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My Business Tools and Bankruptcy

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If you are Self Employed your job should not be affected by bankruptcy. Nevertheless you may be wondering what happens to the business tools that you own. These could range from your hand tools to a vehicle.

A key aspect of bankruptcy is that the government wants to encourage you to keep working if you can. They do not want your livelihood to be taken away from you. That could result in you having to claim help from the state which they want to avoid. Given this you are allowed to keep the tools that you need to continue to run your business.

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What are classed as Business Tools if you go Bankrupt?

The tools you own which you use to carry on your business are referred to as the Tools of your Trade. If you are self employed you will be able to keep all of these things if you go Bankrupt. They are exempt from your list of assets. This is the case even if some or all of them are particularly valuable.

There is no strict definition of what the Tools of your Trade can be. This is because there is such a huge variety of self employment. Any items which are necessary to carry out your work can be included.

For example the equipment you need to use on a daily basis to continue your job as a tradesman such as a plumber, electrician or carpenter. If you are a computer programmer or web designer you will probably have various computer equipment. These are also a tools of your trade.

What happens to a Work Vehicle in Bankruptcy?

One of the main assets that the Official Receiver (OR) will consider if you go bankrupt is your car or other vehicle. If this is worth more than £1000 then you could be at risk of having to sell it. However these rules do not apply if your vehicle is a tool of your trade.

If you are a tradesman and you need a van or other vehicle it is quite possible that this might be worth more than £1000. However as long as the vehicle is clearly a work tool this is exempt and is not at risk. Another good example is if you are a taxi driver or driving instructor. You need a reliable and possibly adapted vehicle which is likely to be worth more than £1000. This will not be at risk if you go bankrupt.

BE Tip: Your car is not a Tool of your Trade if you just use it to get to and from your place of work. For example if you are a self employed IT contractor and need a car to get to your clients offices this would not be treated as a tool of your trade and would fall under the £1000 value rule.

Are there any Business Tools I cannot keep if I go Bankrupt

The Official Receiver (OR) will allow you to keep all the tools you need to do your job. However if you own tools that you do not need or are considered excessively expensive for the type of work you might have to sell these. Clearly this is a difficult area as how does the OR know what tools are necessary to carry out your work and which are surplus? There is never an easy answer to this question.

If the OR has any reason to believe that the tools you say you need are excessive then they could invite a specialist in your industry to assess the situation. However this would be very unusual. It would only happen if the OR has reason to believe that you are not being honest with them about your work.

If you are no longer running your business and your tools are surplus to your requirements the OR might ask you to sell them. However this would only be the case if they are particularly valuable.

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