A recent bankruptcy case in the Seventh Circuit Court is a perfect example of what happens when self-employed debtors fail to properly track their expenses, report their income accurately and understand basic accounting. This basic knowledge is even more important when self-employed debtors are trying to file a Chapter 7 or Chapter 13 bankruptcy .
In the case - Stamat, Nicholas and Penny; In the Matter of ( Neary, U.S. Trustee, v. Stamat) , 19 CBN 83 (Bankr. N.D. Ill. 2008) married self-employed debtors were denied a Chapter 7 bankruptcy discharge because they failed to understand the difference between net-income and gross-income. The couple owned two businesses, a pediatric health center and a medical billing company and were filing bankruptcy on thousands of dollars of debt. When the couple reported their income to the bankruptcy court, they failed to report the gross-income and disclosed the net-income only, which of course was the lesser of the two. The bankruptcy found this inaccurate disclosure to be cause enough to deny their discharge. Don't let this happen to you.
If you are self-employed debtor planning to file for Chapter 7 or Chapter 13 bankruptcy you must have all of your records as accurate as possible. Work with a bankruptcy attorney and maybe an accountant to make sure that creditors have no reason to challenge your discharge. Do not try to navigate this bankruptcy process alone.