Filing Chapter 13 bankruptcy means you’ll spend three to five years paying back your debts as part of a court-ordered repayment plan. The amount you pay and the length of your payment period depends on how much you earn and how much you spend. It is not very difficult to build a repayment plan for someone with steady income and expenses, but how does it work for self-employed people, whose cash flows can vary greatly from month to month?

The most common stumbling block for self-employed people seeking Chapter 13 bankruptcy is the need to verify income. Bankruptcy courts require all bankruptcy filers to report and document their average income for the six months leading up to the date of filing. Many self-employed people don’t keep detailed records of earnings or income tax information, making it tougher to provide accurate information to the court.

Income documentation the New Jersey bankruptcy courts may require includes:

• Proof of payment (self-employed people can’t simply rely on paystubs like a salaried worker, so providing paid invoices or other proof of payment is necessary)
• Bank statements
• Tax returns covering the six months leading up to bankruptcy
• Contracts or other evidence of money you received from clients

While in Chapter 13 bankruptcy, you may need to verify income every month and report it to the court. As you may imagine, this can be burdensome when you are trying to keep your independent business afloat. If your income varies significantly and your repayment plan needs to be changed, you’ll incur additional legal costs and court filing fees. If you need to change your plan multiple times, Chapter 13 will become an expensive proposition.

If your income drops so low that you cannot keep up with your repayment obligations, one of two things could happen. The court may require you to convert to Chapter 7 bankruptcy, which liquidates your assets, or it dismiss your bankruptcy entirely. Courts sometimes dismiss Chapter 13 cases on the grounds that a debtor may be paying creditors less in order to devote more disposable income to the business.

With all of these things to consider, it is important to discuss your finances with an experienced bankruptcy lawyer who can evaluate the situation and recommend the most beneficial course of action.

At the Law Offices of James C. Zimmermann, we provide focused legal guidance for self-employed people who are having financial challenges. If you think bankruptcy may be in your future, we encourage you to call us and arrange a free consultation. You can reach us at 973-764-1633 or contact us online. We have offices conveniently located in Hackensack, Vernon, Wayne, Pompton Lakes and Nutley, New Jersey.