A large share of the people I meet in this city work for themselves in one form or another — a contractor with a van, a hairstylist renting a chair, a freelance designer, a driver who owns his own car, someone running an LLC out of a Bushwick apartment. I have been practicing bankruptcy law in New York City since 2008, and self-employed filers are the group that most often arrives at my office convinced they cannot file at all. Usually someone has told them that bankruptcy is for people with W-2 jobs, or that they will lose the business.
Neither is true. But filing when you are self-employed is genuinely different, and the differences are mostly about paperwork and timing rather than eligibility. Here is what actually changes.
The means test does not use your gross receipts
The first fear is almost always the means test. If you invoiced $180,000 last year, you assume you are disqualified from Chapter 7 on the spot.
You are not. The means test compares your current monthly income to the median family income for a New York household of your size, and for a self-employed filer the income line is gross receipts minus ordinary and necessary business expenses. Materials, subcontractors, fuel, insurance, the rented chair, the studio — those come off before the comparison happens. What matters is what the business actually nets you.
For cases filed on or after July 15, 2026, the U.S. Trustee Program’s New York median family income figures are $73,272 for a one-person household (the table’s “1 earner” column), $92,902 for two people, $115,579 for three, and $139,040 for four (Census Bureau median family income table, U.S. Trustee Program). These figures move periodically, so the number that governs your case is the one in effect on the day you file, not the one you read six months earlier.
The catch is that the test looks at the six calendar months before filing. A self-employed income stream is lumpy by nature. A contractor who closed two big jobs in March and April and nothing since can look wealthy on paper in June and ordinary in September. Choosing the filing month is real strategy for self-employed clients in a way it simply is not for someone on salary.
What the trustee will ask you for
Chapter 7 trustees in the Southern and Eastern Districts of New York are not hostile to self-employed debtors, but they will not accept a shrug where documentation should be. In my experience you should expect to produce, at minimum:
- Two years of filed federal and New York State returns, including every Schedule C, K-1, or partnership return
- Six months of business bank statements — separate from your personal statements
- A profit-and-loss statement for the current year through the filing date
- A list of accounts receivable as of the filing date, with names and amounts
- Copies of any business licenses, DBA filings, or LLC formation documents
The receivables list is the one people forget, and it is the one trustees care about most. Money a client owes you on the day you file is an asset of the bankruptcy estate even though it has not hit your account yet. It does not disappear because the invoice is unpaid. It has to be scheduled, and then it has to be exempted or dealt with.
The tools-of-trade exemption almost nobody claims
New York’s exemption statute protects working tools directly. Under CPLR 5205(a)(7), tools of trade — necessary working tools and implements, professional instruments, furniture and library — are exempt up to $4,075. The Department of Financial Services publishes the adjusted figures; that amount took effect April 1, 2024, and the next scheduled adjustment is April 1, 2027 (NY DFS, Amount Exempt from Judgments). A motor vehicle is separately exempt up to $5,500 under CPLR 5205(a)(8), which matters enormously if your work depends on a van or a car.
New York also lets you elect the federal exemption scheme instead of the state one under Debtor and Creditor Law § 285. For a self-employed filer with modest home equity and a lot of equipment, that election can be the difference between keeping the saws and losing them. It is a one-time, all-or-nothing choice, and it should be made deliberately.
If your business is an LLC or a corporation
This is where I see the most confusion. Your personal bankruptcy does not put your LLC into bankruptcy. What it does is put your ownership interest in the LLC into the estate. The trustee steps into your shoes as the member and can, in principle, liquidate that interest.
In my experience, a single-member LLC whose only real value is your own labor is usually worth very little to a trustee — there is nothing to sell but you. That is a judgment the trustee makes case by case, not a rule you can rely on. A business with equipment, a lease, inventory, or a client list is a different conversation entirely. That valuation question needs to be answered before you file, not discovered at the meeting of creditors.
Whatever the structure, disclose it. The business, its income, its equipment and your ownership interest all belong on the schedules and the Statement of Financial Affairs, and Official Form 107 asks directly about business connections in the four years before filing. If the trustee is authorized to operate a business under the Code, periodic operating reports go to the court, the U.S. Trustee and the taxing authorities under 11 U.S.C. § 704(a)(8) — uncommon in a consumer case, but a reminder of how much visibility the process assumes. Running a business you did not disclose is the fastest way to turn a routine case into a contested one.
Merchant cash advances and personal guarantees
New York City is the center of the merchant cash advance industry, and I see MCA debt in nearly every small-business case that comes through my door now. Two things are worth knowing. First, most MCA agreements contain a personal guarantee, which is why the collector is coming after your personal bank account even though the money went to the business. Second, a personal guarantee is ordinarily a dischargeable general unsecured debt in a Chapter 7 case — the guarantee does not survive discharge simply because it is labeled a business obligation. The one thing to watch is the application you signed. Under 11 U.S.C. § 523(a)(2)(B), a debt is excepted from discharge if the creditor can show you used a materially false written statement about your financial condition, that it reasonably relied on that statement, and that you intended to deceive. MCA underwriting runs on submitted revenue figures and bank statements, so if the numbers on that application were inflated, expect the funder to raise it. Bring me the application along with the agreement.
Where the business has assets you want to protect, or where you need to keep operating while you catch up on arrears, a Chapter 13 repayment plan is often the better structure. Chapter 13 lets a self-employed debtor keep everything and pay creditors a portion over three to five years, though it requires steady enough income to make a plan payment every month — which, for a seasonal trade, is its own planning problem.
Talk it through before you invoice another job
If you are self-employed and behind, the worst move is to keep servicing an MCA out of receivables while the underlying problem compounds. Bring me two years of returns, six months of business statements, and a rough list of who owes you what, and we can usually tell within one conversation whether Chapter 7 or Chapter 13 fits and when you ought to file. I offer a free 20-minute consultation — you can reach my office here, and I take cases across Manhattan, Brooklyn, the Bronx, Queens and Westchester. Attorney’s fees are set case by case depending on the complexity of the business; my lowest Chapter 7 fee is $1,838. If you want a sense of how the process runs first, I have answered many of the questions I hear most often.
William Waldner has been practicing bankruptcy law in New York City since 2008. William Waldner Professional Corporation represents individuals and families throughout New York City and the surrounding counties. This article is general information about New York and federal bankruptcy law and is not legal advice for your particular situation.
