Considerations For Filing Bankruptcy If You Are Self-Employed In Ohio

Owning your own business can be great but it also comes with a lot of red tape you must handle yourself: marketing, payments, overhead, etc. Between all those upkeep costs and possible multi-month streaks of underperformance and you can rack up a lot of debt.

When the costs of being self-employed run rampant, you may find yourself considering bankruptcy. If you are concerned about your bankruptcy options its best to consult the relevant specialized attorneys.

Self-Employed Bankruptcy and the Role of the Means Test

Self-employed individuals are just like any other consumer and can file for Chapter 7 or 13 bankruptcy. That having been said, it is a bit more challenging to prove self-employed income under the means test.

The Means Test

This is a test administered by the bankruptcy court in order to assess whether or you qualify for bankruptcy and which chapter, if you do. Anyone whose income falls beneath the state’s median family income automatically qualifies and can forgo the test. Assessing where your income lies involves looking over the U.S. Census’ American Community Survey (ACS).

In the event that you do need to take the test, the relevant forms depend on which variety of bankruptcy you are seeking: Form 122A for Chapter 7 and 122C for Chapter 13. Figuring out your monthly income entails averaging out your earnings over the last six months. Subtract your recurring debts and other expenses to assess your disposable income. It generally goes that the higher your disposable income, the less likely you will be qualified for bankruptcy.

The Means Test regarding Self-Employed Parties

The means test is a bit trickier with this group. While company employees can show off a pay stub as proof of monthly income, you have no paycheck to use for these purposes. Instead, you must use documents like tax returns and a record of all deposits made to your financial accounts.

Bankruptcy for Sole Proprietors

Sole proprietorship is a status where business and personal finances are hybridized. This also means that filing for bankruptcy entails showing both personal and business earnings and debts.

Qualifying for Chapter 7 could free you of debts in both sectors. chapter 7 is also a good idea if few of your nonexempt assets are salable because it would be too severe a loss of property. This also means that excessive nonexempt assets can cost you a lot when your trustee is forced to cash them out to settle your debts.

Chapter 13 suits sole proprietors well since it does not disrupt your ability to run the business. Because business-essential assets do not need to be sold off, you can continue making payments without disrupting business.

It is worth remembering that you need to maintain enough funds to pay off your debts while also handling business expenses. Lapsing on your Chapter 13 payment plan risks dismissal of your bankruptcy, placing you right where you were before filing to begin with.