Will I Lose My Furniture or Household Goods in a Chapter 7 Bankruptcy?

September 23, 2022

Chapter 7 bankruptcy is an opportunity for people who are in challenging financial situations to get a second chance. By wiping out most debt, those who go through bankruptcy are able to start over anew and build back their financial life over time.

One of the biggest benefits of Chapter 7 bankruptcy is that petitioners often don't have to sell their major assets such as vehicles and homes. This allows those who file for bankruptcy to still live a comfortable life and earn money while not being overburdened with the amount of debt they've accumulated.

One of the biggest questions people have is what they will be able to keep in a Chapter 7 bankruptcy and what will be taken from them.

I'll answer that question in-depth below.

State Exemptions for Household Goods and Furniture

Every state has exemption laws on the books that essentially set aside categories and amounts of property that the Chapter 7 trustee cannot take and distribute to creditors. There are also federal exemptions that some states, including Michigan, allow. Most states include furniture and household goods in these exemption laws.

In other words, furniture and many other categories of assets will likely be protected from creditors throughout the bankruptcy process as all states exempt such categories of assets. Of course, there are maximum values for each exemption, so if certain furniture is especially luxurious or valuable and exceeds the maximum exemption amount, the Chapter 7 trustee could sell a portion of your furniture or other assets that exceeds the maximum exemption amount. The current Michigan maximum exemption for household goods is $600 per item and $3,825 total.  

Federal Exemptions for Household Goods and Furniture

The federal exemptions often resemble state exemptions with different exemption maximums or different categories of exemptions. “Household goods” is a category of federal exemptions that allow people to protect appliances, animals, musical instruments, furniture, household goods, clothing, and more.

The total value of these goods cannot exceed $14,875. There is also a per-item maximum value of $700. This is much higher than the Michigan exemption for household goods ($3,825). This does not include other categories of assets like jewelry or automobiles. Those have their own federal exemption maximums--$1,874 for jewelry and $4,450 for automobiles. 

These federal exemption amounts took effect on April 1 of 2022, and they are currently set to run through the end of March, 2025.

Wildcard Exemption

Some states, including Michigan, allow federal exemptions in addition to state exemptions. The bankruptcy petitioner must choose between either the state or federal exemptions. The federal exemptions allow the person filing for bankruptcy to pick and choose which property they want to exempt from the Chapter 7 bankruptcy proceeding through the use of the wildcard exemption. 

The wildcard exemption amount depends on how much of the federal homestead exemption is used. The federal homestead exemption is $27,900 per filer. If the bankruptcy filer doesn’t own a home, the wildcard exemption is more than $15,000 per filer. If you are married, for example, and filing with your spouse, you can exempt over $30,000 of property of your choosing. The wildcard exemption can be applied to assets such as cash in the bank or a collectible item that is worth a lot of money. 

This often occurs when there is a household good that is valued above the $700 per-item limit. The federal wildcard exemption provides an additional $1,475 (plus any unused homestead exemption up to $13,950) of value to protect an item you want to keep. For example, if a collectible item or piece of furniture is valued at $2,000, you can use the $700 normal federal exemption per item plus $1,300 of the $1,475 federal wildcard exemption to protect the item. 

Some states have their own wildcard exemptions, so check with your bankruptcy lawyer to learn about your options. Some states have broader wildcard exemptions than others, and some have financial limitations for how much you can choose to exempt. Michigan state exemptions do not include a wildcard exemption, but the federal wildcard exemption is available to Michigan bankruptcy filers.   

Important Forms to Know About

There are many, many forms that need to be filled out when you file for bankruptcy. The following forms describe your property and exemptions. Your bankruptcy attorney will obtain information from you and fill out the forms for you, checking with you to ensure accuracy.  

Schedule A/B: Property

One of the most important forms for Chapter 7 bankruptcy is known as the Schedule A/B: Property form. On this form, every piece of property that you own is listed and valued as of the date of filing for bankruptcy.

This should include all household and personal items, all financial assets, all vehicles, and all real estate interests including buildings and land.

Schedule C: The Property You Claim as Exempt

The second form to fill out is called Schedule C: The Property You Claim as Exempt. This will be a full list of all property that you would like to exempt during the bankruptcy proceeding.

After choosing between state or federal exemptions, exempted property is listed much like assets are listed in Schedule A/B. The value of the exempted asset is provided which is the cost to replace that asset. 

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