Make Sure You Know the Tools of Trade Exemption

Chapter 7 exemption laws have been established in order to ensure that an individual who chooses to file for bankruptcy does not have to give up all of their valuables and important personal belongings. In their breadth, Chapter 7 exemption laws protect a wide range of objects, including homes, motor vehicles, jewelry, and tools of trade.

The Federal Government exempts up to $1,750 worth of tools of trade. The term “tools of trade” refers to any group of items an individual uses for work, or any property that is essential to a petitioner's small business. Tools of trade themselves may incorporate a wide variety of objects. Depending on a petitioner's career, this Chapter 7 exemption may include books, computers, motor vehicles, or paint brushes.

If an individual can prove that his/her motor vehicle is essential for work, they may be permitted to protect the vehicle under the tools of trade exemption, as opposed to the motor vehicle exemption. This may be beneficial to a petitioner because, in many states, the tools of trade exemption offers more monetary protection than the motor vehicle exemption. However, this Chapter 7 exemption is generally only successful in protecting motor vehicles when a petitioner utilizes the vehicle to make deliveries or makes a living as a traveling salesman.

While most petitioners are required to protect their computers and other electronic devices under the Chapter 7 exemption for personal property and household goods, petitioners who are employed as computer technicians will likely be permitted to protect their computer under the tools of trade exemption.

The Federal Government and state governments recognize that many individuals are self-employed and utilize personal possessions in the course of making an income. Stripping petitioners of the items that are essential for their job would only hinder their ability to secure an income. Without a steady income, an individual is at risk for financial trouble and may once again accrue extensive debt. Therefore, it is essential to protect any property that may be beneficial in establishing an income.

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