Law Offices of W. George Senft


I’m Self-Employed—How Will Filing Bankruptcy Affect My Business?

Many brave Americans decide to give up their “day jobs” to start their own businesses each year. This could be a brick and mortar shop or they could work as independent consultants on their own or tied to a corporation. Start up costs and the return on investment varies, but some people are successful at self-employment from the get go.

Others may struggle to get things up and running and end up taking on personal debt to keep the business afloat. If the debt becomes too much to keep up with, bankruptcy may be an option, but what happens to your business as a result?

Your Income

It’s possible to file bankruptcy on your personal debts and keep your business. One of the largest challenges for people who are self-employed is providing proof of income to the court. Unlike someone who receives a regular paycheck with taxes deducted, business owners will need to put in more effort than simply collecting paystubs. The court trustee will be looking closely at your situation and will need to see proof of income for the six months preceding your bankruptcy. As proof, the court will accept:

• Check stubs for money you’ve received from clients
• Copies of invoices that you’ve sent to clients
• Signed statements from clients stating how much they paid you
• Bank statements showing cash or check deposits
• Tax return, if it includes the last six months

The court trustee will also need some basic information about your business so that they can ensure you’re filing the correct chapter of bankruptcy. This information will also help us when we propose a repayment plan if you’re filing a Chapter 13. I’ll make sure you have all the appropriate forms completed and have submitted all the required documentation.

Bankruptcy & Collections

When you start falling behind on debt, your creditors will make all attempts to collect what you owe, starting with letters and calls from the company, usually followed by a contact from a Collection Agency, or even a lawsuit. For an hourly or salaried employee, the creditor may pursue wage garnishment, but this isn’t an option for someone who is self-employed. However, your creditor could use a “non-earnings garnishment” or “garnishment for property other than personal earnings” to recoup their losses. This allows them to deduct a large, one-time payment rather than a set amount from each paycheck.

With traditional wage garnishment, a maximum of 25% of your earnings may be taken at a time, but self-employed people can have 100% of their commission taken. This would, obviously, create a very serious financial situation for most people, so please take action before this occurs. I can help you file bankruptcy, which will trigger the automatic stay and stop all collection efforts.

I Can Help

Most business owners and independent contractors are busy running their companies and serving their customers; they don’t need the added worry and stress of debt and bankruptcy. Let me help you carry this burden and make a plan to put your debt behind you so that you can focus on what you do best.