What are my bankruptcy options if I’m self-employed?
Self-employed people such as sole proprietors or independent contractors can file for bankruptcy just like everybody else through Chapter 7 or Chapter 13. They are afforded the same protections from creditors, the time to restructure, and the ability to wipe some debts clean. Unlike everybody else, the self-employed have specific guidelines surrounding how they prove their income, which must be done before filing.
Income Verification for the Self-Employed
Proving income for independent contractors or other self-employed people isn’t as simple as verifying pay stubs from the employer. The court knows that the person creating the records stands to benefit by minimizing their true income, so prepare for these documents to be scrutinized. Incorrect numbers or bad math can lead to a dismissal. It’s important to get this right the first time; the court doesn’t offer the same protections against creditors for people that file multiple times over a short period.
The inherent nature of self-employment often means that payment types and amounts are irregular or at odd intervals. Even folks using something like QuickBooks to generate a profit and loss statement will probably need to back up their numbers with additional documentation. The court accepts the following documents for verifying the income of self-employed people:
- pay stubs
- bank statements
- signed statements
- tax returns
If you are considering bankruptcy as a possibility on the horizon, start tracking your income with these documents immediately. An attorney that specializes in bankruptcy filings can assist with figuring out what you’ll need.
The timing of when to file matters
Self-employed individuals with seasonal patterns in their income will want to consider the timing of their filing; filing immediately after the busy season means their CMI (current monthly income, calculated as an average of the last six months) would be maximized. By waiting a few months to file, their six month average income would be lower and potentially helpful in either creating a manageable repayment plan, or qualifying for Chapter 7 discharge of debts.
For individuals that intend to keep the business open and need to hold onto necessary equipment or property, Chapter 13 might be the best option. Chapter 13 allows for an income-based repayment plan that can last up to five years. For a self-employed individual facing eviction or repossessions, filing as soon as possible might be the key to keeping the business operating under the protections afforded by the bankruptcy court.
Get it right with professional assistance
For self-employed people, the choices they make about filing for bankruptcy can be among the biggest financial decisions of their lives. Expertise matters. Sound legal advice can be the difference between a bankruptcy filing that succeeds or fails. Contact the Law Offices of Jeffrey Lohman to find out what outcomes you might expect and how you should prepare.
The Law Offices of Jeffrey Lohman, P.C. is considered a debt relief agency pursuant to federal law. We are attorneys who help people file for bankruptcy relief under the Bankruptcy Code.