Calculating Monthly Income For Bankruptcy When You're Self-Employed

September 25th, 2009 by Reed Allmand

After the passage of Bankruptcy reform in 2005, all debtors filing bankruptcy are required to calculate their average monthly income. The average monthly income is calculated using the income earned during the six months before filing bankruptcy.  For example, if you filed bankruptcy in October, you would need to calculate your average monthly income for the period of April through September.  For debtors who work as W-2 employees and receive regular paychecks, this can be achieved easily.  But for the self-employed, calculating the average monthly income for bankruptcy will require a little more work. Here’s how you can do it:

First, debtors considering bankruptcy need to gather their profit and loss statements and bank statements for the past six months.  Unfortunately, many self-employed people do not create profit and loss statements each month, therefore they will need to create them using their bank account information, receipts or any other information that will help them. You can visit this site http://www.esmalloffice.com/SBR_template.cfm?DocNumber=PL12_3500.htm to find out how you can create a profit and loss statement for your bankruptcy filing.

After you have created a profit and loss statement for each of the previous six months before filing bankruptcy, you will need to attach a corresponding bank statement.  The bank statement and profit and loss statement must be reconciled.  Once you put together all of your necessary information, you can work with your bankruptcy attorney to calculate the average monthly income.  Remember, if you fail to calculate your average monthly income or fail to provide supporting documentation (P&L and bank statements), your bankruptcy case may be dismissed.