If you’re self-employed, filing bankruptcy may be a little different than if you were employed by another entity. However, you can still successfully eliminate your debt or reduce it and get more time to pay by filing bankruptcy. Here’s how.
Proving Your Income
Establishing your income as a sole proprietor is usually the most challenging aspect of filing for bankruptcy. To qualify for a Chapter 7, you must be able to pass the means test or make under the average income for a family of your size where you live. To qualify for a Chapter 13, you must be outside of this parameter.
To prove your income, you won’t be able to draw on W-2’s issued by an employer. You may need to provide more extensive financial records, such as your last several tax returns or bank statements. Be prepared to show income for longer than filers with W-2’s, as the bankruptcy court will need to establish patterns in your earnings and calculate your average income.
Bankruptcy and Sole Proprietorship
Sole proprietors generally have two options for filing bankruptcy:
A Chapter 7 bankruptcy allows you to submit all of your unsecured debts to the bankruptcy court to be discharged. If your case is successful, this debt will be eliminated and you will no longer be responsible for paying it. In most cases, people who file for a Chapter 7 bankruptcy must have a high debt-to-income ratio.
If you make too much money to qualify for your debts to be discharged under a Chapter 7, your other option is to file a Chapter 13. With this type of bankruptcy, none of your debts are discharged initially. You are placed on a three to five year repayment plan that you can afford with any disposable income you have after your living expenses and daily financial obligations have been met. Once this repayment period is over, however, if any debt is left over, it may be discharged at that time.
When to Get Help From a Bankrutpcy Attorney
Are you self-employed and suffocating under a mountain of debt? You have options available to you. A bankruptcy attorney can help you get the debt relief you need so you can focus on generating more income through your business and getting a fresh financial start.
Call Sims Bankruptcy Law, PLLC today for a consultation at 469-751-7467 (DFW) or 254-304-7161 (Central Texas).