Tools of the Trade Exemption in Bankruptcy
Section 704.060 of the California Code of Civil Procedure exempts tools of the trade in bankruptcy. Tools are of the trade are items such as tools, materials, uniforms, instruments, furnishings, books, equipment, one commercial vehicle, and other items of personal property reasonably necessary to and actually used by the debtor in his or her trade, business, or profession by which said debtor earns a living. Tools of the trade are exempt in the amount of $7,175 if used by the debtor in his or her trade. The spouse can also separately exempt $7,175 of their tools if used in their separate trade or business. Alternatively, if the debtor and spouse are engaged in the same trade the exemption amount can be doubled to $14,350. Consequently, a couple filing for bankruptcy engaged in the same trade or business can use the tools of the trade bankruptcy exemption to protect up to $14,350 of the equity held in personal property used in their trade or business.
Motor Vehicle Limitations
There are two limitations when exempting motor vehicles as tools of the trade in bankruptcy. First, the exemption amount for commercial motor vehicles is capped under California CCP 704.060(d) to $4,850 if either the debtor or spouse is claiming the exemption, or $9,700 if both the debtor and spouse in the same trade are claiming the exemption. Second, a motor vehicle cannot be claimed as an exempt tool of the trade if a second motor vehicle has been claimed as exempt under the motor vehicle exemption and that motor vehicle is reasonably adequate for use in the trade.
Example: Tools of the Trade
The tools of the trade exemption applies to many types of personal property in bankruptcy. In determining whether a piece of personal property qualifies as a tool of the trade you must qualify its use and necessity. For example, imagine that a debtor in Santa Rosa owns a lawn maintenance business. As part of his business, the debtor mows lawns for clients. Now, imagine that the debtor owns a lawnmower used in the business. When the debtor files for chapter 7 bankruptcy in Santa Rosa the lawnmower will be exempt in an amount not to exceed $7,175 because the lawnmower is a piece of personal property reasonably necessary to the debtor in exercising his business and is actually used by the debtor in his business.