One of the scariest aspects of filing for bankruptcy – and particularly for Chapter 7 bankruptcy – is the knowledge that the court has the right to sell your assets to satisfy your creditors. As stressful as this is for the average person, if your ability to earn a living is dependent upon items that you’ve invested a significant amount of money in, it is perfectly reasonable to fear that these items will be sold, leaving you with no way to support yourself unless you spend that money all over again. Fortunately, there are certain exemptions to asset sales that apply specifically to work tools. Known as “tools of the trade exemptions,” these rules are meant to protect sole proprietors and tradespeople who depend upon these valuable assets.

Though business assets belonging to sole proprietors are not protected from bankruptcy asset sales, there is a difference between those assets and items that are considered essential occupational tools. An auto mechanic may have spent years accumulating expensive tools to allow him to continue working on a specific brand of vehicle, or a wedding cake baker may have invested in professional quality mixers, blenders, and baking molds. The tools of the trade exemption may be in place as a result of either federal or state bankruptcy laws that define them as exempt from seizure and sale. Though this may frustrate creditors, who understand that these assets would command a significant sum at auction, the rules have been created to provide those filing for bankruptcy with a chance at recovery from their economic woes. These rules are specifically available to sole proprietors and individuals rather than to corporations or LLCs, and they apply to anything that an individual would need to continue operating their business or earning their specific living.

The items that can be included in a tools of the trade exemption are limited only by the stated occupation of the individual filing for bankruptcy and their honest expression of what they need to continue earning a living. Tools of the trade might include computer equipment and the software upon which they rely; tools of all kinds, ranging from hand tools and power tools to landscaping equipment or ladders and scaffolding for painters; even vehicles such as limousines or delivery vehicles can be exempted if they enable the individual to continue earning their existing occupation, with the caveat that their use is limited to the earning of income or continuation of the bankruptcy filer’s earning capacity.

For more information on how filing for bankruptcy would directly impact you, contact our experienced attorneys today to set up a time to speak with us.

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