The nature of gig work can put workers at risk of overwhelming debt
Whether by choice or necessity, an increasing number of Americans are relying on gig work or independent contract work as a source of income, rather than traditional employment. Being a gig worker or an independent contractor has its advantages, including greater flexibility and control over your schedule. However, gig work also has drawbacks that can lead to serious financial hardship for workers.
For gig workers and independent contractors who are dealing with overwhelming debt, bankruptcy can offer a fresh start. However, navigating the bankruptcy process as an independent contractor can be tricky. That’s why it’s important to work with an experienced attorney.
Why are gig workers at risk of bankruptcy?
- Irregular income: Gig workers and contractors may experience periods of substantial earnings, followed by weeks or months of minimal income. Having irregular income can make it difficult to maintain a budget or meet unexpected expenses.
- Delayed payments: Unfortunately, some businesses that employ contractors take a long time to pay for their work, while regular W-2 employees are usually paid biweekly or monthly. Contract workers may need to go into debt to cover their expenses while waiting to be paid.
- Unexpected tax bills: As independent contractors, gig workers are responsible for their own tax withholding, and the tax code can be complex to navigate. This can lead to unexpected bills at tax time.
- Lack of employment benefits: Gig workers and independent contractors are responsible for their own health insurance and other benefits that traditional employees typically receive through their jobs. Gaps in medical coverage, in particular, can lead to crippling medical debt.
How bankruptcy applies to independent contractors and gig workers
Independent contractors have the same right to file for bankruptcy as traditional employees. However, practically speaking, the bankruptcy process poses unique challenges for contract workers that require the aid of a skilled bankruptcy lawyer to navigate.
An important part of the bankruptcy process is to verify your income, either to show your eligibility for Chapter 7 under the means test, and/or to show that you can keep up with a Chapter 13 repayment plan. Verifying income for gig workers can be tricky since income often fluctuates from month to month. You need to carefully gather verification of all of your income and discuss with your attorney to make sure you aren’t missing anything. Failure to inform the bankruptcy court of some of your income, even inadvertently, can have serious consequences.
Independent contractors must also be aware of how bankruptcy exemptions apply to their personal and business property. In South Carolina, bankruptcy exemptions are governed by state law. In particular, South Carolina allows you to exempt up to $2,275 in “tools of the trade” from liquidation in Chapter 7 bankruptcy; this exemption can be especially important for independent contractors who are responsible for their own tools. You can also use the “wildcard” exemption to protect up to $7,600 in property that doesn’t fall under any other exemption.
Talk to an experienced bankruptcy attorney today
Navigating the bankruptcy process on your own can be challenging, especially for independent contractors. That’s why it’s so important to have an experienced bankruptcy attorney on your side. We’ve been helping debtors throughout South Carolina for decades, and we know how to handle the added complexity of filing for bankruptcy as a gig worker or independent contractor.
Is it time for a financial reset? Give us a call or contact us online for a free, confidential consultation with Benjamin R. Matthews & Associates, LLC.
"The consultation was very informative, and the attorney was very knowledgeable and experienced. ...Overall, experience has been great working with this firm." – Bryon V., ⭐⭐⭐⭐⭐