Understanding Bankruptcy Exemptions for Business Owners

Today’s issue is how bankruptcy affects a business. This is a question from Nate from South Carolina which offers a special exemption for businesses known as tools of the trade. Nate is a high school teacher with a side hustle tutoring business. He is considering filing for Chapter 7 bankruptcy, but is concerned that doing so will affect his business. So, let’s dig into the issue of bankruptcy business exemptions.

Bankruptcy Business Exemptions

Bankruptcy exemptions vary per state, and they protect assets in bankruptcy. By knowing in advance the exemptions in your state, you will learn to what extent your real and personal property is protected.

For example, the South Carolina homestead exemption is almost $60,000 for a single filer. Suppose your home’s value is $100,000, with a $75,000 mortgage, then there is $25,000 in equity. In this case, the homestead exemption of almost $60,000 exceeds the $25,000 in equity, so the house is protected.

Suppose there was no mortgage; the first $60,000 is protected while $40,000 of equity isn’t. That $40,000 belongs to the bankruptcy estate and must be paid back to keep the home. Chances are Chapter 13 bankruptcy would be filed in this example, so that is the amount paid back in 36-60 months in the bankruptcy plan.

Personal Property Exemptions

Exemptions apply to both real and personal property. It’s important to note that personal property is valued at the fair market value. I always tell clients garage sale value. Basically, how much would it sell on Craigslist.com?

The Tools of the Trade Bankruptcy Business Exemption

South Carolina does offer what is known as the tools of the trade exemption. In this case, up to $1,825. The tools of the trade exemption means tools used in the operation of a business are exempt up to that amount. The tools of trade exemption isn’t available in all states. In those states, business assets would fall under the regular exemptions offered for personal property. South Carolina Code § 15-41-30(A)(6).

Business Bankruptcy

In Nate’s case, because his business has recently started, there is no value to the business. For example, there are no assets or tools of the trade because his business is a tutoring service he offers to students at the high school level.

Also, since that is the type of business that does not have assets, except maybe bank accounts, the current value of his business would be any funds he deposited into an account. His computer was purchased with personal funds before the business was created.

• How Bankruptcy Affects Your Business and Limited Liability Companies (LLC)

Therefore, Nate’s business would be exempt. However, he should still list the business on his bankruptcy petition.

I hope this answers your question regarding your business. I wish you the best of luck moving forward with your tutoring business.

Colleges and universities can purchase my bankruptcy law textbook directly from Routledge Publishing. For paralegals and students buying single copies, you can do so via Amazon Books. To access my YouTube channel, click this link. Archives related to personal and business bankruptcy can be found via this link.

Need to look for prior blog posts or other categories? Click the links below:

• Bankruptcy
• Your Wallet

Please note that the information on this site does not constitute legal advice and should be considered for informational purposes only.

Updated on May 2, 2025.