Court to Decide Whether Rent-Stabilized Lease May Be Bankruptcy Asset

A 79-year-old rent-stabilized tenant is at the center of a bankruptcy case that may pose a risk to her and the millions of other New Yorkers who live in rent-stabilized apartments.

The tenant, unable to keep up with her bills after her husband’s death, filed for Chapter 7 bankruptcy two years ago. She has no assets and no income other than Social Security. Typically under such circumstances, following a bankruptcy filing, she wouldn’t have to pay the $23,000 she owed.

The tenant had been paying her rent—$703 per month for a two-bedroom apartment—and didn’t owe the landlord any money. But her landlord was notified of the bankruptcy as part of standard procedures. He offered to buy out her lease, giving her enough money to pay off her debt, and the bankruptcy trustee agreed to the offer.

Now, the case has gone to the U.S. Court of Appeals for the Second Circuit, where the tenant’s lawyers argue that a rent-stabilized lease shouldn’t be an asset to be considered in bankruptcy cases. Legal aid lawyers fear that allowing rent-stabilized leases to be part of estates for bankruptcy purposes could leave bankrupt rent-stabilized tenants homeless by making it easier for landlords to evict them if they file for bankruptcy, even when they pay their rent.