Self- employed business owners thinking thinking about filing bankruptcy in Staten Island can find the process daunting. Individuals are often scared of their creditors coming after them and want to find protection. Many individuals are often worried about how filing bankruptcy will impact their future finances. Individuals who are self-employed, independent contractors, or sole proprietors of small businesses have options available to them.
Filing bankruptcy should not be something to take lightly but sometimes it is the only option.
Bankruptcy Chapters Available to Individuals that Are Self Employed
Many small businesses that file bankruptcy are able to eliminate their debt and start over. Individuals should know whether they want to keep their business open or close it and move on before filing bankruptcy. Small business owners have two bankruptcy options available to them, Chapter 7 bankruptcy and Chapter 13 bankruptcy. Chapter 7 bankruptcy eliminates an individual’s debt completely. Chapter 13, on the other hand, allows individuals to reorganize their debt and pay back their creditors over a 3-5 year repayment plan.
The Bankruptcy Court usually determines who qualifies for a Chapter 7 bankruptcy or Chapter 13 bankruptcy based on an individual’s pre-filing income. An exception to this rule is for individuals who have more business debt than personal debt. If an individual’s debt is more than 50% business debt, they can qualify to have their debt eliminated under Chapter 7 as long as they don’t have too much disposable income left over after their monthly expenses are paid. Individuals with too much money after paying their monthly expenses will be required to file a Chapter 13 bankruptcy. The Bankruptcy Court believes individuals who make too much money should pay some of their debt back.
How Can Bankruptcy Help a Small Business
Small business owners that file bankruptcy can use the bankruptcy process as a way to get out of debt and start a new. Small business owners with little assets of value can use Chapter 7 bankruptcy to eliminate their debt and continue running their business. A Chapter 7 bankruptcy can also allow an individual to walk away from the business without any personal liability. Most times individuals who sign contracts with their vendors and creditors become personally liable for the debt without even knowing. When an individual is personally liable for the debt, creditors have the ability to go after their personal assets. Business owners that have a lot of assets with equity have to file a Chapter 13 bankruptcy instead. In a Chapter 7 bankruptcy, if the assets are more than an exemption the Bankruptcy Court can take the asset to pay back an individual’s creditors.
Chapter 13 bankruptcy can also help small businesses with assets. In Chapter 13, bankruptcy individuals can repay their debts over a 3-5 year repayment plan. This allows small business owners to restructure their debt and catch up on monthly payments. Additionally, small business owners with assets can pay back the equity in the assets and keep them. Individuals should note that the business will still be liable for the debt even though they may no longer be personally liable.
Bankruptcy Records For Self Employed Individuals in Staten Island
To file bankruptcy to get rid of overwhelming business debt small business owners and self employed individuals in Staten Island must ensure they keep good records of their income. The Bankruptcy Court will request 6 months of bank statements or a profit and loss statement showing how much income they made within the last 6 months’ time frame.
Individuals who are self-employed should speak with a Staten Island bankruptcy lawyer to ensure that they provide the right financial information so their case does not get dismissed.Individuals who are self-employed should keep spreadsheets to verify their income. These documents will need to be provided to the court.
Some records that self-employed individuals should keep when considering bankruptcy are:
- Bank Statements showing deposits of cash and checks and withdrawals
- Copies of checks
- Receipts for any payments that were made in cash
- Tax returns
- Invoices
- Contracts
- PayPal, Zelle and Cash app records
- Individuals who own a business should confer with their accountant to verify their income. An accountant is a financial professional that can provide tips to assist the individual with their self-employed bankruptcy.
Things to Consider before a Self Employed Bankruptcy
Individuals should think about working with a bankruptcy attorney as it will make for a smoother process. Many individuals who own businesses may make mistakes that can lead to their Chapter 7 or Chapter 13 bankruptcy case being dismissed. Bankruptcy laws can be complicated. The Bankruptcy Court has laws in place that forbid individuals to transfers assets, pay certain individuals back, or take their name off of certain assets before filing bankruptcy. For example, if an individual took a loan from their mother to start their business, and pays their mother back before they file bankruptcy although, thinking they are doing the noble thing, this is a “preferential treatment” and may lead to further issues. The Bankruptcy Court doesn’t think it is fair for individuals to pay their family and not pay back their creditors. A bankruptcy attorney can explain this complicated area of law to ensure the individual doesn’t do anything to jeopardize their bankruptcy case.
Individuals who are confused about their income and how to calculate their finances should speak with a bankruptcy lawyer. A lawyer can help sort through their business income and organize it to ensure that the proper documentation is provided. In addition, a bankruptcy lawyer can help individuals separate their business assets from their personal assets. The bankruptcy laws provide for exemptions for certain assets. Any assets that are not exempt can be taken to pay off creditors. Individuals who have business assets should speak with a lawyer before doing anything with their business assets. This includes selling, giving, or gifting these items away before filing bankruptcy. Doing such, can be deemed a fraudulent transfer and cause a headache within an individual’s bankruptcy case.
Finding the Right Staten Island Bankruptcy Lawyer For the Self- Employed
Individuals who are self-employed have the legal option to file bankruptcy. However, filing a self-employed bankruptcy is much more complicated than for someone who is a regular wage earner. Karra L. Kingston Esq. has helped many individuals who were self-employed file bankruptcy and start their life anew. Individuals considering filing bankruptcy should contact us at (973)-979-9078.