Many people dream of becoming entrepreneurs, and not all of those who take the leap will be successful. When a self-employed person finds themselves facing insurmountable debt – whether as a result of business failure or for an entirely unrelated reason – they frequently believe that filing for bankruptcy will be harder without paycheck stubs or other income documentation. Though earnings history is an important part of the information required when filing for Chapter 7 or Chapter 13, bankruptcy courts have recognized that self-employed business owners and independent contractors will need to provide different types of information.

If you are self-employed and you need to file for bankruptcy, you will rely on your previous years’ tax returns, your bank statements, and the types of documents you have used to seek credit in the past. You will also need both monthly and annual profit and loss statements and receipts from any expenses you’ve incurred for the last several years. That means that one of the first things that you need to do is to get those documents together … and if you haven’t generated P&L statements, it’s time to put them together.

An experienced bankruptcy attorney will be able to answer your questions and calm your concerns about the special approach that the self-employed will need to adopt during a bankruptcy proceeding, but you can anticipate needing the following:

• Your account statements for both your business and your personal accounts dating back three years
• All contracts, documentation of cash payments, invoices and receipts, and check stubs from the previous three years
• Federal and tax returns from the previous two years for those filing for Chapter 7 bankruptcy and for four years for those filing for Chapter 13 bankruptcy (the extra years of documentation is necessary to address and confirm the amount of back taxes owed)

Those same documents should be used to put together profit and loss statements if your business hasn’t already had them prepared by an accountant. These statements will prove helpful at the creditors meeting that is required as part of the bankruptcy process. You should anticipate needing two years’ worth of these statements reflecting monthly and annual financial activity.

Though self-employed individuals pursuing bankruptcy may have to work a bit harder to document their financial situation, the extra steps required should not prove a significant hardship if you have help from an experienced bankruptcy attorney. Contact us today to set up a time for a consultation.