Bankruptcy options for the self employed

by | Jul 5, 2020 | Bankruptcy

Facing the prospect of filing bankruptcy can be daunting. At a time when you’re under serious financial stress, you have to figure out if seeking legal protection from your creditors is the right move and what are the long-term effects of doing so. Your decision may be further complicated if you are self-employed as an independent contractor or are a sole proprietor of a small business.

Filing bankruptcy shouldn’t be undertaken lightly. Whether you qualify for having your debts completely discharged through the liquidation process of Chapter 7, or you have the resources to pay some of the debts through Chapter 13, understanding your bankruptcy options is essential. Because which chapter you file is determined based on income, self-employed bankruptcy is even more complex.

The bankruptcy attorneys at Jafri Law Firm can help you sort through your financial issues to find the solution that’s best for you.

Income Verification for the Self-Employed

Just like regular wage earners who work for others, individuals who are self-employed are eligible to file bankruptcy if their debts overwhelm their capacity to pay. But employees that receive W-2 wage statements from employers have a convenient record of their wages. This is important because when filing bankruptcy you must present the court with evidence that verifies your income in the six months prior to your filing date. It is your income in that pre-filing period that determines if you qualify for Chapter 7 under the means test, or if you must file Chapter 13.

For the self-employed, verifying income is more difficult because you may not be paid regularly or perhaps payments were not well-documented. In addition, if you own a business, you may not be taking any wages. By working with our bankruptcy attorneys, we can help you calculate your income so that there is no risk your self-employment bankruptcy is dismissed by the court.

Besides tracking your income and expenses, perhaps even with simple spreadsheets or free online software programs, you need to keep documents that will help verify your income. These documents will be provided to the court to back up your self-created records. Examples of the types of documents that might help with this process include:

  • Bank statements that show deposits of cash and checks
  • Copies of checks
  • Receipts for cash payments
  • Tax returns
  • Invoices
  • Contracts
  • Emails or texts indicating payment amounts
  • Cash App or Pay Pal records

Another resource for help with income verification is an accountant. If you’re considering bankruptcy, talking through your situation with a financial professional is a good idea. You may get helpful tips to assist you gather the documents you need.

Additional Considerations for Self-Employed Bankruptcy

Keep in mind that working with bankruptcy counsel before filing will make for a smoother process. It can help you avoid making any mistakes that might threaten the successful discharge of debts through Chapter 7 or the completion of a Chapter 13 repayment plan. For example, there are laws that restrict the transfers of assets and preferential payments to creditors right before filing bankruptcy. Our attorneys will take you step-by-step through a self-employed bankruptcy so that you remain compliant with the process.

Consider as well that if you are also a sole proprietor of a small business, you need the advice of our experienced bankruptcy attorneys. Not only might there be confusion as to your income but you’ll need to carefully sort through personal versus business assets. The value of your business could make a difference as to what bankruptcy chapter you file as a self-employed individual, or if you would be better off to file Chapter 11, which typically deals with business debts.

We Can Help with Bankruptcy for the Self-Employed

Bankruptcy is a legal option for the self-employed, but it is more complicated than for regular wage earners. The bankruptcy lawyers at Jafri Law Firm have many years of experience helping self-employed clients understand their bankruptcy options.