How Do Self-Employed People File For Bankruptcy?

It is becoming more common for business owners to come to my office for Bankruptcy relief.  Often, these are the risk-takers who went out on their own and tried to start a business that didn’t work out.  We call them entrepreneurs and according to the SBA approximately one-third of all new businesses fail within the first year.  We’ve seen Donald Trump, Henry Heinz, Milton Hershey and Henry Ford to name a few all involved in Bankruptcy and the list keeps on growing.  These tycoons have all succeeded, failed and succeeded time and time again.  They have used Bankruptcy to start over and try again.  You only live once but fortunately our legal system gives you the opportunity to get a second chance with your finances.

That being said, the big issue for self-employed individuals in Bankruptcy is passing the means test.  In order to qualify for Chapter 7 or Chapter 13 Bankruptcy relief the self-employed debtor’s income is examined.  The means test looks at the last 6 months of income, not including the month of filing, to determine if the debtor qualifies.  A trustee, who is appointed at random to each case, will require paystubs or operating statements covering this period to confirm the debtor’s income.  Timing when to file a case it critical because it gives my office leverage in order to analyze the client’s income and determine if a case should be filed immediately or wait to file in order to pass the means test.

Once a case is filed the trustee hypothetically “steps into the shoes” of the debtor.  In a Chapter 7 case he/she can sell whatever the debtor can sell (subject to certain exemptions).  So sometimes in order to save certain assets we file a Chapter 13 Bankruptcy to keep everything.  Each case is different and requires different strategies.

If you live in New York City and are interested in learning more about Chapter 7 or 13 Bankruptcy contact my office anytime at 212-244-2882 to discuss your options.  We focus exclusively on Bankruptcy and are here to help.