What happens to my Mary Kay or Avon side business when I file for bankruptcy?

When we file for bankruptcy, we list your regular income (W2 income with a paycheck from a regular job) along with any other self-employment income (such as Mary Kay).  So long as you are still below the median income for your household size, the side-job should not hurt your bankruptcy.

However, after accounting for the income, I need to account for business assets and inventory.  Under Utah law, I can protect up to $5,000 of your tools of the trade.  Utah Code, Title 78B Chapter 5 Section 506 states that

An individual is entitled to an exemption, not exceeding $5,000 in aggregate value, of implements, professional books, or tools of the individual’s trade, including motor vehicles to which no other exemption has been applied, and that are actually used by the individual in the individual’s principal business, trade, or profession.

Unfortunately, this still leaves your product inventory exposed.  I cannot protect inventory for a home business, whether it’s Mary Kay or a cleaning business.  So, if you had $2,000 worth of product in your inventory on the day of filing, there is a chance that a chapter 7 trustee would order you to liquidate that inventory and give him the sale proceeds so that he could use it to pay a portion of your creditors back (and pay himself a healthy fee for doing so).

That being said, most small home businesses don’t have a large inventory, and it is hopefully a non-issue in your case.