Can I keep my tools and equipment I use in my business?
For self-employed individuals or individuals that own their own tools for work may be able to use the “tools of the trade” exemption to protect their tools and equipment from being seized by the bankruptcy trustee. K.S.A. 60-2304(e) states “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 law allows debtors to retain up to $7,500 worth of tools and equipment that are used in their profession. Today’s post will discuss some of the requirements that must be met to use this exemption and what items have been considered tools of the trade.
Elements of K.S.A. 60-2304(e)
To use K.S.A. 60-2304(e) four requirements must be met. (1) the person claiming the exemption must reside in Kansas; (2) the person must have a business or occupation; (3) the items claimed exempt must be tools, implements, and equipment or other property that are tangible means of production; and (4) the items claimed exempt must be regularly and reasonably necessary in carrying on the person’s business or occupation1.
First, to use this exemption you must live in Kansas. Debtors that have moved from Kansas to another state and claiming Kansas exemptions are unable to use the $7,500 allowance. Debtors filing in other states will need to see what exemptions their new jurisdiction allows and if federal exemptions are available to them that may help protect their tools.
Second, the debtor must actually have a business or occupation. For example, In re Cooper2, the debtors exempted a fishing boat and a trailer they planned to use to perform guided fishing tours. The court did not allow the exemption because neither of the debtors had earned income as a fishing guide and the business was only speculative. In re Wilkinson, the debtor claimed exempt a skid loader with a trailer and personal tools for metal building. The court determined that the debtor could not exempt the tools because he had never reported self-employment income on his tax returns.
The third element is that the tools or property must be tangible means of production. “Means of production” is limited to items needed to produce a product. If your primary business was manufacturing and selling makeup, lotions, and soaps at the local farmers market, you could potentially exempt your equipment and tools used to manufacture the products, but could not exempt the inventory of products that would later be sold. Another case addressing “tangible means of production” addressed whether websites and digital images were considered tools. In that case, the court determined there was no “tangibility requirement” under K.S.A. 60-2304(e) and digital media may be eligible for exemption.
The fourth and last element requires the tools to be used in carrying on the persons business or profession. Similar to element two, the individual must be engaged in the business or profession. The individual also has an additional hurdle to show the court that the tools are used in the individual’s primary business. In re Weddington, the debtor was employed at a chemical plant, had a side outfitting business guiding deer hunts, and planned to exempt the equipment used during the hunts. The court reasoned the outfitting equipment could not be exempt because the business was not the debtor’s primary business. Similarly, the court denied a debtor’s exemption of eight cows and four horses because they were not engaged in raising cattle as their primary business.
When you meet with one of our attorneys, we will review your personal property and help you determine if your assets can be exempted as a tool of the trade. We have helped carpenters, plumbers, mechanics, photographers, and artists protect the tools they use every day in their work. We have bankruptcy offices in Wichita, Topeka, Lawrence, and Overland Park and we are happy to answer any questions you have about bankruptcy.
