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Self-employed and filing for bankruptcy in New York

When you are an independent contractor or the sole proprietor of a New York business, you may take more financial risks to get your business off the ground and keep it going during times when clients are few and far between. Sometimes these risks pay off, while other times they may send you so deep into debt that bankruptcy is your only solution. But how does the process work for self-employed individuals?

Meeting the bankruptcy means test

Self-employed people can file for Chapter 7 or Chapter 13 bankruptcy like anyone else. The potentially tricky part is reporting income to meet the means test, which is an assessment that the bankruptcy court uses to:

  • Decide if you qualify to file for bankruptcy
  • If so, what chapter

If your income falls below the New York state median family income, then you may automatically file without taking the means test first. If this does not apply to you, you will have to complete a form that states your monthly income, subtracts your expenses such as mortgage and car payments, and uses the result to get your disposable income.

This is where it can be challenging for self-employed individuals. If you are an employee, you can show a pay stub to prove how much you make each month. If you own a business or contract your services, then you don’t get paychecks and will have to use a different method, like bank deposits or tax returns, to prove how much you make each month.

Declaring bankruptcy as a sole proprietor

Personal and business finances are enjoined for sole proprietors, so if you run your own company you will have to calculate both types of income and debts, and then decide what bankruptcy chapter is better for your situation.

  • Chapter 7: Filing for Chapter 7 can remove most, if not all, of your personal and business debt. It is a good choice if you have few non-exempt assets, as anything not covered by state or federal exemptions can potentially be taken by your trustee and sold to satisfy your debts.
  • Chapter 13: This form of bankruptcy is less likely to disrupt business because you don’t have to sell any assets that could be important for company operations. Your debts are restructured into a single amount that you repay at an affordable rate.

If you are an independent contractor or sole proprietor who is experienced financial difficulties, then contact a New York bankruptcy attorney today about your situation. Your attorney will review your situation, go over the different bankruptcy options with you, and help you decide which form of debt relief is the best fit for your personal and professional future. Jayson Lutzky is a Bronx, NY bankruptcy lawyer who handles personal bankruptcy cases. If you are looking for a fresh financial start, then contact his office at 718-329-9500 to set up a free in-person consultation or visit www.MyNewYorkCityLawyer.com.

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