The filing of a Chapter 13 Bankruptcy action is a fairly complicated process for individuals who work for salaries and commissions. If you look at the process as it relates to self-employed individuals, things can become more complicated by a factor of three or four times.
Yes, you are permitted to file for Chapter 13 Bankruptcy protection if you are self-employed, but you need to prepare yourself for all the process entails. The following information will detail out how the actual process is complicated by the fact you are working for yourself.
How Chapter 13 Bankruptcy Works
You need to understand the difference between Chapter 7 and Chapter 13 Bankruptcy filings.
With a Chapter 7 filing, you would be asking the courts to wipe away all of your remaining debt following the dissolution of any of your qualifying assets. If granted, you would sell off certain assets, make final payments to creditors, and be free from most of your debt issues.
With Chapter 13, you are merely seeking protection from your creditors long enough to reorganize your debt and implement a new payment plan under the control of a “trustee.” The trustee’s job is to coordinate efforts between you, your creditors, and the Court to come up with a debt repayment plan. Your debt is not forgiven, but instead, reorganized in a manner that will let you make monthly payments to the trustee. The trustee would then make plan payments to your creditors.
How Filing Bankruptcy During Self-Employment Creates Issues
When you file for bankruptcy, your creditors do get some input into the process. That is especially true during Chapter 13 proceedings. Keep in mind, creditors will generally cooperate with a Chapter 13 filing because of the assumption they will eventually get every dollar they have coming. That’s strong motivation as compared to Chapter 7 where they might get nothing.
The problem for you when filing bankruptcy during self-employment is it creates more personal issues for you. Let’s take a look at two areas where complications will arise because of your self-employment status.
The Need for More Documentation
To complete any bankruptcy filing, you would have to submit a mound of documents to the courts. With a Chapter 13 filing, the need for documentation rises significantly. If you are self-employed, that just ups the ante for the amount of documentation you need to submit. Why?
As an employee or commissioned individual, your income and expenses are somewhat predictable. This makes it easier for the trustee to correctly anticipate how much money you will be able to allocate to creditors each month. Since it is what it is, your creditors can’t pushback.
If you are self-employed, your income and expenses are likely not predictable. From one month to the next, things can change drastically. To decipher how drastically, you might need to submit financial records going back as far as 12 months. After the trustee and creditors start taking things apart, they will start asking for more documents to the point of being adversarial. Your creditors will battle to get as much as possible as fast as possible. They will keep asking for information until they are satisfied the numbers are complete.
The Cost of Your Bankruptcy Filing
In a straight forward bankruptcy filing, your attorney will generally be able to provide you with a reasonable quote for services. If you are filing bankruptcy during self-employment, your attorney will already know it may be more time consuming. As such, they will base their fees on hours spent.
If you have exhausted all other measures and believe bankruptcy is the only remaining option, you can give us a call, and we’ll be glad to assist you.
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The Law Office of Barbara B. Braziel helps people get out of debt. We offer free consultations to people of Savannah, GA and the surrounding areas, including Richmond Hill, Hinesville, Pooler, Port Wentworth, Tybee Island, Clyo, Ellabel, Midway, Ludowici, Springfield, Pembroke, Brooklet, and Garden City.
We are a debt relief agency. We help people file for bankruptcy relief under the U.S. Bankruptcy Code.
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