If you own tools or other assets necessary for your business or trade, you may be able to protect them in bankruptcy with the tools of the trade exemption. Read on to learn more about how the tools of the trade exemption works.
How Does the Tools of the Trade Exemption Work?
The tools of the trade exemption allows you to keep a certain amount of the tools, implements, and equipment you use in your business or trade if you file for bankruptcy.
Most states have a tools of the trade exemption -- the amount varies, and is usually in the $1,500 to $2,500 range. Some states allow you to protect significantly more than this, especially for business vehicles or tools of certain trades. some states don't have a tools of the trade exemption at all.
There is also a tools of the trade exemption in the federal bankruptcy exemptions. Currently, the exemption amount is $2,300. Most states don't allow debtors to use the federal exemptions -- but about seventeen do. (To learn more, see Federal Bankruptcy Exemptions.)
To learn more about how exemptions work and to find the exemption amounts in your state, see the articles in our Bankruptcy Exemptions topic area.
What Can You Protect with the Tools of the Trade Exemption?
The tools of the trade exemption protects the assets you use in your line of work. Some states have a general exemption that can be used towards any business tools while others have specific exemptions for business vehicles or tools used in certain industries.
General Tools and Implements
Most states have a tools of the trade exemption that encompasses all tools, vehicles, and equipment used in your trade. For example, if you are a dentist you can use it to exempt your dental tools or office equipment. If you are a teacher, you can exempt your books or other teaching tools.
Most general tools of the trade exemptions cover vehicles used in your business. However, certain states have a specific exemption for your business vehicles. These exemptions usually allow you to protect a greater amount of equity in your business vehicles than a general tools of trade exemption. But in order to use this exemption, the vehicle must be necessary to your trade and not just used to commute to work.
Some states also offer greater tools of the trade exemptions for certain trades or industries. For example, if you work in agriculture you may be able to exempt a greater amount of your tools and equipment in certain states.
Get More Information or Professional Help
If you are considering bankruptcy, make sure you get informed about the process, the advanatages and disadvantages first. Check out our Bankruptcy Information page to get lot's of free legal information. If you're looking for professional legal advice about your case, you will want to Talk to a Bankruptcy Lawyer in your area.