Running your own business can be greatly rewarding. However, it can also be extremely expensive. With all of the expenses involved in running a business, all it takes is a few bad months to end up deeply in debt. For many people, the only solution to this type of situation is bankruptcy. If you are a business owner whose self-employment costs have gotten out of control, you may want to consider this option. Below is an overview of filing for bankruptcy when you’re self-employed.
The Means Test
A means test is an examination conducted by the bankruptcy court to determine if an individual qualifies for bankruptcy. If a person’s income falls below a certain level, he or she automatically qualifies for bankruptcy and won’t need to take the means test. Everyone who earns an income above this level, however, must take the test. For self-employed people, the means test is a bit more complicated. An employee of a company can easily prove his or her monthly income by providing the court with pay stubs. You, however, as a self-employed person, must rely on a different method to prove your income. Your tax returns and bank deposits, for example, may be used for this purpose.
Bankruptcy for Sole Proprietors
As a sole proprietor, your personal and business debts are intertwined. Therefore, when you file for bankruptcy, you must list both business and personal income and debts. The primary factor in determining what type of bankruptcy you should file for is your income. Depending on your income, you will either file for Chapter 7 or Chapter 13 bankruptcy.
Chapter 7 Bankruptcy
If you qualify for Chapter 7 bankruptcy, the court will discharge most of your personal and business-related debts. If you don’t have many nonexempt assets, Chapter 7 works in your favor because you won’t lose much of your property. However, if you do have a lot of non-exempt assets, you may have to sell them to pay off some of your debt.
Chapter 13 Bankruptcy
Chapter 13 bankruptcy is often a good option for sole proprietors because it doesn’t tend to disrupt business. Since Chapter 13 doesn’t require the sale of vital business assets, business owners who file for Chapter 13 bankruptcy are usually able to make monthly payments while continuing to operate.
The Bottom Line
Regardless of whether you file for Chapter 7 or Chapter 13 bankruptcy as a sole proprietor, you should contact a Chicago bankruptcy attorney for assistance.
Contact Our Experienced Chicago Bankruptcy Attorneys
If you are a small business owner and would like to explore your bankruptcy options in Chicago, Illinois, you need a Chicago bankruptcy attorney on your side. At Chicago Bankruptcy Clinic, our knowledgeable Chicago bankruptcy attorneys will handle all the details of your Chicago bankruptcy filing efficiently and professionally. When you trust Chicago Bankruptcy Clinic with your Chicago bankruptcy case, you can rest assured that we will do everything in our power to ensure a successful result. Please contact us today to schedule a free consultation with one of our talented bankruptcy attorneys.