It’s easy to get behind on your debts, especially after a year like 2020. That’s why many people are filing for bankruptcy in Ohio. But can you file for bankruptcy while self-employed? Since your income history is part of the case, and self-employed folks can have monetary highs and lows, you might assume that it’s not available. However, self-employed people can file for both Chapter 7 and Chapter 13 bankruptcy. Chapter 13 is more difficult, because self-employed individuals don’t have paychecks and regular income to ensure payments to the Chapter 13 trustee.
As always, it’s good to have an experienced bankruptcy attorney helping with your case. They’ll be able to guide you through the process to get the best results possible.
How to Prove Self-Employment Income
Normally, people who file for bankruptcy provide income proof like pay stubs and tax returns. That’s harder when you’re self-employed. Chances are that you pay yourself out of your business funds rather than create your own pay stubs. Additionally, self-employment income is usually more irregular than working for someone else; especially when you’re starting your business.
If you’ve kept good business records, however, it won’t be too difficult to show your own income. You’ll need to show two to several years of income tax statements (depending how you’re filing), bank account and business statements, and business receipts like invoices, cash payments, check stubs and more. This will help the bankruptcy court determine the full extent of your income.
The Importance of Profit and Loss Statements
It’s always a good idea to not only have an accountant, but have them create profit and loss statements for your business. If you don’t have one, you can do it yourself. The goal is to create a complete and detailed financial history. It should show the profits you gained as well as the expenses you incurred.
If you’re filing for bankruptcy, you may have more losses than gains—and that’s fine. You must be accurate and complete in your accountings, even if it’s embarrassing or painful to think about. Courts do not look kindly upon people who omit important evidence. In fact, it could jeopardize your entire case.
While self-employment presents a few challenges, like a more complicated paper trail, there’s no reason you can’t file for Chapter 7, or even Chapter 13 bankruptcy in Ohio. Working with a bankruptcy attorney can help you determine the best course of action so you can recover quickly from your loss.
If you need help exploring your options, call Dworken & Bernstein for a consultation today.