Bankruptcy Options for the Self Employed

Being self-employed comes with its own set of financial struggles. But when your struggles become so great that you are no longer able to cover your debts, living expenses, and other costs, you may be looking for a solution to your problems. When you have tried multiple budgeting plans and attempted to increase your income wherever possible, to no avail, declaring bankruptcy may be the best option for you.

The experienced Alabama bankruptcy attorneys at Padgett & Robertson can help you further explore your bankruptcy options when you are self-employed. Call our office at (251) 342-0264 to schedule your initial consultation.

The Means Test for the Self-Employed

Every person, no matter their employment status, will need to pass the means test in order to qualify for filing bankruptcy. Upon completion of the main test, if you qualify, you will also be able to determine which type of bankruptcy is the right one for you.

Generally speaking, your income level will determine which bankruptcy type is most relevant for you. Chapter 7 bankruptcy is the most commonly thought of type of bankruptcy. Here, you will liquidate your assets and debts in order to repay your creditors with some of your assets being exempted. However, some self-employed people will not qualify for Chapter 7 because they do not pass the means test. Here, you need to meet strict income guidelines in order to qualify.

Several factors will be taken into consideration to determine whether you pass the means test. This includes your average monthly income over the last six months, your daily living expenses, your monthly living costs, and other expenses that you might have. This analysis helps the court to determine what disposable income you have available. Your disposable income is what you will be able to use to pay back your creditors. The less disposable income you have, the more likely you are to qualify for bankruptcy.

Being self-employed means that you will need to be prepared to prove your source of income to the courts. Although you may not have a W-2 or pay stub to show the court, you may be able to provide them with proof of your income by showing bank records, tax returns, or other methods that can prove your wages.

The Means Test for Sole Proprietors

When you are pursuing a bankruptcy declaration as a sole proprietor or, you will need to be prepared to list both your business income and debts and your personal income and debts as part of your means test. This is because your personal debts and business debts are one and the same.

There are multiple types of bankruptcy that may be a good fit for business owners such as yourself. In some cases, Chapter 7 may be the most appropriate. This is particularly true if you do not have considerable non-exempt assets. However, depending on how much money you are bringing in, you may not qualify for a Chapter 7 bankruptcy declaration. Instead, Chapter 13 bankruptcy or Chapter 11 bankruptcy may be more appropriate for you.

Chapter 13 bankruptcy and Chapter 11 bankruptcy focus on formulating repayment plans that allow you to retain your assets, and keep your business’s doors open while you continue to pay off your debts a little at a time. For this reason, if you hoped to keep your business open despite filing for bankruptcy, this may be an attractive option for you. If you are still unsure which type of bankruptcy is going to be the best fit for you as a self-employed sole proprietor, you can always schedule a no-risk case review with a reputable Alabama bankruptcy attorney.

Get Help from a Bankruptcy Lawyer in Alabama

Being self-employed does not mean that you are not without options when you are struggling financially. But figuring out which option is the right fit for you may be more complex than you originally thought.

If you are interested in learning more about how you can declare bankruptcy while being self-employed, meet with a dedicated Alabama bankruptcy attorney at Padgett & Robertson. Schedule your no-risk case review when you complete our online contact form or call our office at (251) 342-0264.