Summary of a Recent
Judicial
Development in
Bankruptcy
Tools of Trade Exemption Not Restricted to
"Principal" Trade or Business
Joshua Thomas CrainNational AgLaw Center Graduate Assistant
Summary of Decision
In In re Thompson, 311 B.R. 822 (D. Kan. 2004), the United States Bankruptcy Court for the District of Kansas held that Chapter 13 debtors could exempt as tools of trade equipment necessary in the raising of game birds.
Background
Debtors, who were husband and wife, lived on 60 acres with two barns on the outskirts of town. See id. Though both debtors had off-farm employment, the husband spent approximately 40 hours per week, and the wife 20 hours per week, working on the farm. See id. The farming operation consisted of growing hay and crops, raising cattle, and harvesting timber. See id. In addition, the debtors raised game birds. See id. On December 23, 2003, the debtors filed for protection under Chapter 13 of the Bankruptcy Code. See id. Although at the time of the filing of their Chapter 13 petition the debtors were not actively engaged in their game bird operation, they did have the intent to resume that part of their operation upon raising the necessary capital. See id. On the debtors' Schedule C they claimed as exempt tools of trade the equipment necessary to their game bird operation. See id. The Chapter 13 trustee objected to the exemption. See id.
Analysis and Holdings
The court explained that the burden to establish the impropriety of a claimed exemption is on the party objecting to the exemption and that the availability of a claimed exemption is made on the date of the bankruptcy petition. See id. The court disagreed with courts that read into tools of trade exemption statutes the requirement that the tools claimed as exempt relate to the debtors principal trade. See id. The court explained that whether the tools claimed were part of the debtors' principle trade or not need not be considered because the statute clearly provides for a maximum exemption. See id.
In the present case, the debtors could claim only $7,500 as tools of trade. See id. The court explained, therefore, that regardless of whether those tools were from the principal trade or not, the amount claimed could not exceed $7,500. See id. The court explained that this interpretation was more in line with the "policy, spirit, and plain reading of the statute." Id. at 826. The court explained, however, that even if it were to agree with the principal trade analysis, the exemption would be allowable in this case because the "farming enterprise represents . . . [debtors'] principal trade or business." Id. at 826. The court concluded, therefore, that the debtors were entitled to the tools of trade exemption for the equipment necessary to their game bird operation, as they were claiming tools valued at $7,000. See id.
The case was decided on January 13, 2004; this summary was posted Jan. 6, 2005.