An appeal in a chapter 13 case is not rendered moot by confirmation of a plan, according to a typically erudite opinion by Seventh Circuit Judge Richard A. Posner.
A creditor challenged the debtor’s exemption of her home. The bankruptcy judge upheld the exemption and later confirmed the chapter 13 plan promising to pay the creditor $16,000 on his $92,000 judgment.
The creditor appealed the ruling on the exemption but did not appeal the confirmation order. The district court upheld the homestead exemption.
In the circuit, the debtor argued that the exemption appeal was moot because the creditor did not appeal the confirmation order that made the plan binding on the creditor.
In one short paragraph of his Dec. 21 opinion, Judge Posner disposed of the notion that the appeal was mooted by confirmation. He said that the plan persists for several years and can be modified or even converted to chapter 7 before payments are completed and a discharge entered.
Although Judge Posner did not say so explicitly, he implied that setting aside the homestead exemption on appeal would change the equation underlying the payment calculation, giving rise to a possible modification in the plan. Or, dismissal of the case would turn the homestead exemption into a live controversy. If there were no appeal on the exemption, the ruling in the lower court would be res judicata, barring the creditor from raising the issue in attempting to collect the $92,000 judgment if the chapter 13 case were dismissed before discharge.
The bulk of Judge Posner’s opinion is a plain-language discussion of arcane concepts of real property and trusts and estates law dealing with tenancies by the entireties. The judge’s recitation of principles related to entireties property was unaided by citation to authority other than an Illinois statute.
For a dozen years, the debtor had owned a home with her husband as tenants by the entireties. Seven months before the wife’s bankruptcy, the couple conveyed their interest in the home to the husband’s living trust, specifying that the beneficial interest in the home was owned by the couple as tenants by the entireties.
The judgment creditor contended that the conveyance just before bankruptcy terminated entireties ownership. The bankruptcy court overruled the creditor and was upheld in district court and by Judge Posner.
Judge Posner cited an Illinois statute that provides that a tenancy by the entireties is created whenever a trust instrument provides that the interests of a husband and wife are held as tenants by the entireties.
The creditor contended that entireties ownership was invalid because the trust instrument contained provisions inconsistent with entireties ownership, such as the ability of the trustee to convey the entire interest in the trust.
Judge Posner said those provisions were “irrelevant,” because Illinois makes any trust provisions unenforceable that would “sever the tenancy by the entirety.”
Demonstrating his erudition, Judge Posner said that a “tenancy by the entirety will perdure” despite any changes the trustee might attempt to make in the trust. “Perdure” means to remain in existence or endure.
Judge Posner handed down the opinion eight days after oral argument.