Sometimes being self-employed can seem like a huge hassle. The number of basic situations that seem unnecessarily tedious or difficult can start to stack up – taxes, insurance, business expenses, and business accounts. Some eventually find themselves wondering if bankruptcy is on the list of items made more difficult due to self-employment.
Is Filing More Difficult for the Self-Employed?
Every bankruptcy is different because everyone’s situation varies, but most self-employed people are eligible to file bankruptcy. The process may be simpler for those who are not self-employed, but with a little additional documentation the self-employed can just as effectively seek out the protections of bankruptcy.
Filing Bankruptcy When You Are Self-Employed:
A self-employed employment status can complicate the bankruptcy process, but an experienced attorney will have no trouble guiding you through the steps involved. One of the potential complications for self-employed bankruptcy filers is that the line between what is personal property and what is business property can be confused. When filing Chapter 7 bankruptcy, non-exempt assets are liquidated to pay creditors. With a self-employed filer, the bankruptcy court may experience some confusion about which assets are personal assets and which are business assets, which can be problematic for the filer’s business. For example, an asset necessary to the running of a business may not be exempt for the full value according to bankruptcy law and could be seized by the trustee overseeing the bankruptcy case.
Another Potential Complication: Proof of Income
Another potential complication self-employed bankruptcy filers could face is the possible difficulty of showing valid proof of income. While this is typically easy for filers employed by a separate company or entity, the self-employed filer will usually find that it requires gathering bank statements, and profit and loss documents (for a minimum of 6 months prior to filing). The bankruptcy court uses these documents to review the situation and create a financial overview of the situation. It’s also important to be able to show which portion of the business revenue was designated as salary and which portion was invested back into the business.
The Value of Your Business and the Bankruptcy Means Test:
The means test determines eligibility to file Chapter 7 bankruptcy. The value of a bankruptcy filer’s business could affect whether they qualify to file. The value of the business could put a filer’s income above the median even if their take-home pay is low enough for them to qualify according to the standards set by the means test. On the other hand, in some cases, being self-employed can be beneficial when attempting to qualify for Chapter 7 bankruptcy because it decreases the disposable income.
If you are self-employed, and you’re struggling with debt, get in touch with Kenneth C. Rannick P.C., Tennessee, and Georgia bankruptcy attorney. You are in good hands with Kenneth C. Rannick P.C.