Things To Consider If You’re Filing For Bankruptcy And Self-Employed
Being self-employed can have a number of benefits including flexibility, autonomy and the power to make your own decisions. But it also means wearing multiple “hats”. People who are self-employed may be small business owners, or they may be freelancers or independent contractors. They may be responsible not only for their actual product or service, but also for business development, marketing, accounts payable and accounts receivables. Self-employed freelancers and contractors often have difficulty finding enough time to focus on filling their sales pipeline. So when one job ends, they have to scramble to find another. In addition, self-employed individuals may be more prone to changes in the local economy and industry-related downturns. Sometimes, despite best efforts, business expenses can overtake earnings. If this can’t be reversed quickly, the debt will continue to grow and grow until it feels insurmountable. In situations like this, bankruptcy may be a very viable option that can provide self-employed individuals with a fresh start.
If you are self-employed and facing financial difficulties, we can help. Contact Sirody & Associates, experienced bankruptcy attorneys, for a free consultation.
Self-employment continues to grow as a percentage of overall employment. The Bureau Of Labor Statistics projects that the number of self-employed people in the U.S. will exceed 10 million by the year 2026. Self-employed jobs vary greatly from real estate agents to marketers, construction workers, financial analysts, accountants, cosmetologists, writers, programmers, shared ride drivers and more. However, the autonomy and flexibility enjoyed by many self-employed people can come at the cost of financial vulnerability. A slow-down in business (even temporarily) translates directly to a reduction in income. If a self-employed individual becomes sick and can’t work or if they have trouble collecting on outstanding invoices, they can quickly fall into debt.
Separate Business And Personal Expenses
To have the best handle on finances, it is always a good idea to keep business and personal separate. For example, a self-employed person may invest in new equipment that helps them work more efficiently or may put some funds into a marketing campaign to bring in new business. If business and personal finances are commingled, it will be difficult to track the return on these types of business investments. Likewise, combining business and personal can mask financial red flags until it’s too late. Before any bankruptcy filing, it is advisable to have business and personal finances separate. A qualified accountant may be helpful in sorting this out if you’ve neglected to keep these two areas separate.
Identify Monthly Income
The bankruptcy court looks at income for the prior six months, so it is very important to have this calculated in advance of filing. It is also important to be as truthful as possible when it comes to reporting this income amount to the bankruptcy judge. If the court believes your monthly income was underestimated, your bankruptcy petition could be dismissed. The chances of dismissal are even greater for those who do need keep careful bookkeeping records or who commingle business and personal expenses, it may be advisable to work with an accountant to accurately determine your income for the prior six months.
Hang On To Business And Personal Assets
If you decide that you are going to file for bankruptcy, it is very important that you don’t transfer any money or assets to family members or friends. To the bankruptcy court this will likely appear as an attempt to reduce income, and it could result in the immediate dismissal of the bankruptcy case. Even if you have very honest intentions in transferring funds to someone else, you must wait until your case is complete before doing so. Once your bankruptcy is complete, you may transfer any funds as you wish.
Get Paperwork In Order
In addition to having a good understanding of your monthly income and keeping business and personal expenses separate, it is important to have a complete record of all income and expenses. You will need to round up bank statements, credit card statements, debt notifications and bills and vendor bills or invoices. You will need to have a record of all debts that you owe and would like included for consideration for discharge during your bankruptcy. It is recommended that you bring this documentation with you when you meet with your bankruptcy attorney.
Engage An Experienced Bankruptcy Attorney
Whatever your self-employment situation, working with an experienced bankruptcy attorney in your state can mean the difference between a successful bankruptcy filing and a case that is dismissed. The finances of people who are self-employed can be incredibly complex, and navigating the bankruptcy process can be difficult to do on your own. An experienced attorney who is familiar with the specific bankruptcy laws in your state can help smooth the process. At Sirody and Associates, we’ve been helping Marylanders get out of debt for over 20 years. If you are self-employed and struggling with financial difficulties, contact us online. We will meet with you personally and will ensure you have the information you need to weigh all available options.