Can I File for Bankruptcy in NYC if I Have a Rent Stabilized Lease?

Can I File for Bankruptcy in NYC if I Have a Rent Stabilized Lease?

Very few places elsewhere in the United States have as technical and complicated landlord-tenant system as New York City.  Whereas many other places allow people to rent and evict as they please, New York City has special laws and rules in place for certain kinds of tenancies.  One of those laws is the Rent Stabilization Laws, which was designed and intended to keep housing affordable, especially for low income households.  Can someone file for bankruptcy in NYC, however, if they have a rent stabilized lease?

What is unique about rent stabilized apartments?

Tenants in rent stabilized apartments pay below-market rent for as long as they have a rent stabilized lease, it’s critical for people with rent stabilized leases to keep them.  Some of the most intense litigation in landlord-tenant court involves apartments with rent stabilized leases.  There are succession rights at stake when it comes to rent stabilized leases.  For property owners, they generally want a rent stabilized tenancy to end so that they can rent the unit at market rate.  Property owners, when looking to sell a building or have just purchased a building, will offer buyouts to rent stabilized tenants so that they can charge market rate rent.

How do rent stabilized leases affect my bankruptcy case?

To set the backdrop, when a person files for bankruptcy, the trustee that is assigned to their case may assume or reject a lease, as leases are generally interests that are part of a bankruptcy estate.  In the case of rent-stabilized leases here in NYC, landlords and property management companies had been offering to buy-out a bankruptcy debtor’s interest in a rent-stabilized lease (to take advantage of the higher rents of a de-stabilized apartment), and trustee’s had been accepting such offers.

In this case, the landlord had offered to buy-out the debtor’s rent-stabilized lease (and such monies would go to pay the debtor’s creditors).  The debtor subsequently amended her papers to reflect that the rent-stabilized lease was a “local public assistance benefit” under the New York laws.

In a decision released on November 20, 2014, the Court of Appeals, New York’s highest court, decided whether a “bankruptcy debtor’s interest in her rent-stabilized lease be exempted from her bankruptcy estate” as a local public assistance benefit.  The Court ruled that such an interest is exempt in bankruptcy as a local public assistance benefit.

In its decision, the Court reflected on the elements of a local public assistance benefit.  The criteria set out include: (1) that the benefit is “plainly local”; (2) the benefit is public; (3) the benefit provides assistance to a specific segment of the population; and (4) the benefit is inured by a targeted group.

The trustee argued that a rent-stabilized lease is not like other recognized local public assistance benefits, such as social security benefits, unemployment compensation, or domestic support obligations, as those are tangible periodic payments.  The Court stated that “payments are not a prerequisite to a benefit being in the nature of public assistance.”

Conclusion

As a result of this case, people living with rent stabilized leases can file for bankruptcy and protect their apartment.  Ultimately, this is a big win for debtors in NYC.  With rents always on the rise, a debtor needn’t fear filing for bankruptcy and then losing their apartment.  If you would like to speak to an attorney, contact the Law Office of Richard Kistnen, (718) 738-2324, or email info@LORK.nyc.

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