Is Chapter 13 Bankruptcy a Good Option for Self-Employed Folks?

Filing Chapter 13 bankruptcy is a financially safe and effective way to consolidate your bills and pay them off without racking up tons of interest or risk having important assets repossessed. However, as a self-employed person, here are two things you need to factor into your decision to file this type of bankruptcy to ensure it's right for you.

Do You Have the Paperwork to Prove Your Income?

You do not have to pass a means test to file Chapter 13 bankruptcy. However, you do have to provide documentation showing how much money you've made in the previous three years. If you are including unpaid taxes in your bankruptcy filing, you will need to include your tax returns for the prior four years as well.

The court will use these documents to verify your lifestyle matches the income you're reporting, calculate your monthly plan payments, and confirm the amount of taxes you owe. You'll also be required to produce profit and loss statements for the creditor meeting where they will inspect your finances to ensure you're not hiding money from them.

As a self-employed person, proving your income can be challenging, especially if you receive money on an irregular basis or you're not very organized when it comes to paperwork. If you're struggling to gather the documents you need, contact a bankruptcy attorney for assistance. An attorney can either help you obtain the paperwork required or suggest alternatives so you can file your petition with confidence.

Do You Own Non-Exempt Assets?

Chapter 13 bankruptcy is best for self-employed individuals who have assets that would be at risk of being confiscated by the trustee if they filed Chapter 7 bankruptcy. While a Chapter 7 bankruptcy will wipe out most debts—meaning you never have to pay them back—this privilege comes at the cost of having money and property that aren't covered by state or federal exemptions seized and liquidated to pay creditors.

Thus, if you have assets that you need in order to continue conducting business, and the value of those assets exceeds the allowed exemptions, you're better off filing Chapter 13. You won't be required to turn them over to the trustee, and they'll be protected from creditor repossession while your bankruptcy case is active.

Be aware, though, the value of your assets may be calculated into your monthly payments. This usually occurs in cases where the value of the asset far exceeds the exemption amount. It's best to consult with a bankruptcy attorney regarding how the property you own will be treated by the court so you can prepare appropriately.

For help with Chapter 13 bankruptcy law, contact a local bankruptcy lawyer.