Nearly a year ago, a case raised the question of whether a rent-stabilized apartment is an asset in New York bankruptcy. The short answer is no; rent-stabilization leases are “public assistance benefits” that are exempt assets under New York creditor and debtor law and therefore beyond the reach of a bankruptcy trustee.
The case involved an eighty-year-old woman, Mary Santiago, who lives in a rent-stabilized two-bedroom apartment in New York City’s East Village. She inherited $23,000 in unsecured debt from her husband when he died, but she had difficulty paying the bills, despite paying only $703 in rent. She filed bankruptcy to discharge the credit card debt, and upon finding out about the case, her landlord (a non-creditor) contacted the trustee and offered to satisfy all of Santiago’s debts in exchange for the apartment after she died. The trustee accepted the offer with the obvious loser being the tenant’s 50-year-old son who would have inherited the leased unit but for the deal.
Fearing she would be evicted anyway, the woman challenged the agreement, which the bankruptcy court and the federal district court both upheld by finding that the lease was an asset and not a public assistance benefit. Last year, the case was about to go to the U.S. Court of Appeals for the Second Circuit, but instead of deciding on the matter, it certified the question the case raised to the New York Court of Appeals, the state’s highest court. The court broke with the federal courts, finding by five judges to two that a rent-stabilized lease is actually a public assistance benefit.
Reporting on the ruling, The New York Times quoted one of the judges in the opinion, “When the rent-stabilization regulatory scheme is considered against the backdrop of the crucial role that it plays in the lives of New York residents, and the purpose and effect of the program, it is evident that a tenant’s rights under a rent-stabilized lease are a local public assistance benefit.”
The Times article can be found here.
The ruling will be a significant boon for New York tenants in rent-stabilized apartments filing bankruptcy, and it helps that the federal exemptions use similar language for defining public assistance benefits, which will help New Yorkers who chose the federal over the state exemptions. However, if you’re situation is similar to Ms. Santiago’s, and you have other assets that aren’t public assistance benefits, then it’s wise to hire an experienced New York bankruptcy lawyer to protect them.
For answers to more questions about assets in bankruptcy, the automatic stay, effective strategies for dealing with foreclosure, and protecting your assets in bankruptcy please feel free to contact experienced bankruptcy adversary proceedings Bruce Weiner for a free initial consultation.