Tools and Bankruptcy
The tools you need to carry out your business are normally exempt if you go bankrupt. You should be able to keep them.
- What happens to your tools if you go Bankrupt?
- Which items are classed a tools?
- Is your van or other work vehicle at risk?
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What happens to your Tools if you go Bankrupt?
You can work on a self employed basis if you go bankrupt. The tools you own and use personally in your business (known as the tools of your trade) are exempt assets. In other words you will be allowed to keep them.
Any items which you do not use personally or which the Official Receiver (OR) believes are surplus to your requirements will have to be sold. Where necessary a valuer will be appointed to confirm what they are worth.
If you want to keep items which would otherwise be sold you can make an offer to buy these back from the OR. Your offer needs to be the same as what they would fetch at auction less the cost of sale.
Where the tools you want to buy back from the OR are relatively expensive the cash may have to come from a third party.
Which items are classed as Business Tools if you go Bankrupt?
There is a huge variety of self employment. As such no list exists defining the tools which you will be allowed to keep if you go bankrupt. It will always be down to the Official Receiver to make a final decision.
Having said that you will be allowed to keep items without which it would be impossible to carry out your business. In other words if you are a plumber, electrician or carpenter you will be allowed to keep your hand tools.
However if you own equipment that you do not use personally (perhaps it is used by an employee or is surplus to your requirements) it is unlikely to be exempt. For example if you have two items of the same equipment the second may have to be sold.
Tools which you own but are used by employees are unlikely to be exempt assets and might have to be bought back from the Official Receiver if you wish to keep them.
Is your Van or other Work Vehicle at risk if you go Bankrupt?
The general rule in Bankrupty is that any vehicle you own worth more than £1000 or which is surplus to your requirements may have to be sold. However this does not apply if the vehicle is a business tool.
Typically if you require a car or van to carry out your day to day business it will be an exempt asset. You will be able to keep it even if its value is greater than £1000.
The value of the vehicle must be reasonable. In other words if you are a taxi driver the Official Receiver may allow you to keep a value worth £6000 but not £25,000.
If you own a second vehicle which is used by an employee this will not be exempt. You will have to buy it back from the OR of you want to continue using it in your business.
Your car will not be exempt if you simply use it to get to your place of work. For example if you are a IT contractor a car you use to get to your client’s office is unlikely to be considerd a tool of your trade.
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