New York’s self-employed workforce has grown to include nearly 150,000 workers. Working for yourself brings a lot of freedom, but it also brings a lot of uncertainty. Many freelance or gig economy workers experience financial hardships.

Fortunately, bankruptcy is available to these workers as well.  You just have to take extra steps.

Income Verification

Bring tax returns to your lawyer, as well as your bank statements and invoices. You’ll also need to create profit and loss statements. You might want to have an accountant prepare them, as the trustee will look for inconsistencies between your P&Ls and your other documentation. 

You’ll need to prove your average income over the past six moths. You’ll also need to provide four years of yearly income documentation.

Unlike a borrower who is employed in the traditional sense, you’ll need to do this whether you’re filing Chapter 7 or Chapter 13. A Chapter 7 borrower will need to provide this income verification to show they meet the means test.

A Chapter 13 borrower will need to provide this verification to show they have the means to meet obligations under their Chapter 13 plan. 

Be very honest with your attorney and with the courts. If you underreport income to try to get a smaller plan payment or to squeeze under the Chapter 7 threshold, then you could be found guilty of bankruptcy fraud, which is a felony.

A Business Bankruptcy May be More Appropriate

Some freelancers create LLCs. That means you may need file a Chapter 11 bankruptcy instead, or even in addition to your personal bankruptcy case. 

You May Need to Make Modifications

If you file Chapter 13 then you may need to make modifications. 

If your income rises or falls to a significant degree you might find it difficult to make plan payments. Keep in mind you will still have just three to five years to make the payments. 

The trustee will also have to approve any change. They may prove unwilling to do this if your income changes substantially too often. In addition, you will need to report significant increases of income just as you’d need to report significant decreases. In some cases you will be allowed to retain the increase: if it’s not significant, or if it’s a one-off project that is unlikely to repeat, then the trustee will rarely see a need to alter the plan. Nevertheless the trustee may take it amiss if you don’t share the information.

In short, a freelancer or gig worker will need to work far more closely with their attorney than the average borrower would. 

Need help? Contact us! We’ll go over your financial situation and will discuss your options. We’ll also answer questions about your specific situation.

See also: 

How Do I Get a Chapter 13 Modification in New York? 

What is a Chapter 13 Hardship Discharge? 

What Will Your New York Chapter 13 Payment Look Like?