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Running any size business is hard. But when you are self-employed as a sole proprietor of a small business (or if you work as an independent contractor) it can prove even more financially overwhelming – especially now, during the coronavirus pandemic.
Deciding to file for bankruptcy is never easy, but sometimes you have such significant financial stress and responsibilities, that you believe it is best to seek protection from your creditors.
Once you decide to file for bankruptcy, you have the option of doing so under Chapter 7 or Chapter 13. It’s extremely important that you have a clear understanding of both before making this decision. Because these chapters are based upon your income, it can make this decision even more difficult. Chapter 7 bankruptcy may help to discharge your debts through a process of liquidation. Chapter 13 however sometimes affords you the ability to pay off some of your debts.
Since your income is what determines whether you can file for Chapter 7 or whether you must file for Chapter 13, you must present evidence in court to verify your income for six months before the date that you file.
Verifying Your Income
Self-employed individuals, just like employees, may file for bankruptcy if they have far more debts than they have the ability to pay them. One of the most difficult parts of filing for bankruptcy when self-employed is having a means of verifying your income. While employees receive a W-2, self-employed workers do not. Additionally, many self-employed individuals don’t receive regular payments – instead, they often vary. Further complicating the situation is the fact that many business owners put money back into the business rather than pay themselves.
So How Can You Verify Income?
To track your business income and costs, it’s often best to do so through the purchase of software specially made for just that. Programs such as QuickBooks can come in really handy. Alternatively, you can choose to keep a spreadsheet of everything. Either way, the most important part is that you have the necessary records to demonstrate the money you’re making. Several documents can assist you with this:
- Bank Statements Showing Cash and Check Deposits
- Cash App Records
- Contracts
- Copies of Checks
- Emails or Text Messages that Show Payment Amounts
- Invoices
- PayPal Records
- Receipts for Payments Made in Cash
- Tax Returns
Consider Professional Help
While it’s definitely an added expense, an accountant can also be beneficial in verifying your income. It’s also wise to consult with a qualified bankruptcy attorney who can work with you to be sure that you don’t make any mistakes that could negatively impact your situation.
You’re probably not an accountant or specialized tax professional, so understanding all of the nuances of business assets versus personal assets versus income can be very confusing. That’s why it’s in the best interest of self-employed individuals to work with those who can ensure that you are taking the appropriate steps and making the correct decisions along the way.
Toronjo & Prosser Law Helps Those Who Are Dealing with Bankruptcy
It’s undoubtedly stressful to realize that you don’t have enough money, and even more stressful when you realize that filing for bankruptcy may be your best option. That’s why it’s so important to consult with a knowledgeable and experienced Dallas bankruptcy attorney. At Toronjo & Prosser, our qualified Texas Bankruptcy Attorneys can help you to navigate the process. To learn more or to schedule a free consultation contact us online or call us today!