How Gig-Worker Income Is Proved in Bankruptcy

Since the 2020 pandemic dramatically reshuffled the economy, more and more individuals are earning income by performing short-term, flexible on-demand tasks or projects instead of holding traditional long-term jobs. By some estimates, 36 to 40 percent of the U.S. workforce is engaged in freelancing, typically through gig marketplaces or and other online platforms. While gig work provides flexibility, it can also mean fluctuating income levels, which can be relevant if a worker needs bankruptcy protection.

A debtor’s income level affects eligibility for both Chapter 7 and Chapter 13 relief. In Chapter 7 bankruptcy, you have to pass a financial means test to determine whether you have insufficient disposable income to pay back creditors. In Chapter 13, you have to show that you have sufficient income and a realistic plan to partially repay your creditors over time. For gig workers who have fluctuating income, meeting those income levels requires special forms of proof.

The Chapter 7 means test looks at your average monthly income during the six months before filing rather than what you earned in any single month. As a result, a temporary increase or decrease in your income from gig work may have no real impact on your ability to file. If your income does exceed the applicable threshold, your allowable expenses may still permit you to file that way.

In Chapter 13, fluctuating income presents a different challenge. A repayment plan has to be both feasible and affordable based on your anticipated income over the next three to five years. Many gig workers experience seasonal fluctuations or periods of time when demand for their services is higher or lower, so it is important to develop a plan that reflects those patterns.

Whether you are an Uber driver, Instacart shopper, freelancer and other type of independent vendor, bankruptcy courts expect to see records that verify your income. Depending on the type of work you perform, that may include payment histories from gig platforms, bank statements, profit and loss statements from your small business, tax returns, 1099 forms and other financial records.

Business deductions also are important to document. Legitimate business expenses will affect the amount of disposable income you have, so expenses such as platform fees, supplies, equipment costs, insurance, mileage and more may all be deductible from your gross, depending on the type of gig work you do. Again, supporting evidence in the form of records and receipts is going to be critical.

If you earn your living through gig work or self-employment, do not let irregularity of income discourage you from exploring your options. With strong financial records and careful planning, as well as with professional guidance, you should be able to qualify for bankruptcy relief.

Jeff Field & Associates, with offices conveniently located in Douglasville, Gainesville, Bogart, Lawrenceville, Marietta and Decatur, helps Georgians find paths forward out of overwhelming debt. Contact us online or call 404-381-1278 for a free initial consultation.