Filing for personal bankruptcy is difficult enough when you have a job at a regular employer. When you are self-employed, it can be infinitely harder. You will need a lot of records and information to make sure nothing has been omitted, and because of that a bankruptcy attorney may be worth their proverbial weight in gold.
Verifying Your Income – The Means Test
Every filer must verify their income, as one might imagine. This is but it is somewhat difficult for those who are self-employed in sole proprietorship business. The Bankruptcy Court will ask you to document and average your income for the previous six months prior to filing, as that is how the means test is calculated. The means test for bankruptcy is a formula that calculates whether your income level is low enough to qualify for Chapter 7 – those with high income, so the logic goes, should not be permitted to file for Chapter 7 and simply write off debt they may be able to pay over time. Your income level and assets are calculated to come out with a final score.
The means test varies slightly between states. In California, there are a few other specifications – the most important being that if your income is below the state median for your household size, you qualify for Chapter 7, without having to go through any actual test. If your income is above the state median, you must file for Chapter 13. If you are a disabled veteran who incurred debt while on active duty or in a homeland security role, you do not have to take the means test; nor do you if your debts are primarily business debt for which you are not a guarantor. Sole proprietors are usually guarantor for their business debt.
Profit & Loss Statements
In order to verify your income, you need to create what are called profit and loss statements for your business. Profit and loss statements are meant to be proof of your business’s income and expenditures, to give an idea of your average income over six months. They are meant to display your business’s finances at a glance, so the bankruptcy judge and Trustee can have all the information needed readily at hand. Also, because the statements will have been prepared by you, corroborating documentation is necessary – an unscrupulous person could simply falsify their statement to say they have less money than they did. Examples of corroborating documents include check stubs and tax returns, or anything that shows proof of financial transactions.
If your income is able to be verified from your documents, your bankruptcy filing will progress in essentially the same manner as that of someone who is not self-employed; all the same benchmarks must be met, and the same questions must be answered.
A Bankruptcy Attorney Can Help
If you are in need of help to get your documentation in order, or deal with the Bankruptcy Court, the bankruptcy attorneys at the Dowe Law Firm can provide it. We have a long history of getting debtors to where they need to be, and we will work just as hard for you. Contact us for a free consultation today at 510-233-7700 or by email at [email protected]