Being Self Employed in Ohio And Filing Bankruptcy; What You Need to Know
Being a business owner can be an incredibly rewarding experience. However, it can also be very expensive. Things like payroll, marketing, and overhead costs can add up quickly. If the business owner does not make adequate profits during the first few months of operating, they could be looking at a large amount of debt.
When a business owner has costs that get out of hand and debts begin to mount, they may want to consider filing for bankruptcy. A business owner should never go through bankruptcy alone. They should hire an attorney that is well experienced in bankruptcy laws in Ohio.
The Means Test
When an individual owns a business, they may still be able to file for Chapter 7 or Chapter 13 bankruptcy. The only issue with filing is that it can sometimes be difficult for self-employed individuals to demonstrate their income for purposes of the means test.
The means test determines whether a person can qualify for chapter 7 bankruptcy, or if their income requires a chapter 13. In Ohio, if a person’s business income is below that of a median family income for the State of Ohio, they will be able to qualify for chapter 7. If a business owner is curious where their income qualifies them for chapter 7, they can look at the American Community Survey, which will tell them the median income for Ohio.
If someone is self-employed, they will usually need to rely on a method other than paystubs to prove their income. When a person works a regular w-2 job, they are given a paystub with each paycheck that will allow them to document their income. Those that are self-employed will need to provide profit-loss statements for the company and possibly bank statements.
Bankruptcy for a Sole Proprietor
If a person is a sole proprietor, both their personal debts and business debts may be listed together when they file for bankruptcy. They will also need to list personal and business income on the schedules.
If the sole proprietor qualifies for a Chapter 7 bankruptcy, both personal and business debts will be discharged at the end of the case. Chapter 7 can be a good option for sole proprietors that that do not have a lot of assets to sell.
If a sole proprietor files for Chapter 13 bankruptcy, it will typically not cause a disruption to their business. They will not have to sell any assets and they will be able to make a monthly payment to the Chapter 13 Trustee to resolve their debts. Assuming the individual makes all their payments and completes the plan, their debts will be discharged.