New York may have better bankruptcy exemptions than most other states, but a New York Times article asks whether one property right is even an asset at all: rent-stabilized apartments.
Here’s the background: New York City maintains a set of laws that protect apartment renters from rent price increases. One is “rent control,” which provides very powerful protections to a small percentage of apartment-dwellers; the other is “rent stabilization,” which applies to about 44 percent of the city’s rental units, capping price increases, limiting landlords’ eviction rights, and allowing tenants’ heirs to inherit the leases. The laws are highly controversial, with landowners claiming that they create a price ceiling on rents that damage the city’s economy and renters claiming that the laws protect low-income tenants from landlords’ price gouging.
Being such a powerful subsidy to tenants raises the question: Is a rent-stabilized lease an asset that can be liquidated by the bankruptcy trustee to satisfy creditors?
The question is pending before the U.S. Court of Appeals for the Second Circuit. Seventy-nine-year-old Mary Veronica Santiago has been living in a two-bedroom, rent-stabilized unit in Manhattan’s Lower East Side since the early 1960s. She pays a mere $703 in rent each month. Her husband died recently, leaving her with $23,000 in credit card bills that she couldn’t pay, so she filed chapter 7 bankruptcy. Though not a creditor in her bankruptcy, Mrs. Santiago’s landlord offered to buy out her lease, satisfy her debts, and allow her to remain in the apartment at the same low rate so long as the apartment didn’t pass on to her 50-year-old son who lives with her. The trustee accepted the offer.
However, Mrs. Santiago challenged the deal by suing the trustee, arguing that the lease is not an “asset” but a “public assistance benefit” like Social Security or food stamps. So far the bankruptcy court and the federal district court have both sided with the trustee, but it might be overturned in the appeal.
The good news is that no matter how the case turns out, Mrs. Santiago is unlikely to be evicted, at least so long as the landlord maintains the offer to buy out her lease, allows her to remain in the apartment, and repays her debts. The only loser would be her son. Other New York City renters might not be so lucky to have such an accommodating landlord. If you have significant debts and live in a rent-stabilized or rent-controlled apartment, talking to an experienced New York bankruptcy lawyer is of paramount importance as the law has not been settled on the matter and it could go against tenants.
For answers to more questions about rent-stabilized apartments in bankruptcy, the automatic stay, effective strategies for dealing with foreclosure, and protecting your assets in bankruptcy please feel free to contact experienced Brooklyn bankruptcy attorney Bruce Weiner for a free initial consultation.
