When my self-employed bankruptcy clients…clients that own their own business…are declaring bankruptcy there are 2 special problems:
1) How to deal with their income
2) How to deal with the assets of the business
1. DEALING WITH THE INCOME OF THE BUSINESS
If the business is incorporated and you are receiving your compensation as payroll from your corporation, then we handle the income just like an employee of any company. We list your monthly compensation as wages.
But many (actually most) most of my clients don’t operate that way. They take in revenue and their monthly income from the business is equal to the monthly profit of the business. In those cases I ask the client to prepare a profit and loss statement something like this:
PROFIT AND LOSS STATEMENT
A TO B COMPANY
PROFIT AND LOSS STATEMENT
Interest Income 40.00
Total Income 15,456.79
Auto exp 437.53
Bank chgs 67.00
Dues & Fees 59.87
Legal & Prof. 604.50
Meals & Entertainment 82.00
Office Expenses 311.92
Office Supplies 178.45
Postage & Delivery 143.02
Repairs & Maintenance 47.82
Taxes & Licenses 102.00
Utilities 377.43Total Expenses 6,837.42
Net Income 8,619.37
To complete the means test questions we must list the income and expenses month by month for the 6 months prior to filing for bankruptcy. So if a client is filing for bankruptcy in July, I would ask the client for a statement like the one above for January, one for February, one for March, etc. – 6 of them ending in June.
Often I find that the Bankruptcy Trustee wants to see a P & L for the whole year to help him value the business so you might as well prepare that.
2 DEALING WITH THE ASSETS OF THE BUSINESS
If your business is not incorporated (or an LLC) then you simply list the business assets as your personal assets on the appropriate schedules (schedule B for personal property)
But if your business is incorporated then I need you to prepare a statement of the assets and the liabilities of the corporation. Only the stock you own goes on schedule B.
For the value of your stock, we use the difference between your assets and liabilities. We document this with a statement of the assets and liabilities of your corporation. Here’s an example:
STATEMENT OF ASSETS AND LIABILITIES OF
Office furniture $500
Accounts receivable 15,700
2000 Chevy pick up truck 2,500
Balance in Wells Fargo account 128334 3,501
Total Assets 23,701
AMEX card 15,900
Visa Card $890
Pacific Bell Yellow Pages advertising 26,000
Business line of credit owed to Union Bank $21,000
Total liabilities 63,790
In this case, the liabilities are greater than the assets so the value of the stock is zero.