A Guide to Bankruptcy for the Self-Employed

If you are self-employed, filing for bankruptcy is essentially the same for you as it is for the average employee.  The only difference arises in your ability to prove your income and some additional considerations if you are a small business owner and wish to file for chapter 7 bankruptcy.  This bankruptcy guide will explain these issues to you, but it is advised that you speak with a bankruptcy attorney as well. 

Proving Current Monthly Income

Whether you are filing for chapter 7 or chapter 13 bankruptcy, you need to provide clear statements of your current monthly income.  The Bankruptcy Code defines current monthly income as the average income for the six months prior to you filing for bankruptcy.  This can become a problem for the self-employed because it is unlikely you issue yourself a paystub every month tracking your income.  However, profit and loss statements or bank statements are an effective and accepted method for accounting for your income.  Also, make sure you have paid your taxes for the previous tax year.  The bankruptcy trustee will also require that you provide a copy of your tax return with your bankruptcy petition.  

Small Business Owner Filing for Chapter 7

Another issue arises for the small business owner who wants to file for bankruptcy.  If you file for chapter 7 and you own and operate your own business, the bankruptcy trustee can liquidate your business as part of your bankruptcy estate.  During a chapter 7 bankruptcy, the bankruptcy trustee sells all non-exempt assets to pay off your creditors in the order of their priority.  Therefore, the bankruptcy trustee will sell many of your business’ assets to pay off your creditors.  If you do own your own business and you still wish to file for bankruptcy consider filing for chapter 13 bankruptcy.  However, a debtor filing for chapter 13 bankruptcy must establish a repayment plan.  For the self-employed debtor, the bankruptcy court requires you to file a monthly financial report, called a Business Operating Statement.  File your first statement in the first month you file your bankruptcy petition and file each statement thereafter within the first 15 days of each calendar month.   

Getting Legal Help

Bankruptcy is a complicated process and this bankruptcy guide does not constitute legal advice.  If you are considering filing for bankruptcy contact an experienced bankruptcy attorney in your area as soon as possible.