Case Summary:
Debtors sought to avoid a lien on a liquor license under 11 U.S.C. § 522(f)(1)(B)(ii) as a “tool of the trade.” The license had been exempted under 11 U.S.C. § 522(d)(5), the “wildcard” exemption. The Debtors owned a golf course, and there was no dispute that the liquor license was necessary for the success of the business. The Bankruptcy Court determined that the lien could not be avoided because the license was not a tool of the trade. The Court explained that in the Seventh Circuit, the reference to “tools of the trade” in § 522(f) takes on the meaning of either the federal tools of the trade exemption under § 522(d)(6) or the state tools of the trade exemption, depending on which the Debtor has elected. In re Thompson, 867 F.2d 416, 420 (7th Cir. 1989). In this case, the Debtors elected the federal exemptions, and therefore were limited to the narrow definition of the federal tools of the trade exemption as set forth by the Seventh Circuit Court of Appeals in In re Patterson, 825 F.2d 1140, 1146 (7th Cir. 1987). Patterson stated that the purpose of the tools of the federal tools of the trade exemption is to enable an artisan to retain tools of modest value, like rakes and other hand tools, so that he is not forced out of his trade. The Bankruptcy Court held that under this reasoning, a liquor license is not a tool of the trade.

Statute/Rule References:
11 U.S.C. § 522(f) -- Lien Avoidance

Key Terms:
Lien Avoidance
Tools of the Trade