Filing for bankruptcy as a self-employed individual in Tennessee presents certain challenges, but it is possible. Understanding the specific implications for your business structure is the first step toward a fresh start. Continue reading and work with a skilled Memphis, TN business bankruptcy lawyer for more information today.
Can I File for Bankruptcy in TN if I’m Self-Employed?
The short answer is yes, being self-employed does not automatically disqualify you from seeking debt relief through bankruptcy in Tennessee. The laws governing bankruptcy are designed to provide a fresh start for individuals, regardless of how they earn their income.
For self-employed individuals, the process involves a thorough examination of your personal and business finances. Your income streams, business structure, and existing debts will all factor into how the legal framework applies to your situation. While there are specific considerations when running a business, the eligibility requirements for bankruptcy are the same as for traditionally employed individuals. It is important to gather detailed financial information to ensure a smooth and effective process and outcome.
What Types of Bankruptcy Can Self-Employed Individuals File?
For self-employed individuals in Tennessee, two primary chapters of the U.S. Bankruptcy Code are typically available: Chapter 7 and Chapter 13.
Chapter 7, often called liquidation bankruptcy, is generally the quickest path to debt relief. To qualify, self-employed individuals must pass the means test, which examines their average monthly income over the past six months compared to the Tennessee median income for a household of their size. If your income is below the median, you typically qualify.
For a self-employed person, the main challenge is the treatment of business assets. If your business is a sole proprietorship, its assets are considered personal assets. Exemptions can protect some equipment, but non-exempt business assets may be sold by the trustee to pay creditors. Businesses structured as corporations or LLCs present different challenges, but Chapter 7 is often used when the business is failing and needs to be shut down, or when the business assets are modest and protected by exemptions.
Chapter 13, known as reorganization bankruptcy, is used when a self-employed person has too much income to qualify for Chapter 7 or wishes to keep significant non-exempt assets, including the business. Chapter 13 allows you to propose a 3-5 year repayment plan to catch up on secured debt arrears like mortgages or car loans and pay a portion of unsecured debts.
For self-employed people, Chapter 13 is often preferable because it provides a way to protect the business. You must demonstrate that your business generates enough stable, disposable income to reliably make the monthly plan payments. The court will scrutinize your business income and expenses closely to ensure the plan is feasible and in the best interest of your creditors.
Chapter 11 is typically used by large corporations and high-debt individuals. For more information on your legal rights and options, reach out to an experienced attorney today.
