With the recent changes in the economy and business hiring practices, an increasing number of workers are self-employed, either by choice or out of necessity. Self-employment can be working as an independent contractor for a business or being the sole proprietor of your own business. When faced with overwhelming debt, self-employed workers have the right to file for bankruptcy like anyone else. However, steps such as verifying their income can be more complicated.
Calculating your monthly income is an important step when filing for bankruptcy because it can determine whether you file under Chapter 7 or Chapter 13 bankruptcy. The Chapter 7 bankruptcy means test uses your current monthly income over the past six months prior to the filing of your case to decide whether you qualify for Chapter 7. In Chapter 13 bankruptcy, your income will determine how much you will repay your unsecured creditors (i.e. credit cards, medical bills, signature loans). Verifying your monthly income is more complicated if you are self-employed because your income may come from various sources and may be inconsistent depending on how regularly you receive work. Self-employed workers can verify their monthly income by presenting:
- Check stubs;
- Bank statements;
- Tax returns; and
- Signed statements from the party that paid them.
Many self-employed workers are able to qualify for Chapter 7 bankruptcy because they have less disposable income.
Many business owners who file for Chapter 7 bankruptcy can distinguish between their personal assets and their business assets in the unlikely event that the bankruptcy trustee is liquidating assets to repay creditors. However, your personal and business assets may be the same if you are a self-employed business owner. The bankruptcy trustee could seize some of your personal assets that you use for your business. Fortunately, there are several exemptions you can use to protect important assets during bankruptcy. For instance, the vehicle exemption would prevent the bankruptcy trustee from taking your car, which you may need for work transportation purposes. Filing for Chapter 13 bankruptcy would also protect your business assets.
Contact a Denton County Bankruptcy Lawyer
Self-employed workers can successfully file for bankruptcy but may need to plan in advance to assure that the process goes smoothly. You should talk to a Frisco, Texas, bankruptcy attorney at The Page Law Firm well in advance of when you expect to file for bankruptcy. To schedule a free consultation, call 214-618-2101.