If you declare Chapter 7 bankruptcy, you have to liquidate certain assets. There is a list of exemptions, but non-exempt assets may need to be liquidated so that the money can then be used to pay off a portion of what you owe. This likely will not cover the entire balance, and the remaining debt will be forgiven.
Some people make the mistake of thinking that liquidation means they lose everything, but that is not the case. There are exemptions for homes, vehicles, family heirlooms and much more.
One of the key exemptions to note is for tools of the trade – often referred to legally as “professional tools”. What does this mean and why is it important?
Necessary tools for your line of work
Your tools of the trade are essentially anything that is necessary for you to continue in your chosen profession. This differs widely, depending on your line of work.
For instance, if you are a carpenter, your tools of the trade could include things like power tools, hand tools, lights, wood and other materials, personal protective equipment and everything else you use on the job. If you are a professional writer, you could have things like computers, tablets, printers, network devices or even typewriters.
Essentially, the goal of the bankruptcy process is to eliminate your overwhelming debt, freeing you up for a positive financial future. But if bankruptcy took away the tools of your trade so that you couldn’t work anymore, it would be counterproductive. You would have no means of income. This is why these exemptions are so important. They help you move forward after the bankruptcy to create a more positive financial future and work on rebuilding your credit score.
If you are going through bankruptcy, it’s imperative that you understand exactly what options you have.