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Proposals and Sole Proprietorships

I am in debt for about 175k for credit cards, taxes and personal loans. I’m a sole proprietorship and my income is highly unpredictable. I work on a contract basis and my revenue can vary greatly from year to year, depending on the hours I put in at client sites and the rate I charge. Right now, my debts are overwhelming my assets but I don’t want to file bankruptcy because there’s 1 particular asset I would like to keep for the long-term. My question is: are creditors willing to accept these “consumer proposals” from sole proprietorships such as myself, when their future income is unpredictable. What happens if I have some downtime between contracts and I’m unable to make a monthly payment to the trustee. What happens if I file my proposal now, but next year my revenue decreases due to less work, etc..

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One Response to “Proposals and Sole Proprietorships”

Barton Goth, GCO Inc. Bankruptcy Trustees said...

I have seen a number of scenarios in which proposals were accepted from sole proprietorships even though their future income is unpredictable. The key is to base the proposal on historical expectations. This may require that you provide copies of your last 5 years tax returns to your trustee and creditors, as well as provide your creditors with a cash flow projection that is based on these statements. When doing this it will be important to outline all of the assumptions that are contained in this projection so the creditors clearly understand the underlying risks.

In terms of what happens if these projections do not hold true and you are unable to fund your proposal. Ultimately you would probably have to default on the proposal, be left responsible for the entire debt load and may be forced to look at a bankruptcy scenario. I suggest you contact a trustee in your area, outline these concerns, show him your historical data and see if they can give you an idea of what would be a reasonable offer to your creditors. Once you have done this you will be in a much better position to determine whether or not you believe this will be feasible.