Whether or not you will lose your furniture in a bankruptcy case depends on a number of factors. The type of bankruptcy you file -- either Chapter 7 or Chapter 13 -- plays a role, as does the state in which you file your case. Generally speaking, you're likely to keep your furniture when you file for bankruptcy, unless it is rare and precious with a higher-than-typical value. Even then, you might be able to strike a deal to keep it.
You use exemptions to keep your property when you file bankruptcy. Exemptions are particularly important in Chapter 7 filings, since property you can't exempt is liable to be liquidated to help pay off your debts. While some states allow you to use federal bankruptcy exemptions, most states have their own list of exemptions that you must use. Typical bankruptcy exemptions include some of the equity in your home -- known as the homestead exemption -- along with exemptions for retirement plans, tools necessary for your business and basic furnishings.
With Chapter 13 bankruptcy, you get to keep all your property, but exemptions still play a role. In exchange for getting to keep your property, Chapter 13 requires a monthly payment plan to creditors that can last as long as five years. The amount of your payments is determined in part by how much property you can exempt.
Filing Schedule C
Schedule C is the bankruptcy form you'll use to claim your exemptions. On Schedule C of the bankruptcy petition, you'll list all of your property, along with the law in your state providing an exemption of that property. If the value of your property falls below the legal limit of your exemption, you can keep it. For example, New York has a $5,000 exemption for basic furniture, household goods, appliances, clothes and pets. If all of your property under that category totals less than $5,000, you get to keep it all. Other states may be more generous. Craig Andresen, a bankruptcy attorney from Minnesota, notes that the federal exemption for household goods is $10,775, making it more generous than the New York State exemption.
Sometimes it can be difficult to determine which category your furniture should fall under on Schedule C, since some states don't offer a specific exemption for it. Most states do offer a personal property exemption which could protect your furniture. Many states also have a "wild card" exemption into which you can place any property that doesn't fall into any other specific categories. Andresen notes that since you should value your property at its current fair market value, rather than its replacement value, most people are able to exempt all of their property.
Every bankruptcy case is unique, and every bankruptcy court has its own local rules that must be observed. Even if you feel you have a general understanding of how bankruptcy works, consult an attorney so that nothing trips up your case.
Negotiating with the Trustee
If you file Chapter 7 and the value of your furniture cannot be completely protected, you might be able to strike a deal with the trustee. In some cases, you can pay the amount of the non-exempt property in order to keep it. For example, if you can exempt $5,000 of furniture but yours is worth $6,000, you might be able to cut a check for the non-exempt $1,000 and keep all of your furniture. In other cases, the trustee might determine that the effort and expense of seizing and selling your furniture would not result in any net gain for your creditors. As a result, you might be allowed to keep your furniture, even if it is not technically exempt.
John Csiszar earned a Certified Financial Planner designation and served for 18 years as an investment counselor before becoming a writing and editing contractor for various private clients. In addition to writing thousands of articles for various online publications, he has published five educational books for young adults.