Personal Bankruptcy for the Self-Employed: Five Things to Know

If you are self-employed and your business is struggling during the coronavirus pandemic, you may be thinking about filing for bankruptcy. Indeed, the COVID-19 pandemic is making it extremely difficult for small businesses to remain in business, especially those that were struggling financially prior to the coronavirus outbreak. Yet it is important to keep in mind that complications can arise when you are filing for bankruptcy as a self-employed person. You should know that an experienced Oak Park bankruptcy lawyer can help you with your case today. In the meantime, the following are five things to know about bankruptcy for the self-employed.

You Need to Know Whether You Want to File for Personal Bankruptcy, Bankruptcy for Your Business, or Both
When you say you are self-employed and want to file for bankruptcy, it is important to know the answer to this question: Do you want to file for personal bankruptcy, business bankruptcy, or both? Depending upon the nature of your self-employment, personal and business bankruptcy could be one and the same. Yet in many cases, they are not. As such, you will need to be clear about whether you want to file for bankruptcy as a result of your consumer debts, your business debts, or both.

If You Have a Sole Proprietorship, You and Your Business are the Same Entity
For purposes of filing for bankruptcy, if you have your own business and it is a sole proprietorship, then you and your business are, in effect, one and the same. Filing for bankruptcy as a consumer means that you are also filing for bankruptcy for your business. This is not true for other types of business structures.

With a Sole Proprietorship, You Will Need to Take the Means Test for Chapter 7 Bankruptcy
Most businesses seeking to file for Chapter 7 bankruptcy do not have to take the “means test” that is required of consumers. However, if you own a sole proprietorship, you will be filing for personal bankruptcy and will need to take the means test to determine your eligibility.

If You are an Independent Contractor in the Gig Economy, You Will File for Bankruptcy the Same Way as a Person Who is an Employee
If you are self-employed as an independent contractor, your consumer bankruptcy filing will move forward just like any other consumer’s personal bankruptcy case. In other words, a person who is classified as an independent contractor within the gig economy is not any different than a person classified as an employee by an employer.

If Your Business is Anything Other Than a Sole Proprietorship and You Want to File for Personal and Business Bankruptcy, You are Looking at Two Different Bankruptcy Cases
A sole proprietorship, like we discussed above, is the only type of business structure that is not separate from the business owner. If you own any other type of business structure—a partnership, an LLC, or a corporation, for example—and you want to file for both personal and business bankruptcy, you will be looking at two different bankruptcy cases. In other words, your personal bankruptcy case will be separate from the business bankruptcy case.

Contact a Bankruptcy Attorney in Oak Park
If you have questions about filing for bankruptcy when you are self-employed, a dedicated Chicago bankruptcy lawyer can assist you. An advocate at our firm can answer your questions today. Contact the Emerson Law Firm for more information.


See Related Blog Posts:
Coronavirus Pandemic Likely to Cause Consumer Bankruptcies
Filing for Consumer Bankruptcy in the Time of Coronavirus





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