Work Tools in Bankruptcy – Protect Them

January 17, 2024

Can you keep your work tools in bankruptcy?  Yes, work tools in bankruptcy – you can protect them in Chapter 7.  However, it is important to analyze the value of your work tools versus your state’s available “exemption.”

Exemptions Let You Keep Work Stuff in Bankruptcy

Exemptions will usually protect your work tools through a bankruptcy.  A bankruptcy “exemption” simply is a value number that covers a certain amount (or all) of your work tools.  This amount of “exempt” tools will not be counted in the bankruptcy.  You can just keep the items to help you get a fresh start.

For instance, Indiana does not have a specific exemption just for work tools or tools of trade.   In Indiana, you must use the personal property exemption.  This is currently at $12,100 per person.    Also, all your property is added into the equation.  You work tools must also fit into the equation to protect them.

If your work tools are paid-in-full, a $7500 value would fit in to the equation.   However, if your work tools have a value of $15,000, it will not fit completely.    Remember, two other things also.   You do not need to count parts of the value covered with loans.  This is true with Snap-on loans or other tool loans.   Remember that in Indiana, you need to fit the rest of your property in the exemption as well.  In addition, the court uses “sale” value.   You do not use how much it cost you to buy the tools.   The correct value amount is how much you could sell them for quickly.

Current Indiana Bankruptcy Exemptions

Work Tools are Essential for Business

Work tools or “tools of trade” are considered a special, essential item during bankruptcy. The bankruptcy petition has a separate section to list “Machinery, Fixtures, Equipment, Business Supplies, or Tools of Trade.” This is in section 40 of the business-related part of the A/B Property Listing. Bankruptcy courts know that these essential items can have high values.  Because of this, they created a separate section for those types of property to allow them to be easily analyzed.

In most forms of bankruptcy, the courts will make special allowances.  This allows you to keep your work tools.  This is especially true when you are continuing in the same business area after bankruptcy.   In Chapter 7, you are usually offered the opportunity to “buy-out” your tools to keep them.  This is for times where you exceed your exemptions.   In Chapter 13, you can keep your tools automatically.  In Chapter 13, the full analysis protects your tools as it decides how much must be paid to your creditors.

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