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I face a similar situation and decided to gut the interior and replace the wiring and plumbing at the same time. The bedroom closets are the old style 4 foot square and were right next to each other but in different bedrooms. I gutted the closets and rewalled them to make them 2 foot deep and 8 feet long. One of the best things I have done so far. I will also insulate all the exterior walls. I also removed a linen closet next to the bathroom and took out 2 small corner walls and installed a stackable washer and dryer in the upstairs bathroom. Just these 2 minor changes have made a tremendous and more beneficial use of space.
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