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  • Robert Weed

Filing Bankruptcy and self employed? You need a “Profit and Loss”

If you file bankruptcy, you need to send in proof of your income.  For most people, that means your pay stubs.   Section 521 of the Bankruptcy Code requires people to send in at least two month of their “payment advices“–meaning pay stubs–received from your “employer.”

What if you are self employed?   You don’t get a pay stubs and don’t have en employer.  Do you dodge that requirement?

If you are self employed, you need to send in your income statement, or “profit and loss”

Well, no.   The Bankruptcy Rules, Rule 4002, requires “evidence of current income.”   Around here, the bankruptcy trustees want to see what they call a “profit and loss.”

What is that?

Your income statement, or profit and loss, shows your revenue and expenses, money in and money out, and what was left for you.  How much money is left for you is a big part of determining your eligibility under the bankruptcy means test.

I don’t find the label “profit and loss” very helpful and some of my small business clients are baffled by it.  Income statement seems clearer to me.

Either way, you need to do one for each month of the six months ending the month before you file your bankruptcy.  If you are not making much money, it can be pretty simple.

This article in Wikipedia has an example of a simple income statement–that’s all you need.  and then some complicated ones.  I think it was pretty helpful.

(Wikipedia also says that “income statement” is American English, and “profit and loss” is British English.  Around here in Northern Virginia anyway, the bankruptcy trustees call it “profit and loss.”)

If you have a bookkeeper, or keep track of stuff on Quicken, this is a snap.  If you just throw your receipts in a drawer, then you will have to take some time to put this together.

Here’s a simple Profit and Loss for Bob Weed’s Lawn Service.  You can use this as a guide.

January 2012

Gross sales                     $3000


Wages, paid to others     $550

Draws, paid to you          1,000

Utilities                              60

Rent                                300

Office supplies                    50

Insurance                          90

Advertising                        50

Phone                               50

Travel                               50

Interest  paid                     20

Taxes & licenses                 50

Total Expenses         (2,270)

Net Income                   730

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