Chapter 13 For The Self-Employed
Sometimes, folks misinterpret information they hear in the news and take it to its logical extreme. For that reason, sometimes bankruptcy attorneys field calls about losing benefits or risks related to bankruptcy that are not real.
One such example of this is Chapter 13 bankruptcy for the self-employed. Some folks believe that self-employed individuals “cannot” file under Chapter 13. The fact is that they can, but there are some issues related to Chapter 13 that present problems for self-employed individuals. Below, we’ll take a look at the law and some of the practical issues self-employed individuals face in Chapter 13.
Self-employment and Chapter 13
Chapter 13 requires a debtor to make monthly payments in regard to their debts. In other words, their debts are partly discharged, but they have to pay some amount back. At the end of the Chapter 13, all debts will be discharged, but the debtor must keep up on the repayment plan or risk the bankruptcy being dismissed. In that event, all of their protections would vanish.
Self-employed individuals can file under Chapter 13, but because there is a monthly repayment plan, they must have a stable enough income to make the payments on a monthly basis. A self-employed individual who earns $3,000 one month and $1,000 the next month will not be able to budget properly.
This is particularly a problem for truck drivers who work as independent contractors. Their income may depend on the mileage, and their mileage from month to month may depend on several factors, including maintenance issues with the truck. Further, expenses may change suddenly, as they have over the past two years, and COVID also took its toll on several small business owners and independent contractors.
Self-employment and Chapter 7
Chapter 7 is a better option for the self-employed. However, determining their income can be challenging. In some cases, an individual may lose income because of an economic factor out of their control. How does the court determine what their income is? Typically, they would prorate the last few months of earnings to project future earnings. Those who faced recent losses can end up having their income overestimated.
So, self-employment doesn’t necessarily fit in easily with the bankruptcy process as it was intended for those with stable incomes. Today, a stable income is becoming less and less likely while contract work and the gig economy are making income variance the norm. Further, contract workers don’t have benefits, paid sick leave, and health insurance, which makes it more likely that they will face income shortages. The situation will eventually need to be addressed.
Talk to a Jacksonville Bankruptcy Attorney Today
Jacksonville bankruptcy lawyer Carol Galloway represents the interests of residents seeking bankruptcy relief. Call today to schedule a free consultation and we can begin paving your path to financial freedom immediately.