Self-Employed? Learn About Special Bankruptcy Exemptions For Tools Of The Trade
If you're in business for yourself, you may be scared of bankruptcy because you're afraid that you'll be forced to liquidate the very tools of your trade. If you're a plumber, for example, you may need that electric wad cutter to stay in business. If you're a carpenter, you won't be very competitive if you're deprived of your circular saw and your power drills. Fortunately, the bankruptcy courts take this into consideration. Learn more about the special exemptions that apply in your case.
What are bankruptcy exemptions and who qualifies for them?
Both federal and state laws allow debtors to assert certain types of assets as "exempt" from seizure and sale by creditors. One type of exemption that can help protect items necessary for your livelihood is known as the "tools of the trade" exemption. However, it's important to note that this type of asset exemption is only available to individuals. You can't protect your business assets as "tools of the trade" if your business is a partnership, LLC, or corporation.
State exemptions vary widely, with some states being more generous than others, so it's important to discuss your state's particular laws with your attorney before you file to see the total value of the tools that you can exempt.
What types of items are considered tools of the trade?
You can generally exempt any type of property that is directly used to help you make a living. Depending on the type of business that you do, that could include a wide variety of items:
delivery vehicles (if used exclusively for the business)
For example, if you run a home catering business and you own an industrial stove as well as a delivery vehicle that you use solely to transport food to the events you cater, you can reasonably argue that these should be allowed exemptions as "tools of the trade" and not subject to being seized and sold. In addition, some states allow additional exemptions for certain types of trade-specific tools, like farm equipment, livestock, and fishing equipment.
How are tools of the trade valued?
Another thing that benefits debtors who are trying to exempt items necessary to their livelihood is that the assets are only valued at their fair market value–not what you purchased them for, their replacement value, nor what you might actually owe on them.
For example, if you purchased the industrial sized oven for your home catering business on credit a year ago, you may still be trying to pay it off. You could potentially owe more on the stove than it's even worth, due to financing charges. If the current fair market value for the used stove is under the allowable exemption amount for your state, you may be able to keep the stove and have the rest of the debt for it discharged through bankruptcy.
For more information on the type of exemptions that are available if you are in business for yourself, talk to an attorney like Attorney Joseph Aguglia.