December 2, 2014
By Neal Tepel
New York, NY – Rent-stabilized tenants across New York City can breathe a sigh of relief. The New York State Court of Appeals decided that their leases are exempt from bankruptcy proceedings, which means these tenants can’t be required to sell their leases and forced from their homes as a result of bankruptcy.
The United States Court of Appeals for the Second Circuit, in a 5-2 decision, has determined that rent-regulated leases are "local public assistance benefits," like Social Security and Medicare, and therefore cannot be considered assets liquidated by trustees in bankruptcy proceedings.
"I am so pleased that the Court got it right," said Assemblymember Linda B. Rosenthal. "Filing for bankruptcy should not render anyone homeless, and the decision means that countless rent-regulated tenants living across the City who have fallen on hard times, can take advantage of the financial relief offered by bankruptcy filing without the very real fear of losing their homes." Rosenthal has been leading the effort to exempt rent-regulated leases from being counted as assets in bankruptcy and has a bill that would exempt them altogether.
At the center of the case was Mary Veronica Santiago-Monteverde, a 79-year-old widow who sought the protection of Chapter 7 bankruptcy after the death of her husband left her with thousands of dollars in unpaid medical bills. Santiago-Monteverde resides in a rent-stabilized apartment on the Lower East Side since the early 70s. Following her bankruptcy filing, her landlord bought her rent-stabilized unit. Running out of money, Santiago-Monteverde, fearing homelessness, contacted an attorney.
Rent-regulation was created by the Legislature and implemented by State and local agencies to protect tenants who could not afford skyrocketing rental prices. The Court slapped back against the argument that rent regulation could not be a local public assistance benefit because it is not directly subsidized by the State and no cash payments are directed to recipients. It clarified that the benefit need not be direct financial assistance, and much like Medicare, rent regulation creates a regulatory framework by which a benefit, affordable rents with stable increases and the right to renewal leases are provided.
"The Legislature never intended to create a situation in which rent-regulated tenants in this State would be forced to choose between availing themselves of the legal protections afforded by bankruptcy and being forced to give up their apartments," continued Assemblymember Rosenthal. "What's more, allowing this practice to continue would have undermined the very system we created to provide affordable housing to working-class New Yorkers and their families. The Court recognized these facts and made the right decision."