"Tools of the Trade" Exemption

Virginia Code §34-26, the "Poor Debtor's Exemption" section, allows a debtor to claim tools used in the course of his trade or occupation and keep them from creditors in bankruptcy cases.  This exemption also applies to collection cases, as the debtor may use this exemption to prohibit post judgment collection by execution on the asset.

In the case of Monticello Arcade L. P. v. Lyall, the United States Bankruptcy Court at Newport News reviewed §34-26 in regard to an architect's Acura automobile.  The Bankruptcy Court denied the exemption based upon the classification of the car as a "luxury" car.  The Appeals Court reversed and remanded the case with instructions that the Bankruptcy Court focus not upon whether the car is a "luxury" car, but upon whether the car is an "absolute requirement for [debtor] to efficiently and competently perform his work as an architect."  Upon the Bankruptcy Court’s review, the Court ruled that the architect had demonstrated with his daily calendar and his testimony that the car was used to visit clients, job sites and government offices. The debtor was a self-employed architect in Hampton Roads, had practiced architecture on his own for six years as owner an president of his company.  The debtor testified that although he used the vehicle to commute to and from work, the vast majority of the time he used the vehicle for non-commuting business purposes.  The debtor also testified that he had to visit job sites in order to interpret plans and in order to understand the scope of the project.  The Court noted that there was no evidence that there were alternate means of transportation available for the debtor to accomplish these requirements.  Accordingly, the Court, this time around, found that the vehicle was "necessary", and therefor was exempt under Virginia Code §34-26(7).

In the case of White v. Central Fidelity Bank the United States Bankruptcy Court at Roanoke, Virginia, reviewed the language of Virginia Code §34-26 and held that the plain meaning is that property which is "necessary for use in the course of the householder's occupation or trade" qualifies as a "tool" for purposes of exemption.  In White the Court noted that in regard to automobiles, the particular facts surrounding the occupation and the necessity of the automobile must be examined.  In White, the debtor had both a day and an evening job as a nursing assistant providing home health care in patients' homes, and whose employment contract required that she have an auto as a condition of her employment.  Based upon these facts, proof that the creditor's lien was a nonpossessory, non-purchase money lien, and the fact that the creditor's lien impaired the debtor's exemption, the Court held that the lien was avoidable under Bankruptcy Code §522(f).

In the civil/collection case of Hunn v. Zettel the Fairfax County Circuit Court had occasion to review a debtor's claim for an exemption for his BMW car as a "tool of the trade".  Unlike the evidence obtained in Lyall which demonstrated the "absolute requirement", in Zettel, no such evidence was presented.  Accordingly, the Court denied the debtor's exemption claim in Zettel.

Looking at another case involving tools of the trade, the United States Bankruptcy Court at Newport News, in the case of In re Aldrich, upheld the debtors' motion to exempt various items of property, including an inoperable photo enlarger and two photo processors, as "tools of the trade" under Virginia Code §34-26.  The Court concluded that these items were exempt under Virginia Code §34-26 and under Bankruptcy Code §522.  The Court in Aldrich stated that it reached its conclusion from the plain meaning of Virginia Code §34-26, and from the obvious intention of the Virginia legislature, which substantially broadened the scope of the relevant  definitions when it amended Virginia Code §34-26 in 1990.  The Court in Aldrich found from the unrebutted testimony that the photo processing equipment was necessary for use in the debtors' occupation involving the family photo processing lab.  There was no doubt that the debtors had been in the photo processing business for some time and, in the case of the husband, almost continuously since his retirement from the Air Force.  It was likewise absolutely clear from the evidence that the wife was engaged in the photo processing business of a third party at the time of the filing of the petition, and that she too awaited the startup of the family business in order to utilize the exempted tools of the trade, which she was currently utilizing on a part-time basis.  Therefore the Court found that both debtors were, or intended to be engaged, in an occupation and trade at the time of the filing of the petition.  The Court found it to be sufficient that the husband had the intention of returning to his occupation as a photo processor at the time of the bankruptcy filing, even though he had been precluded from doing so by the contractual relationship with the objecting creditor, who bought out the debtor's earlier photo processing business and implemented a non compete agreement.