Rent-Controlled Apartments in Bankruptcy

Property values in New York City are exorbitant compared to the rest of the state. Very often, a rent-stabilized or rent-controlled apartment is the only way that people in certain income brackets can live in the city proper. As such, the concept of rent control is something that matters to quite a lot of people. The question has even come before the bankruptcy court – is a rent-stabilized lease an asset in a Chapter 7 bankruptcy? Or is it a personal right that cannot be sold?

The Santiago Case

Mary Veronica Santiago’s husband passed away more than three years ago, and a year or so afterward, she filed for bankruptcy., hoping to get a fresh start. When she did so, she filed Chapter 7, stating that she had no assets. However, her bankruptcy trustee disagreed, and claimed that her rent-stabilized apartment near Tompkins Square Park was actually an asset, able to be sold to pay off all or part of her debt.

In New York, rent-stabilized apartments carry perks, including the ability to assign survivors’ rights to children or caregivers. The trustee, John Pereira, through his attorneys, has made the case that since the lease would have value if sold, that it should be treated as an asset. Currently, the case is pending before the Second Circuit Court of Appeals, and bankruptcy experts are watching with baited breath.

Property or Personalty?

Rent stabilization affects 44% of the city’s apartments, and rent control (a more strict application of the laws that restrict rents to an extremely narrow margin) affects 2% more – in other words, almost half of New York apartments are in markets where middle to low-income people would likely not be able to live without rent stabilization.

This case has the potential to be extremely problematic not only for debtors, but also for those on housing assistance or public benefits. New York State has laws that exempt public benefits from bankruptcy legislation, and Mrs. Santiago’s attorneys referenced it in their most recent brief to the Court of Appeals, arguing that rent control is a form of public benefit – it allows more people to find affordable housing. However, there is no guarantee that the Court will accept this reasoning. If they do not, there is no guarantee that other public benefits would not become fair game for a rapacious trustee. Some public benefits are protected by the above-mentioned law – but some of them are not specifically mentioned.

Mr. Pereira argues that the lease is an asset because it would bring value if sold on the open market. Mrs. Santiago’s landlord even offered to purchase the lease and pay off her debt, but it would mean that no survivors’ rights would be available for her to will to her son. Several amicus curiae, including a delegation of state legislators, have filed briefs arguing that rent-controlled leases ought to not be considered disposable assets, given the strong role they play in keeping New York City housing affordable and neighborhoods diverse. Bankruptcy attorneys are also concerned, given that many have current Chapter 7 clients who could wind up without homes if this case goes against Mrs. Santiago.

Contact A Bankruptcy Attorney Today

The bankruptcy attorneys at the Law Offices of Stephen B. Kass, P.C. do our best to stay on top of current events in New York. If you need assistance keeping your lease and your rights intact, contact us for a consultation. We will work hard to get you what you are owed.

 

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