With the passage of the new bankruptcy laws in October, 2005, all debtors must now calculate current monthly income, which is a legal term of art under the new Bankruptcy Code. In a nutshell, current monthly income is the average monthly income for the previous 6 months preceding the Bankruptcy Filing Date. For w-2 employees, this can easily be done by gathering paystubs.
For self employed who do not have paystubs, its a little tougher. Generally, monthly profit and loss statements should be used for the previous six months in the same way that paystubs are used. Attached is a Sample Profit and Loss Statement that is used frequently in the Souther District of California. Ideally, a bank statement should be attached to each monthly profit and loss statement, and the figures SHOULD RECONCILE.
Many debtors simply do not keep track of their income with profit and loss statements and will need to reconstruct the previous six months, and/or, will need to keep track for the next six months and wait to file their case.
Failing to document income for the self employed will certainly lead to case dismissal and denial of discharge in virtually every case. Accordingly, whether you babysit, mow lawns, provide janitorial cleaning, provide general contracting services, or any other self employed type wrk without w-2 income, you will need to provide proof of income with profit and loss statements or most likely face dismissal of your case.
Written by Michael G. Doan
Bankruptcy Law Network (BLN)
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Last modified: April 28, 2011