Debtor Allowed to Claim Bankruptcy Exemption for Tools of the Trade Used in Currently Unprofitable Sideline Business.

When the debtor filed for Chapter 7 bankruptcy, he claimed several firearms, two boats, a camper, an ATV, a utility trailer, a two-horse trailer, and some fishing poles as exempt property used in the operation of his outfitters business.  State law (Colo. Rev. Stat. § 13-54-102(1)(i)) allowed a $20,000 exemption for tools  “used and kept for the purpose of carrying on any gainful occupation.”  Although he held a full time job at a grocery store, the debtor intended to grow his outfitters business to a full-time occupation. The bankruptcy trustee objected to the exemption on the ground that it applied only to "gainful occupations," which he asserted meant a business that was "profitable" as of the petition date. The bankruptcy court found that "an occupation need not be profitable at the time of filing.” Rather, the bankruptcy court held that it need only be a “valid occupation,” not a hobby or pastime.  On appeal, the court affirmed the bankruptcy court’s order, finding that the term "gainful," as used in the Colorado statute, was ambiguous. The court concluded after analysis that the term "gainful occupation" required at least some aspect of profitability. Considering the purpose of tools of trade exemptions, which was to permit debtors to retain items used in an occupation to aid them in providing support for themselves  and their dependents, the court ruled that, in order to disqualify a debtor's claimed tools of trade exemption under the Colorado statute, the objecting party had to prove by a preponderance of the evidence that the debtor's occupation was unlikely to contribute to the support of the debtor and his family in any significant way within a reasonable period of time under the specific facts of each case. The court found that the trustee had failed to meet that burden.  In re Sharp, No. CO-13-053, 2014 Bankr. LEXIS 1567 (B.A.P. 10th Cir. Apr. 11, 2014).

CALT does not provide legal advice. Any information provided on this website is not intended to be a substitute for legal services from a competent professional. CALT's work is supported by fee-based seminars and generous private gifts. Any opinions, findings, conclusions or recommendations expressed in the material contained on this website do not necessarily reflect the views of Iowa State University.

RSS​ Facebook Twitter