NY Court of Appeals Rules that Rent-Stabilized Leases are Now Officially Exempt in Bankruptcy

Update 9/11/15: Since the Santiago-Montverde ruling some chapter 7 trustees are looking for a case to test the ruling. The NY Court of Appeals ruling explains that the rent stabilized leases can be exempted as a public benefit under NY law. However, it is uncertain whether the Federal exemptions also protect rent stabilized leases. In most cases the Federal exemptions are used because there is a large wildcard exemption that can protect any asset. If a debtor has, for instance, $10,000 in stock or $12,000 in cash and the Federal exemptions are used (because NY exemptions would not protect these assets)to protect these assets a trustee can argue that the rent-controlled lease is not exempt since only the Federal or NY State exemptions can be used. My office is closely following this issue and will update this blog accordingly.

Consumers in New York City got some great news today with a decision from the US court of Appeals in the Santiago-Monteverde v. Pereira case. We have been watching this case closely for about a year hoping the appeals courts would do the right thing for Ms. Santiago-Monteverde and other rent stabilized tenants needing bankruptcy protection. With the decision today rent stabilized leases are officially exempt in bankruptcy in New York. Rent stabilized tenants considering Chapter 7 no longer have to worry about losing their home in the process-i.e. getting their fresh start on the street. This victory makes the already favorable bankruptcy laws in New York City even safer for the millions of people living in rent stabilized apartments.
To make a long story short, the New York Appellate Court upheld that section 282 (2) of the Debtor and Creditor Law (DCL) exempts a debtor-tenant’s interest in a rent-stabilized lease. Before the appeal the Bankruptcy Court in New York was allowing the bankruptcy trustee, John Pereira, to sell the rent stabilized apartment lease to the landlord as a way to get some cash to repay Ms. Santiago-Monteverde’s creditors. The Bankruptcy Court was allowing her lease to be treated like any other non-exempt asset in her bankruptcy estate. They were saying your ability to stay in your home was about as necessary to your post-bankruptcy life as excessive jewelry, a fancy fur coat, or a Jet Ski would be. In essence, your lease could be sold off to repay your creditors as though it were a luxury asset.

In its wisdom the NY Court of Appeals felt that legislature has concluded that rent stabilization is “necessary to preserve affordable housing for low-income, working poor and middle class residents of New York City.” Or as the author of the majority opinion, Associate Justice Sheila Abdus-Salaam, puts it, “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.” While rent-stabilization is not a classic example of a government subsidized public assistance benefit, it is a public assistance benefit nevertheless that should be protected in the Chapter 7 bankruptcy process. Affordable housing is an essential need, and so is the right for consumers to get a fresh start when they truly need it. The appeals court was right in saving debtors from having to choose one over the other.

So it’s official. If you live in a rent stabilized apartment in New York City and need to file for Chapter 7 bankruptcy your lease will be protected in the process. If your chapter 7 case is properly filed a trustee cannot sell your lease to your landlord; it will remain an exempt asset out of the hands of your creditors just like your car, cash, retirement accounts and valuables. If you are struggling to make ends meet don’t worry about getting your fresh start on the street. Your bankruptcy discharge will eliminate your debt, protect your assets and keep you in your rent stabilized apartment. If you think you may need bankruptcy protection contact the Law Offices of William Waldner online or at 212.244.2882 to arrange a free bankruptcy consultation today. We primarily practice bankruptcy law and know how to protect rent stabilized leases and other valuable assets.
**** DISCLAIMER: This article is intended for educational purposes only. By reading no attorney-client relationship has been created. Prior results do not guarantee a similar result for future clients.