You are working every waking hour, yet the bills keep piling up, and you are terrified that one wrong move will cost you your tools, your work truck, or the business you built. Credit cards are maxed out, vendors want to be paid, and you may already be dealing with lawsuits or shut-off notices. On top of that, your income is never the same from month to month, so the idea of explaining it to a court feels impossible.
Many self-employed people and small business owners across New Orleans are in this exact position. They hear about Chapter 7 bankruptcy, but assume it is only for people with regular paychecks. Others worry that filing will automatically shut down their business or that a trustee will show up and haul away their equipment. So they wait and hope for a big job or busy season to fix everything, while the pressure keeps rising.
At Grand Law Firm, we have been guiding Louisiana families and business owners through financial crises since 1994. Over those decades, we have seen how Chapter 7 actually works for contractors, gig workers, shop owners, and other self-employed people whose finances do not fit neat payroll boxes. In this guide, we will walk through how Chapter 7 really treats self-employed and small business owners in New Orleans, what happens to your income and assets, and how to decide whether it may be a realistic path forward.
Need guidance on Chapter 7 bankruptcy in New Orleans? Call (504) 608-5208 or contact us online to discuss your options and protect what you have worked hard to build.
How Chapter 7 Works For Self Employed People In New Orleans
Chapter 7 bankruptcy is a legal process that can wipe out many unsecured debts, such as credit cards, medical bills, and personal loans. In return, a court-appointed trustee has the power to take and sell certain nonexempt property to pay creditors, although in many cases there is little or nothing to sell. Individuals file Chapter 7 in their own name, even if they run a business, and the case is usually handled in the federal court that covers where they live. For people in New Orleans, that is typically the United States Bankruptcy Court for the Eastern District of Louisiana.
For self-employed people, the key difference is that there is no employer sending W-2s or regular pay stubs. The trustee and the court generally look at your bank statements, tax returns, and any simple records you keep to figure out how much you really earn and what you own. If you operate as a sole proprietor, for example, a handyman, rideshare driver, or hair stylist using your own Social Security number, there is no legal line between you and the business. Your tools, equipment, and business accounts are all part of your personal financial picture in this case.
If you own an LLC or corporation, the analysis is slightly different. Your ownership interest in that entity becomes an asset in your bankruptcy estate. In theory, a trustee could sell that interest if it has value. In practice, many single-owner New Orleans businesses have little resale value without the owner, so trustees tend to focus on tangible assets like vehicles, equipment, and inventory instead of trying to sell the company itself. The core questions are always the same. What do you earn on average after expenses? What do you own, and is there anything beyond what the law lets you keep that could be used to pay creditors?
Because we have been working with Louisiana filers since 1994, we have seen this play out in many self-employed and small business cases. We understand how trustees in our courts approach a one-person LLC differently from a shop with significant inventory, and we plan cases with that in mind. The goal is to use Chapter 7 to discharge as much debt as the law allows, while protecting as much of your income-producing property as possible within Louisiana’s exemption rules.
Qualifying For Chapter 7 When Your Income Is Irregular
One of the biggest worries we hear from self-employed clients is that they cannot qualify for Chapter 7 because their income is inconsistent. The means test, which is the formula used to see whether there is a presumption that you can afford to repay creditors, does not require a steady paycheck. It looks at your total income for the six full calendar months before you file, averages it, and then subtracts certain allowed expenses to see where you fall.
For self-employed people, income means the money your business takes in, minus reasonable and necessary business expenses. If you gross 10,000 dollars one month but spend 6,000 dollars on materials, subcontractors, fuel, and insurance, your net income for that month is closer to 4,000 dollars. The means test focuses on that net, not just the top-line deposits. Over six months, we add up your net for each month and divide by six to get an average, even if some months were very good and others were slow.
This is where timing can matter. If you are a contractor who has a busy spring and a very slow late summer, filing right after that slow stretch can lower your six-month average income. For a New Orleans musician or rideshare driver whose earnings spike around festivals and events, it may make sense to wait until several lower-earning months have passed. We often look at our clients’ last six to twelve months of income and run different scenarios, then plan the filing date that gives the fairest picture of what they actually bring home.
Trustees in our district typically expect certain documents in self-employed cases. These often include the last two years of tax returns, six to twelve months of bank statements for both personal and business accounts, any 1099s, and a basic profit and loss summary that shows monthly income and expenses. Many self-employed people do not have formal books, and that is common. We regularly build a simple profit and loss from bank deposits and a list of regular expenses, then review it with you to be sure it is accurate and complete.
The most important point is that irregular income does not automatically bar you from Chapter 7. The system is designed to handle averages and reasonable variations. The challenge is making sure your real income is documented and presented clearly. That is where working closely with a Chapter 7 bankruptcy attorney in Houston who regularly represents self-employed clients can make a real difference in both qualifying for Chapter 7 and avoiding problems with the trustee later.
What Happens To Your Business, LLC, Or Side Hustle In Chapter 7
Another major concern for New Orleans business owners is what happens to the business itself if they file Chapter 7. For sole proprietors, there is no separate legal entity. You and the business are the same person under the law. That means the assets used in the business, vehicles, tools, equipment, computers, customer lists, and even accounts receivable, are all part of your bankruptcy estate. The trustee has the right to look at those assets and decide whether any of them have value above what exemptions will protect.
Ownership of an LLC or corporation is treated differently. Your shares or membership interest are considered an asset. In a large business with multiple owners, real estate, or substantial profits, that interest could be worth something that a trustee might try to sell. In a one-person consulting LLC, a small landscaping company that depends entirely on your labor, or a single food truck in New Orleans, there is usually little market for the business without you. In those cases, trustees often focus on tangible items such as the truck itself, lawn equipment, or inventory, and not the ownership interest as an abstract asset.
In practice, many small, owner-operated businesses do not survive a Chapter 7 in their existing form, but that does not mean you cannot keep working in your field. Some clients decide to close the business entirely, let the trustee deal with any remaining inventory or accounts, and then return to work later as an employee or in a slimmer operation. Others continue operating a service-based business that has little in the way of hard assets, essentially treating the bankruptcy as a reset of old debts while they keep using their skills to earn new income.
One area where we see people get into trouble is trying to move business assets out of their name before filing. Selling a work van to a relative for a token amount, transferring ownership of an LLC to a spouse for free, or giving away valuable equipment can all raise red flags. Trustees have the power to look back at recent transfers and, in some cases, undo them or accuse the debtor of trying to hide assets. Before you make any changes to your business structure or asset ownership, it is safer to talk with a bankruptcy attorney who understands how those moves will look in a Chapter 7 case.
Over the years, we have helped New Orleans area business owners weigh whether to close, sell, or reshape their business around a Chapter 7 filing. The right answer depends on what the business owns, how it makes money, and what you want your work life to look like after your debts are gone. Our role is to lay out the risks and options so you can make that decision with clear information, not guesses or fear.
Protecting Your Work Truck, Tools, And Other Business Assets Under Louisiana Law
For many self-employed people, the most urgent question is simple. Will I lose the tools and equipment I need to do my job? The answer depends on a set of rules called exemptions. Exemptions are protections written into law that let you keep certain kinds of property, up to specific values, even after you file Chapter 7. Instead of the trustee being able to sell that property for the creditors, exempt items stay with you so that you can maintain a basic standard of living and, ideally, keep earning income.
Louisiana uses its own exemption scheme, not the federal list you may see online. Several categories tend to matter for self-employed and small business owners. The homestead exemption can protect equity in your primary residence in many situations. There are exemptions for vehicles, which can apply to a car or truck you use for work, depending on how much equity you have after loans. There are also protections for personal property and tools of the trade, which cover the equipment and instruments you reasonably need to do your work.
Consider a simple example. A New Orleans electrician owns a pickup truck worth 20,000 dollars on the open market, with a 15,000 dollar loan balance. That leaves 5,000 dollars in equity. If the applicable Louisiana vehicle exemption protects that 5,000 dollars, the trustee has no economic reason to take the truck, because a sale would not produce money for creditors after paying off the loan and honoring the exemption. If, on the other hand, the truck were worth significantly more and only part of the equity were exempt, the trustee might either look to sell it or offer the owner the chance to pay the nonexempt portion over time to keep the vehicle.
The same kind of analysis applies to tools and equipment. A hairstylist’s scissors, chairs, and basic equipment may fall well within a tools of the trade exemption. A contractor with a large collection of high-value power tools, ladders, and generators may own more than the exemption covers. In many real cases, trustees negotiate. If the nonexempt value is modest, they may be open to a lump sum payment or a short-term payment plan from the debtor to avoid taking and auctioning off the tools. Accurate valuation is critical. Overstating or understating values can both create problems, so we work with clients to come up with realistic numbers based on actual market prices.
At Grand Law Firm, we spend time upfront helping self-employed clients in Louisiana inventory their work assets and understand how exemptions will likely apply. That preparation can mean the difference between keeping the gear you need to earn a living and facing an unexpected demand from the trustee. We focus on legally maximizing the protection available under Louisiana law so that Chapter 7 gives you a fresh start without destroying your ability to work.
Personal Guarantees, Business Debts, And How Chapter 7 Treats Them
Small business owners in New Orleans often discover, sometimes too late, that they are personally responsible for many debts they thought belonged only to the business. Commercial leases, government-backed loans, equipment financing, and vendor lines of credit frequently include a personal guarantee. That guarantee means the creditor can pursue you individually if the business does not pay. When you file Chapter 7 as an individual, those personally guaranteed debts are usually treated like other unsecured claims.
In many cases, an individual Chapter 7 discharge can eliminate your personal obligation on business-related debts, even though the business itself may still owe the money. A restaurant owner who signed a personal guarantee on a multi-year lease, for example, might have their personal liability wiped out in Chapter 7. The landlord could still have claims against the business entity and may be able to repossess equipment or sue the company, but they could no longer collect from your post-bankruptcy wages or personal property on the discharged guarantee.
Some obligations are harder to discharge. Certain tax debts, recent trust fund taxes, and debts tied to specific kinds of fraud or intentional wrongdoing may survive a Chapter 7. Business owners sometimes owe payroll taxes, sales taxes, or other government obligations that require closer analysis. We carefully review tax transcripts and business records before recommending Chapter 7, so you have a clear picture of which debts will likely be dealt with and which will need a different strategy.
It is also important to consider co-signers and co-owners. If you and a partner both signed a line of credit and only you file Chapter 7, your discharge does not protect the partner. Creditors can still pursue them for the full balance. The same is true if a family member co-signed a business loan. In our consultations, we look closely at who signed which debts and talk through how a Chapter 7 filing in New Orleans would affect each person.
Because we regularly review commercial leases and loan documents in the course of bankruptcy planning, we can often spot personal guarantees and other hidden risks that clients did not realize they had. That allows us to structure a Chapter 7 case that targets the worst obligations and, when necessary, combine bankruptcy with other tools to deal with debts that may not be discharged.
Documents Self-Employed Filers Should Gather Before Filing In New Orleans
Good preparation can reduce stress and improve your chances of a smooth Chapter 7 case. For self-employed and small business owners, that starts with gathering the documents that trustees in New Orleans commonly want to see. The core items are fairly consistent. Two years of personal and, if applicable, business tax returns. Six to twelve months of bank statements for all personal and business accounts. Recent credit card and loan statements. Any current leases, major contracts, or promissory notes.
Bank statements and tax returns play a special role in self-employed cases. Trustees compare deposits to reported income and look for patterns. Large unexplained cash deposits, transfers between personal and business accounts, or big withdrawals right before filing almost always draw questions. Having complete statements and a simple explanation ready goes a long way. Where records are incomplete, we can often fill gaps by downloading transaction histories from your bank or payment processor and building a basic profit and loss statement month by month.
If you are paid partly in cash, which is common for contractors, drivers, and service workers in New Orleans, it is still possible to file. The key is to be honest and as specific as you can. Going forward, keeping a simple daily log of cash jobs, dates, and amounts can help us and the trustee understand your income. If past returns underreported cash income, that is a sensitive issue that we need to discuss in detail before filing, so we can assess the risks and sometimes correct the record.
We also recommend making a written list of your significant assets, both personal and business-related. Vehicles with approximate values and loan balances, major tools and equipment, inventory on hand, and any real estate. This list does not need to be perfect at the start. Our team can help refine it, estimate values based on realistic resale prices, and match items with possible exemptions under Louisiana law.
At Grand Law Firm, we do not expect self-employed clients to show up with perfect books. Part of our role is to sit down with you, review the statements and receipts you can gather, and turn that messy pile into the organized picture the trustee and court need to see. Because we offer free consultations, you can bring what you have and get clear advice on what else to collect and how to fill in any missing pieces before you commit to filing.
Common Mistakes New Orleans Business Owners Make Before Filing Chapter 7
When business feels like it is slipping away, it is natural to make quick moves to try to protect what you have left. Unfortunately, some of the most common steps New Orleans business owners take before talking to a bankruptcy attorney can backfire badly in Chapter 7. One of the biggest issues is transferring assets out of your name. Selling a work truck to a relative for one dollar, putting equipment in your spouse’s name, or moving money into a friend’s account may look like a simple way to shield property, but trustees are trained to look for exactly these patterns.
Bankruptcy law allows trustees to review transfers you made before filing and, in some cases, unwind them. If they believe you moved property for less than fair value to keep it from creditors, they can sue the recipient to bring it back into the bankruptcy estate. That can put you and the other person in a far worse position than if you had simply disclosed the asset and worked through exemptions or negotiated solutions. We ask detailed questions about recent transfers at the consultation stage so we can flag and address any problems before filing.
Another frequent mistake is running up credit cards or taking cash advances in the weeks or months before filing. Large new charges for nonessential items or significant cash withdrawals shortly before bankruptcy can draw objections from creditors, who may argue that those debts should not be discharged. Even if you were using the cards to keep the business afloat or cover basic bills, the timing can create issues. Our advice is usually to stop using unsecured credit once you know you are heading toward bankruptcy and to avoid any big new debts without first talking to counsel.
Commingling business and personal funds can also cause trouble. When all income and expenses, business and personal, flow through a single account, it is harder to show which transfers were legitimate expenses and which were personal spending. While many small business owners are in this situation, we can often help by categorizing transactions and, if there is time before filing, setting up cleaner practices going forward. Abruptly closing a business, walking away from a lease, or laying off employees without dealing with final payroll and taxes can create loose ends, including unpaid wage claims or tax issues that may survive bankruptcy.
Because we see these patterns again and again across Baton Rouge, Metairie, New Orleans, and the surrounding parishes, we focus a significant part of the initial conversation on what you have done in the last year. That is not to criticize your choices, but to spot any landmines before they blow up your case. Early advice can often turn a risky path into a much safer one, sometimes by delaying filing, sometimes by choosing a different chapter, and sometimes simply by changing course on a planned transfer.
When Chapter 7 Is Not The Best Fit For Your Self-Employed Situation
Chapter 7 is a powerful tool, but it is not the right answer for every self-employed person or small business owner in New Orleans. If you own significant nonexempt assets, such as a valuable second vehicle, substantial equity in equipment, or property that Louisiana exemptions do not fully cover, a Chapter 7 trustee may be highly motivated to sell those assets. In that kind of case, the cost of losing key property could outweigh the benefit of a fast discharge, and another path might protect more of what matters most.
Your income level also matters. Some self-employed people earn well above the median after expenses and still struggle with debts because of high fixed costs or past setbacks. If your means test numbers show substantial disposable income, you may face a presumption that Chapter 7 would be an abuse of the system. In those situations, a Chapter 13 repayment plan or a negotiated debt settlement program can sometimes spread payments out in a manageable way while avoiding forced liquidation of assets.
Certain types of debt do not go away in Chapter 7, or they do so only in limited circumstances. Recent income taxes, trust fund payroll taxes, and debts tied to alleged fraud or intentional misconduct are examples. If most of what you owe falls into these categories, filing Chapter 7 may not give you the relief you expect. We take time during a free consultation to identify which of your debts are good candidates for discharge and which may require other strategies, so you are not surprised after the case is over.
Because Grand Law Firm handles both bankruptcy and debt settlement, we are not locked into recommending a single approach. Our job is to look at your income, assets, and debt mix, then talk honestly about whether Chapter 7, Chapter 13, a negotiated workout, or some combination makes the most sense. Even if Chapter 7 is not the right fit today, planning with that possibility in mind can shape smarter decisions going forward.
Talk With A Louisiana Bankruptcy Team That Understands Self Employment
Being self-employed or running a small business in New Orleans should not mean you are stuck with debt forever. Chapter 7 bankruptcy can offer a real fresh start for many people in your position, but the details matter. How your income is calculated, how your work truck and tools are valued, how your LLC or sole proprietorship is treated, and what you have done in the months leading up to filing all shape the outcome.
You do not have to sort through those questions alone. At Grand Law Firm, we have spent decades helping Louisiana business owners, gig workers, and contractors understand how Chapter 7 would likely affect their specific situation and what alternatives exist when it is not the right match. A free consultation gives you the chance to sit down with our team, review your actual numbers and obligations, and leave with a clearer picture of your options and next steps.
Ready to explore your Chapter 7 option as a self-employed individual or small business owner? Contact us online or call (504) 608-5208 today to schedule a consultation with our Chapter 7 bankruptcy lawyer in New Orleans.
