Can I File for Bankruptcy if I am Self-Employed?

Filing for personal bankruptcy is complicated under any circumstances, but the process can be more complex when you are self-employed. When a person is self-employed, it can be difficult to know what kind of documentation she or he might need in order to pass the “means test” for Chapter 7 bankruptcy, or to prove that the debtor has sufficient and regular income to file for Chapter 13 bankruptcy. These complications can become more significant when a self-employed person is also a small business owner. We want to discuss consumer bankruptcy for self-employed individuals, and to provide additional information about personal bankruptcy when you are self-employed and a small business owner.

Proof of Income for Chapter 7 or Chapter 13 Bankruptcy
In order to qualify for Chapter 7 bankruptcy under the U.S. Bankruptcy Code as an individual (as opposed to a business), you need to be able to show that you can pass the “means test.” In effect, passing the means test is evidence that a liquidation bankruptcy is appropriate given your particular circumstances. You can only pass the means test if your income is sufficiently low, or if your monthly expenses are so high that you are left with little money each month. Typically, to prove that you can pass the means test, you might provide pay stubs, information from your employer, or evidence of unemployment. This can be quite complicated when you are self-employed, particularly if you earn a living by piecing together a few different part-time jobs as part of the gig economy.

Similar, to qualify for Chapter 13 bankruptcy—which is often a person’s first choice if bankruptcy is a way to prevent foreclosure—you will need to be able to prove that you have regular income in order to make monthly payments as part of your repayment plan. This evidence can be particularly difficult to provide when you are part of the gig economy, and work a variety of jobs to earn a living.

In either situation, what type of documentation—if not pay stubs or information directly from an employer—can you provide to show that you qualify for Chapter 7 or Chapter 13 bankruptcy? In most cases, the debtor will need to provide more information about income than a debtor who is employed by a single employer and earns a regular salary. For example, in addition to tax returns, a self-employed person may need to provide copies of invoices, contracts, bank statements (showing deposits), and PayPal records (or records from similar apps).

Small Business Bankruptcy for Self-Employed Debtors
Many self-employed debtors considering bankruptcy are also small business owners. While a small business owner will be able to provide clearer information about income in certain cases, the existence of the small business can also complicate bankruptcy plans.

In general, if you are a sole proprietor, you and your business are the same entity for consumer bankruptcy purposes. However, if you own another type of business, you will need to determine your options for consumer bankruptcy and how it will impact your co-owners. A bankruptcy lawyer can help.

Contact a Bankruptcy Attorney in Oak Park
Filing for consumer bankruptcy is an extremely complicated process, especially if you are self-employed and a small business owner in the Chicago area. There are a variety of considerations that you should discuss with an Oak Park bankruptcy attorney prior to filing for Chapter 7 or Chapter 13 bankruptcy. If you have questions or concerns, an experienced advocate at our firm can discuss your situation with you today. Contact the Emerson Law Firm to learn more about how we assist individuals and small business owners in the Oak Park area.



See Related Blog Posts:

Chapter 13 Bankruptcy and the Holiday Season

Can I Discharge HOA Dues in Bankruptcy?

Comments

Post a Comment

Popular posts from this blog

Phantom Debt Collection Scams on the Rise in Illinois

Have you been contacted by a person claiming to be a debt collector who is seeking to recover a debt you allegedly owe? If so, you are not alone. According to a recent report from CBS Chicago , such parties claiming to be debt collectors are on the rise, and they are scamming Chicago-area residents. These alleged debt collectors are part of schemes known as “phantom debt collection scams,” since they involve the attempt to collect on a debt that the consumer does not actually owe. How can you avoid becoming a victim in a debt-collection scam ? What should you do if you have been targeted by a fake debt collector? How Do Phantom Debt Collection Scams Work? Now, you might be thinking to yourself: I would never agree to make payment on a debt that I did not owe. But the scam is not always that simple. Parties at the center of debt-collection scams often target consumers who do actually owe debts (to someone or to some entity), and they prey on the fact that these c...
Read more

Payday Lending and Predatory Lenders in Illinois

If you are in substantial debt in the Chicago area and are living in a paycheck-to-paycheck cycle, you may have taken out a payday loan to make ends meet. While payday lending is illegal in a number of states due to the predatory nature of these loans, it remains legal in Illinois. As a result, many debtors in the state have used payday lenders, and far too many of those borrowers cannot repay what they owe. According to a recent article from Progress Illinois , consumers have filed complaints about payday lenders in the state, illuminating a need for federal rules that address harmful lending practices . Predatory Payday Lenders and Protections for Consumers Due to the perceived predatory nature of payday loans, twelve states in the country have banned these lenders from operating completely, according to a fact sheet from loans.org . The states that currently have laws prohibiting payday lenders from operating include Arkansas, Arizona, Connecticut, Georgia, Mary...
Read more

New Information on Debts That Bankruptcy Cannot Discharge

If you are thinking about filing for bankruptcy in the Oak Park area, it is important to know that certain kinds of debts cannot be discharged in a bankruptcy case. Under U.S. bankruptcy law, these are known as non-dischargeable debts, or exceptions to discharge. There are certain types of debts that have long been identified clearly as non-dischargeable debts, while there are misconceptions about other types of debts that may or may not be dischargeable. As an article in CNBC discusses, the U.S. Supreme Court recently issued a ruling in the case of Bartenwerfer v. Buckley , which clarifies that debts incurred due to another party’s fraud cannot be discharged in an individual’s bankruptcy case. Our Oak Park bankruptcy attorneys can explain the Court’s recent ruling and provide you with additional information on dischargeable and non-dischargeable debts. Supreme Court Says Debt Incurred Due to Another’s Fraud is Non-Dischargeable The recent Bartenwerfer case involved a debtor attempti...
Read more