Bankruptcy When You’re Self Employed

Once you decide to file bankruptcy, you need to determine which chapter you want to file under. We advise working with an attorney. They can help you determine which chapter is best for you if you go bankrupt. Filing bankruptcy when you are self-employed isn’t much different from filing as an individual. The exception is if you have employees, you have a lot of real estate, or you make a lot of money.

Choosing a Bankruptcy Process

If you have a business with employees, you own a lot of real estate, or you have many assets, you might have to file Chapter 11. It is re-organization and is much like Chapter 13 for individuals. Both of these do take some time. Your finances must qualify to file under either chapter.

Another way to file is Chapter 7 liquidation. The major difference between reorganization and liquidation is that you can keep more of your assets. You can also keep operating your business when you re-organize. Only you and your attorney can determine which bankruptcy chapter is best for you.

You can also choose Chapter 7 liquidation if you have a business. But, if you do, you will not be able to continue operating your business. Additionally, when you file Chapter 7, the court sells most of your assets to pay creditors. This includes business assets.

Income Verification

One major difference in filing bankruptcy as a gig worker is income verification. Gig workers often keep track of their own income and file their own taxes. If you use an accounting software program, you can print a profit and loss statement. However, you might still have to have it certified by an accountant.

Using an accountant may be easier. The accountant would already have everything needed to certify your profit and loss statement. When you file bankruptcy, you have to provide income tax returns and bank statements/ You’d need to make sure your income matches your income tax returns and bank statements.

Differentiating Between Individual and Business Assets

This is where things might get a bit sticky. If you are a gig worker and you claim your income as an individual on Schedule C, and you file Chapter 7, the court will require that you sell personal and business assets.

While Chapter 13 and, to a lesser extent, Chapter 11, require you to sell some assets, you do have more exemptions to play with, plus you have the option of continuing operating your business under its current structure if you so choose.

If you can differentiate between business income and personal income – that is, your company’s income goes into a different bank account and you are organized as a limited liability corporation, corporation, partnership, or other entity, and you pay yourself a paycheck, then the court will differentiate between business income and assets and personal income and assets.

Because filing bankruptcy is often a complicated process, especially when you are a sole proprietor or a single-member limited liability company and you don’t take a paycheck, we advise that you consult with a bankruptcy attorney who has worked with gig workers of all types to determine the best way to file.

About the Author: Cheryl Bowman has been writing on various topics since 2007. While she writes on many topics, including pets and food, her specialties are legal and automotive as she worked in both industries. Cheryl’s legal specialties are bankruptcy and family law, but she writes about criminal law and civil cases such as personal injury and real estate. You can find Cheryl on Writer Access.