal representation. He might be waiting to be employed first before filing.

However, let’s imagine the debtor has the ability to pay the attorney fees either through savings or assistance from a family member. In that case, some debtors still elect to not file immediately. The potential reasons to wait are endless-, ranging from wanting to pay certain creditors in full prior to filing to wanting to wait until after the end of summer, or maybe even waiting until the debtor receives a foreclosure notice with a sale date.

The point is being “too broke to file,” is often confused with having no particular urgency to file or having a strategic reason to wait to file. This is particularly true with those debtors who wish to file Chapter 7.

On the other hand, someone who is looking to file Chapter 13 bankruptcy might often encounter the scenario that he is “too broke to file.”

Consider that the two most common reasons that people file Chapter 13 through my Atlanta bankruptcy attorney office is that they either are ineligible to file Chapter 7 due to a previous filing and discharge within the last eight years, or they need a Chapter 13 bankruptcy to satisfy a large arrearage on their mortgage debt in order to keep their home from foreclosure.

In the first scenario, the debtor might have to pay his unsecured creditors as much as 100 cents on the dollar or else risk a trustee objection to the plan. If the debtor has racked up a good bit of unsecured debt, the debtor might not be able to afford to pay the unsecured creditors all the trustee is requesting. The debtor therefore is “too broke” to get a Chapter 13 plan confirmed.

In the latter scenario, the debtor might need to pay off $30,000 in mortgage arrears over the course of the plan, but can only afford to pay $15,000. The debtor therefore is “too broke” to pay all the mortgage arrears and cannot get his Chapter 13 plan confirmed.

In both cases, the debtor is not literally broke and does have a job and income; however, the debtor cannot afford to pay all that is necessary to have a successful bankruptcy.

Peter Bricks is a member of the National Association of Consumer Bankruptcy Attorneys (NACBA). He is a regular contributor to bankruptcyblog.org has bankruptcy attorney offices in Woodstock, Jonesboro, Cumming, Atlanta and Dunwoody.