Szekely, Matter of, 90-1536

• Decision Date: 02 July 1991
• Docket Number: No. 90-1536,90-1536
• Parties: , 24 Collier Bankr.Cas.2d 2028, Bankr. L. Rep. P 74,070 In the Matter of Martin SZEKELY and Donna Szekely, Debtors-Appellants.
• Court: U.S. Court of Appeals — Seventh Circuit

Page 897

936 F.2d 897

60 USLW 2035, 24 Collier Bankr.Cas.2d 2028,

Bankr. L. Rep. P 74,070

In the Matter of Martin SZEKELY and Donna Szekely, Debtors-Appellants.

No. 90-1536.

United States Court of Appeals, Seventh Circuit.

Argued May 10, 1991.

Decided July 2, 1991.

Donald H. Geiger, Waukegan, Ill., Andrew J. Maxwell, Maxwell & Perlstein, Chicago, Ill., for debtors-appellants.

Before BAUER, Chief Judge, and POSNER and RIPPLE, Circuit Judges.

POSNER, Circuit Judge.

This bankruptcy appeal raises a surprisingly fundamental, and difficult, question (assuming we can get over a jurisdictional hurdle), on which we are unable to find any authority. The question is whether if a debtor continues to occupy his home after declaring bankruptcy, the trustee can charge rent to him, notwithstanding the homestead exemption. The debtors in this case--a married couple named Szekely, living in Zion, Illinois--declared bankruptcy (originally under Chapter 13, later converted to Chapter 7--liquidation) on December 5, 1988. One of the assets of the bankrupt estate was the couple's home, on which there were both a first and a second mortgage. The Bankruptcy Code allows a state to require debtors to use the state's exemptions rather than the exemptions set forth in the Code itself. 11 U.S.C. Sec. 522(b)(1); First National Bank v. Norris, 701 F.2d 902, 904 (11th Cir.1983). Illinois has taken up this option, and as a result each of the Szekelys was "entitled to an estate of homestead to the extent in value of $7,500," for a total of $15,000. Ill.Rev.Stat. ch. 110, pp 12-901, 12-1201.

The Szekelys continued living in their home, though they made no payments on either mortgage. In April, the trustee asked the bankruptcy judge to order the couple to pay rent. Two months later the bankruptcy judge granted the trustee's request and fixed the rent at $600 a month, though it was understood that since the Szekelys couldn't pay, the rent would accrue, and would be deducted from their homestead exemption when the house was sold. In September, although the house hadn't been sold yet, the Szekelys vacated it, owing eight months' accrued rent--$4,800. In February of the following year, the district judge affirmed the bankruptcy judge's rent order. 111 B.R. 681 (N.D.Ill.1990). The Szekelys now appeal the district judge's order to us. We were told at argument that the house has now been sold, for about $135,000, which is $30,000 more than the amount owing on the two mortgages and therefore enough to cover the entire homestead exemption. Yet if we affirm, the trustee will give the Szekelys only $10,200 ($15,000-$4,800).

The first question is whether we have appellate jurisdiction. Although the district judge can in his discretion review an interlocutory order made by a bankruptcy judge, our jurisdiction is confined to final orders by the district judge. 28 U.S.C. Secs. 158(a), (d). An order by the district judge that, as here, affirms a bankruptcy judge's interlocutory order, so that the bankruptcy proceeding continues, is itself interlocutory for purposes of our jurisdiction--or rather lack of jurisdiction. In re Behrens, 900 F.2d 97, 99 (7th Cir.1990). Otherwise there would be two tiers of review for interlocutory orders by bankruptcy judges, and that is too many.

The order of the bankruptcy judge was interlocutory when entered not only in the sense that the bankruptcy proceeding was still pending, but also in the sense that the order itself was unliquidated. It was an order to pay so much per month till the debtors moved out of the house, and no one knew when that would be. The second point is more important than the first. In bankruptcy, once a liquidated claim is allowed--that is, once the bankruptcy court has decided that a specific creditor is entitled to a specified amount of money--either the trustee or the creditor, depending on who is dissatisfied with the decision (of course, both could be), can appeal as of right, because the decision to allow the claim is deemed a final order. In re Jartran, Inc., 886 F.2d 859, 862 (7th Cir.1989). It is so treated because it is the practical equivalent of a final judgment in a stand-alone suit. A judgment does not lose its finality merely because there is uncertainty about its collectibility, corresponding to uncertainty about how many cents on the dollar the creditor will actually receive on his claim once all the bankrupt's assets are marshaled and compared with the total of allowed claims, and the priorities among those claims are determined.

Thus the fact that the bankruptcy proceeding continues before the bankruptcy judge does not preclude treating an interlocutory order by him--interlocutory in the sense that it does not terminate the entire proceeding--as final for purposes of appellate review. (And if it is final for those purposes, then so is the district court's affirmance of his order.) The "finality" of such a nonfinal order depends on whether it terminates what, but for bankruptcy, would be a stand-alone suit by or against the trustee. In re Morse Electric Co., 805 F.2d 262, 264-65 (7th Cir.1986); In re Wagner, 808 F.2d 542, 545 (7th Cir.1986). Applying that principle here, we note first of all that the debtors were in a practical sense creditors in this matter, since they were claiming the right to withdraw from the estate the full amount of the homestead exemption, as distinct from that amount minus rent. And the trustee was, again in a practical sense, the plaintiff in a stand-alone suit to collect rent from debtors whose former property was now the property of the estate, making them in the trustee's view the equivalent of squatters. The trustee's claim for rent, along with the debtors' mirror-image claim for the part of the household exemption that the trustee is trying to withhold as rent, was unliquidated when entered. But since the amount depended mechanically on how long the debtors remained in the house, perhaps the allowance of the trustee's claim could be considered sufficiently definite to be final and appealable, under the principle that when only ministerial details remain to be attended to before a judgment can be reduced to a sum certain that is immediately collectible, the judgment is appealable without waiting for those loose ends to be tied up. In re Jartran, supra, 886 F.2d at 862; In re Fox, 762 F.2d 54, 55 (7th Cir.1985). Or perhaps not--perhaps it would be better to wait until the rental period ends because all sorts of issues may arise during the rental period that are best decided in a lump rather than piecemeal. The idea behind "ministerial details" is that if they are all that remain to be cleared up on remand, the remand is unlikely to lead to a second trial, so that allowing an appeal now will not result in a multiplicity of appeals. The spectre of piecemeal litigation would, however, stalk bankruptcy land if the rental period was likely to produce new appealable disputes between the parties.

We need not resolve the interesting question whether the bankruptcy judge's order was final when entered (remember that it didn't have to be final to give the district judge appellate jurisdiction). For, months before the district judge rendered his order, the debtors moved out of the house and the amount of rent due under the bankruptcy judge's order became a definite amount of money. The district judge's decision affirming that order was therefore a final decision when rendered, and we have jurisdiction after all.

In defending the judgment that he won below, the trustee points out correctly that the debtors' home became an asset of the bankrupt estate upon the declaration of bankruptcy. 11 U.S.C. Sec. 541. Thus, by continuing to live in the house, the Szekelys were using an asset that belonged to the bankrupt estate, not to them. Therefore--the trustee argues--they should be required to pay rent for its use, just as anyone else leasing assets of the estate would be required to pay rent to the trustee. The argument is fine as far as it goes, but it doesn't leave much in the way of a homestead exemption. Imagine a case--this case, in fact--in which the debtors live in a relatively expensive home. They go broke, and naturally they want to live more modestly. If they move out, then under the trustee's view of the case they get nothing until the house is sold, at which time they get their $15,000. But since they get nothing till then, they will find it hard to arrange for substitute accommodations if they move out now. (Of course they can rent housing out of their current income, if they have any. But this would be true even if there were no homestead exemption, so it is a better argument against the exemption--though not an argument properly addressed to us, for we of course have no authority to abolish the exemption--than it is in favor of allowing the trustee to charge rent.) If, therefore, they decide to remain in their house--their house that was, now the property of the estate--they will, if the trustee prevails, be forced to pay rent based on the value of the house, a value geared to the debtors' standard of living before they went bankrupt. As the months pass, the accruing rent will dig a deeper and deeper hole in the homestead exemption; in this case it reduced it by a third. When the debtors finally move out they will have substantially diminished resources with which to find alternative housing.

This is looking at the case from the debtors' point of view, and thus emphasizing the "fresh start" rationale of bankruptcy--that is, bankruptcy as a...