Are you a tradesperson or business owner wondering if you will lose your tools in a bankruptcy case? The good news is that in many cases, you can protect your tools through the bankruptcy exemption laws in Kansas. However, the process involves specific requirements and considerations to ensure your tools remain safe. Let’s take a look at how tools of the trade are treated in bankruptcy cases and what you need to know to keep your equipment intact.
Tools of the Trade Exemption in Kansas Bankruptcy
Kansas bankruptcy law offers an exemption that allows you to protect tools, implements, and equipment that are necessary for your trade, profession, or business. This means that if you’re a mechanic, contractor, or other tradesperson, you may be able to keep the tools you need to continue earning a living.
The Kansas bankruptcy exemption statute states:
- Books, documents, furniture, instruments, tools, implements, and equipment used in your profession, trade, business, or occupation are exempt if they are “reasonably necessary” for your work.
However, just because your tools are related to your trade doesn’t automatically mean they are protected. You’ll need to meet certain conditions.
What Makes My Tools Exempt?
To qualify for the tools of the trade exemption, you must consider several factors:
- Does your property qualify as a tool of trade?
- For your tools to be exempt, they must be necessary for your specific profession. For example, if you use a truck in your construction business, it may qualify as a tool of the trade if it is specifically adapted for work purposes (like a work truck with special modifications). However, a regular vehicle used for personal purposes would likely not qualify.
- What is the value of the property?
- Kansas allows up to $7,500 per person for tools of the trade exemption, and $15,000 for joint filers. The value is important to determine because any value exceeding this amount could result in the trustee taking those tools to sell and pay your creditors. You’ll need to accurately assess the value of your tools.
- Will there be a lien on your property?
- Bankruptcy law allows you to avoid certain liens on your tools of the trade, but this is contingent on the valuation of the tools and their necessity for your trade. A lien placed on your tools by a creditor may be avoided if the tools fall within the exemption limit, protecting you from having to pay that portion of the debt.
- What is your trade or occupation?
- The exemption applies only if you are actively involved in the trade or occupation at the time of filing bankruptcy. The longer you’ve been in your trade and the more hours you spend working in it, the stronger your case for keeping your tools.
Common Challenges and Considerations
The tools of the trade exemption is fact-driven, meaning that your specific circumstances will play a large role in whether your tools are protected. For example:
- Specially adapted property: If your property (like a truck) has been specially adapted for your business (e.g., outfitted with tools, equipment, or specialized modifications), you may be able to claim it as a tool of the trade even if it’s used for personal purposes as well.
- Valuation disputes: If there is a disagreement over the value of your tools, an evidentiary hearing may be required where the court will decide whether your tools qualify for exemption. This could lead to additional time and complexity in the case.
Can the Trustee Take My Tools?
In most cases, no, the bankruptcy trustee will not take your tools, as long as they fall within the exemption limits and are truly necessary for your livelihood. However, there are important factors to keep in mind, such as:
- Tools over the exemption limit may be subject to liquidation to pay creditors.
- Specially adapted property may be better protected if properly valued and documented.
- The automatic stay protects you from creditors, but if your tools are contested, the trustee may intervene.
To ensure your tools are properly protected, it’s critical to properly assess their value and make sure they meet the criteria for the exemption.
What Should You Do Next?
If you’re unsure whether your tools qualify for the tools of the trade exemption, it’s essential to consult with an experienced bankruptcy attorney. Every situation is unique, and a bankruptcy attorney can help you navigate the process, ensure your tools are protected, and guide you through the bankruptcy proceedings with confidence.
Schedule a free consultation with our Kansas City bankruptcy attorneys today to discuss your case and protect your livelihood.
