Protecting NYC Rent Stabilized Apartments in Bankruptcy

There have been some recent bankruptcy cases in NYC in which rent stabilized leases have been determined to be assets and sold by bankruptcy trustees to repay creditors.  It’s pretty shady business in the eyes of most bankruptcy attorneys but is technically allowed in NYC under current bankruptcy laws.  Fortunately this issue is pending legal appeal in the second circuit, but we are seeing it more frequently among our bankruptcy clients.  We have yet to lose a rent stabilized lease for a client facing bankruptcy as of today, but with that being said you really need to know what you are getting into when you file bankruptcy.  Once the petition is filed your lease technically becomes the possession of the bankruptcy trustee.  You can’t just have the case dismissed if you are unhappy with the outcome.


If you are worried about what could happen to a rent stabilized lease if you should file bankruptcy you need to consider the value that lease may have to the bankruptcy trustee.  Are you in an up and coming part of town or a desirable building for example?  Has the building been remodeled? How long have you lived there? Have you ever been offered money to leave?  Most importantly, ask yourself what the difference between your monthly rent is, and what your apartment would rent for on the open rental market.


Most rent-stabilized leases are not worth the trouble of selling, and even if you believe your lease would be very valuable it doesn’t necessarily mean the trustee will sell it off to repay your creditors.  First of all not all trustees believe in this practice.  Secondly, if there is any other person on your lease it would be nearly impossible for the trustee to assume possession and sell the lease without consent of the third party.  Furthermore, there are ways to protect your rent stabilized apartment if you anticipate the problem before filing and are working with an experienced attorney.  Many bankruptcy law firms are only interested in filing Chapter 7 bankruptcy cases and may not take clients with this issue.  With the particular problem of rent stabilized apartments it may be in your best interest to seek Chapter 13 protection instead, or to convert from a Chapter 7 to a Chapter 13 when it becomes necessary to protect the lease.  A petitioner always has the right to convert from a Chapter7 to a Chapter 13 assuming there was no bad faith, but not all attorneys are necessarily interested in doing so.


Losing a rent stabilized apartment is just one of the many things that could potentially go wrong in bankruptcy.  Filing for bankruptcy is a big decision, and while it is intended to help bring about a fresh financial start there may be some consequences in the process. We believe selling rent stabilized apartment leases goes against the spirit of bankruptcy relief, and we hope the second circuit court does the right thing by officially eliminating this practice.  But remember that even though a trustee in New York has the current ability to sell a rent stabilized lease as of now, our office has still never lost a lease in a bankruptcy case as of 12/4/2013.


We are not afraid to file cases in which a lease might be at risk, but we want to be sure our clients are aware of all of the potential outcomes before moving down the bankruptcy path.  At the end of the day bankruptcy is designed to provide you with a fresh financial start and a chance at a new life, not put you out of your home- but you need to protect yourself in the process.  If you live in a rent stabilized apartment in New York, and are considering bankruptcy protection please contact the offices of William Waldner online or by calling 212.244.2882 for a free consultation.  As of 9/31/16 we have a 99% Chapter 7 Bankruptcy discharge record in New York City and have never lost a rent-stabilized lease in a bankruptcy case.


This article is intended for educational purposes only.  By reading this article no attorney-client