Bankruptcy doesn't mean you'll lose your rent-stabilized apartment, court rules

By Leigh Kamping-Carder | November 21, 2014 - 12:59PM

Good news for rent-stabilized tenants in a financial bind: you can now file for bankruptcy without worrying you’ll get evicted too, a federal appeals court ruled Thursday.

In a 5-2 split decision, the court found that, when it comes to assessing a bankrupt renter's finances, a rent-stabilized lease should be considered a “local public assistance benefit” along the lines of Social Security, rather than an asset that could be sold to pay back creditors. The distinction is important because public benefits are protected--even if you go bankrupt, bill collectors can’t touch them--whereas other contracts are not.

Thus, tenants in stabilized rentals can seek bankruptcy protection without worrying their apartments will become collateral damage--a concern for many low-income renters, the Wall Street Journal reports. “Today’s decision means that countless rent-regulated tenants living in my district and 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,” Assembly member Linda B. Rosenthal, who represents the Upper West Side, told the New York Times.

The case revolved around Mary Santiago, an 80-year-old East Village resident who filed for bankruptcy protection in 2011 after the death of her husband her unable to pay off about $23,000 in debts, according to news reports. She had lived in her two-bedroom for about 50 years, paying a mere $703 a month in rent. When she filed for bankruptcy protection, her landlord offered to buy her lease for $140,000 and let her stay in the apartment indefinitely, but her lawyers were skeptical and challenged the arrangement, the Times said.

Both the bankruptcy court and a federal trial court upheld the deal, but Santiago appealed, in the process gaining the backing of Mayor de Blasio, New York Attorney General Eric Schneiderman and assorted lawmakers and tenants advocates.

DIG DEEPER:

Rent-Stabilized Leases Shielded in Bankruptcy (NYT)

Court Ruling Favors New Yorkers With Regulated Apartments (WSJ)

Court Finds Rent-Stabilized Leases Can't Be Seized As Assets In Bankruptcy (Gothamist)

Rent coach: What is a rent-stabilized apartment anyway?

Brick Underground articles occasionally include the expertise of, or information about, advertising partners when relevant to the story. We will never promote an advertiser's product without making the relationship clear to our readers.