Income is Everything in Bankruptcy

06 Nov Income is Everything in Bankruptcy

In almost any type of bankruptcy filing, knowing your income is critical. If you don’t know your income, your bankruptcy lawyer can’t evaluate your options–what chapter, what payment amount in your chapter 13, or whether your chapter 13 is feasible.

But how hard can it be to figure out my income?

Not very hard most of the time–if you’re an employee. However, if you’re self-employed and keep poor accounting records, it can be plenty hard. I explained how to create a profit and loss statement (or “income statement” as accountants say) in “Profit and Loss Statements for Bankruptcy.” As you can see, this isn’t rocket science! But if your bankruptcy lawyer doesn’t know what you make, she can’t figure out whether you can file a Chapter 7 (is your income above or below median?) or whether you must file a Chapter 13 (what will your payment be or whether you can even propose a feasible plan).

Get this done BEFORE meeting with your bankruptcy attorney. And don’t bring in incomplete, inaccurate records.

I recently met with a business owner. She had substantial payroll tax liability. She was also several months behind on her home. Like so many self-employed clients I meet, she could not produce profit and loss statements without first meeting with her accountant. And that took several weeks. Her 2011 tax return showed a (very) substantial loss, and I indicated that unless things had drastically changed for 2012 there was no way she could fund a Chapter 13 bankruptcy. I advised her that I’d need to see her her 2012 profit and loss statements–again expressing my doubt as to how she could possibly propose a feasible Chapter 13 plan. And then I got, “I can make these say anything you need them to.” The problem with that approach–in addition to the whole lying under oath and bankruptcy fraud thing–is that you can’t make Chapter 13 payments with made-up numbers. Sure, they look good for a few weeks, and then you can’t make your payments, and your case gets dismissed. Had the client had accurate records showing her income from the business when she met with me, we could have avoided wasting so much time on the file.

Accurate accounting records are a must

Don’t think about filing any kind of bankruptcy without accurate accounting records. And take those records to your bankruptcy lawyer. You also need accurate accounting records to run any business. So even if you’re not filing bankruptcy, make sure you’ve got a good accounting system in place!


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Russell A. DeMott is a Charleston, South Carolina bankruptcy lawyer who represents consumer debtors in Chapter 7 and Chapter 13 bankruptcy. He is the author of the Charleston Bankruptcy Blog. He is also a member of the South Carolina Bankruptcy Blog. He files bankruptcy cases for clients in the Charleston, South Carolina division, which runs from Myrtle Beach to Beaufort. The DeMott Law Firm also represents clients in foreclosure defense and mortgage modification. You can also connect with Russ on Google Plus Russell DeMott. Russ can be contacted directly at (843) 695-0830 or by email at
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