People sometimes mistakenly assume they have to liquidate all of their assets if they file for bankruptcy. It is true that Chapter 7 is known as liquidation bankruptcy, and some assets may need to be sold to settle a portion of the debt. However, the reality is that there are many exemptions, and many people get to keep a significant portion of their assets. There are often exemptions for homes, primary vehicles, family heirlooms, jewelry and the like.
One of these exemptions is for the “tools of the trade.” These differ widely depending on the profession. For one person, the tools of the trade could mean collections of books or electronic devices like computers. For another person, it could be power tools or hand tools. Why does the government provide this type of exemption?
Creating a financial future
The reason for this is that bankruptcy has the overall goal of creating a positive financial future. People who file are trying to eliminate their debt so that they can build positive wealth moving forward. The debt is holding them back.
To that end, forcing someone to liquidate the tools of their profession wouldn’t actually help them move forward. They may be able to eliminate their debt, but they would lose the ability to earn, causing them to quickly fall back into debt again. By exempting the tools of the trade, they are still able to earn a living and may now be able to make ends meet since they no longer have overwhelming debt.
This is just one way bankruptcy can help with financial troubles. If you are considering it this year, be sure you know all the legal steps you can take.
