Many self-employed people work as sole proprietors — so their business assets aren’t protected from a bankruptcy that arises from personal debts.
That can make filing for a Chapter 7 bankruptcy especially intimidating. The court has the right to seize valuable equipment and sell it to satisfy your debts — and you may have some valuable tools that you need in order to stay in business. If you’re a silversmith, for example, you need your molds and your torch welder in order to work. If you’re a carpenter, you can’t stay in business without your saws and sander.
This is where the “tools of the trade” exemption can come into play.
An exemption is a federal or state rule that allows debtors to declare certain assets “exempt” from seizure and sale during bankruptcy, even if their value is significant. It’s important to note that this exemption is available only to natural persons, like sole proprietors, not limited liability companies or corporations.
Generally speaking, you can exempt any type of property that you directly use in the operation of your business, which means there’s a wide variety of items that could be included:
— Hand tools and power tools
— Computer equipment and software licenses
— Landscaping machinery and tools
— Delivery vehicles
These are just a few of the possibilities. It’s important to note that the items you seek to exclude have to be used exclusively for the business. For example, if you have a landscaping business, you could seek to exempt not only the landscaping tools and machinery but also the flatbed truck that you have modified to carry the equipment from one job to the next.
Wisconsin allows you to choose whether you want to use the federal exemptions or the state exemptions. Discuss the specifics of your case with your Chapter 7 bankruptcy attorney in order to decide which exemptions benefit you the most.
Source: FindLaw, “11 U.S. Code § 522 : US Code – Section 522: Exemptions,” accessed Feb. 20, 2017