Sign Up for Updates

Tools of the Trade Exemption

by Adam Mack, J.D.

The purpose of bankruptcy is twofold: to provide a fresh start for the debtor, and to give the creditors their fair share of the bankruptcy estate. The legal mechanism known as an exemption is one of the most important ways in which the bankruptcy code achieves the first purpose of giving the debtor fresh start. The tools of the trade exemption is a critical one for small business owners or anyone else who owns in their own name the tools needed to make a living.

In Kansas, our state government has opted to define some of our own bankruptcy exemptions, and the tools of the trade exemption we have designed is significantly more generous than the federal version. K.S.A. 60-2304(e) declares that “the books, documents, furniture, instruments, tools, implements and equipment, the breeding stock, seed grain or growing plants stock, or the other tangible means of production regularly and reasonably necessary in carrying on the person’s profession, trade, business or occupation in an aggregate value not to exceed $7,500.” This might include anything from a photographer’s camera to a musician’s piano to a farmer’s modified pickup, so long as the item is used primarily for commercial activities and the current fair-market value falls under $7,500.[1]

It should also be noted that, if a person filing bankruptcy has more than one commercial enterprise or occupation, items can only be claimed as exempt under the primary business or occupation, not under any side or secondary business.[2] So an elementary school teacher who taught piano on the side probably would not be able to claim their piano as an exempt “tool of the trade” (though they might be able to claim it under other exemptions). Another caveat is that the tools of the trade exemption is limited to “means of production” rather than inventory. [3] So for example, this means that someone who grew nuts, packaged them, and sold them to the public from a roadside stand could potentially claim as exempt “tools of the trade” the packaging equipment and/or the roadside stand but not the nuts themselves. Also, a vehicle generally cannot be claimed under the “tools of the trade” exemption unless it has been modified to make it uniquely suited to the trade. A qualified Kansas bankruptcy attorney can help clarify questions you might have about these or other limitations to the tools of the trade exemption.

[1] In re Kobs, 163 B.R. 368 (Bkrtcy.D.Kan. 1994)

[2] Seel v. Wittman, 173 B.R. 734 (D.Kan. 1994)

[3] In re McPheeters, 179 B.R. 680 (Bkrtcy.D.Kan. 1995)
 

Disclaimer

These articles are for general informational use and do not constitute legal advice. Since laws change over time, it’s possible some articles are out of date and for that reason, we make no representation that the articles are fully accurate. For actual, up-to-date legal advice (including a free consultation), please contact us!