Are My Tools Protected in A Bankruptcy?

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Due to the recession our economy has faced, many small business owners find themselves sitting in our office discussing the possibility of filing for bankruptcy.  Legitimately, one of their main questions is how to protect their assets. One of the major assets of most small business owners is their “tools”. Tools can range from hand tools of a construction worker to the painting supplies of a painter. So, can they take your tools?

Construction Worker Carrying Lumber With Tools

The answer is not simple; this is where an attorney can be helpful.  If you are a sole proprietor then the tools are seen as your personal property and protected as any other property you have.  By default, an business is a sole proprietorship if it is owned by one person and has not been incorporated in one way or another. An example of a sole proprietor is Joe Blow’s Lawn Care; one person owns the company, owns the tools, works for himself, and files a self employment tax (Schedule C) on his taxes.  The lawn mower, rakes, blower, hedgers, etc. all belong to Joe.  If he decided to no longer run the company next week, the only difference would be that the tools would move from his truck to the garage.  If Joe were to be sued, he would need to protect those tools as he would any other asset he has from seizure.

Now, if Joe had gone to the Secretary of State and registered his company, it’s a bit of a different story.  If that were the case, Joe Blow’s Lawn Care, LLC owns the tools.  They would be included in the balance sheet (what tells other people what your company is worth) as a business asset.  The lawn mower, rakes, blower, hedgers, etc all belong to Joe Blow’s Lawn Care, LLC. If he decided to no longer run the company next week, the company still holds the assets until it is closed down with the Secretary of State (then in most cases ownership reverts back to the owner of the company).  If Joe was to be sued and he was protecting his property, until he closed the company down, those tools belong to the company in which he owns, not him personally.

The bottom line is, you can protect your tools using the “tools of the trade” exemption in North Carolina. An experienced attorney would need to look at your unique situation to determine if using that exemption is proper or not. If you own a business, whether it is large or small, we strongly suggest that you discuss all of your assets and liabilities with your attorney.  Businesses can be a tricky subject, whether owned directly by you or an entity you own, and protecting your assets are important to your success in a bankruptcy.

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Can I Take Out A 401(k) Loan After Filing Chapter 13 Bankruptcy?

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Bankruptcy QuestionsAs long as your 401(k) is ERISA qualified and was exempted (protected) in your bankruptcy petition, you can most likely take a loan against the account while in an active Chapter 13 bankruptcy. However, you MUST get the court’s permission!

When you are filing for bankruptcy, one of the top concerns is to protect your assets.  There are federal and state exemptions available to protect any equity or funds in your possessions.  A 401(k) plan is a common account that should be protected from the bankruptcy creditors.  Through the case of Patterson vs. Shumate, there is no limit to the amount that may be protected under this exemption as long as the plan or account is ERISA qualified (Employee Retirement Income Security Act of 1974).  You will need to provide documentation proving the plan is ERISA qualified, such as a copy of the plan summary that includes the ERISA statement.

To obtain a loan from your 401(k) while in a Chapter 13 bankruptcy you must get the court’s permission. Your bankruptcy lawyer can do so by filing a Motion to Incur Debt. You would have to appear in front of the judge to get the judge’s permission. The judge will usually grant permission to pull from your 401(k) loan if you can provide a good reason for why you need the money. This, typically, needs to be something that is a necessity, not just a “want”. An example of this may be if you need money to purchase a vehicle after another one has broken down or if you need money to pay medical expenses that were incurred after the filing of the bankruptcy. Discuss this with your bankruptcy lawyer before starting the loan withdrawal process.

How Do I Determine the Value of My Home If I’m Filing Bankruptcy?

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The value of your home, from a bankruptcy perspective, is a major concern that you will want to be aware of.  From too much equity to the possibility of “stripping a lien“, the value of your home plays a key part in your bankruptcy.  With the ever fluctuating real estate market, determining the value of your home may seem like a difficult and challenging task.

Family in Front of House

The Bankruptcy Court for the most part will rely on the tax value of your property as recorded by the Tax Assessor in the county which you reside. Many counties now have websites in which you can access detailed information on your property including the assessed value. Unfortunately, tax values don?t always reflect the true value of what your home may be worth.  If you think that the tax value of your property is overstated (or understated for that matter) you can always try a different avenue in determining the value of your home such as a Comparative Market Analysis.

A Comparative Market Analysis, which is also referred to as a CMA, is an analysis done by a real estate agent to establish a home?s market value. It is not an appraisal. The CMA compares homes of similar size, condition, age, and style in the same area or neighborhood that are currently on the market, under contract and that have recently sold. The comparables will in most cases better reflect the actual value of a home. It may seem like a lot of work to obtain a CMA but if it means protecting your home and your equity, in most cases, it?s worth it.

While most real estate agents will provide you with a Comparative Market Analysis of your home at no charge, some real estate agents may charge you if you are not putting your house on the market.

Every Bankruptcy Trustee is different and you will need to discuss your home?s value and what issues may arise around it with your attorney so he or she may give you advice that is tailored to your case.