Court: Rent-Stabilized Apartments Can’t Be Seized as Assets in Bankruptcy

In November, in a 5-2 vote, New York State’s highest court ruled that a lease for a rent-regulated apartment is a public benefit, just like disability or unemployment benefits, and cannot be seized as an asset in a personal bankruptcy.

“Affordable housing is an essential need,” the majority said. “When the rent-stabilization regulatory scheme is considered against the backdrop of the crucial role that it plays in the lives of New York residents, and the purpose and effect of the program, it is evident that a tenant’s rights under a rent-stabilized lease are a local public assistance benefit,” Judge Sheila Abdus-Salaam wrote for the majority.

The case involved an 80-year-old rent-stabilized tenant who had filed for bankruptcy. The owner of her apartment, who was not one of her creditors, offered to buy her rent-stabilized lease and produce the money to pay off her debt of about $23,000. The bankruptcy trustee in charge of marshaling her assets accepted the offer, but the tenant’s lawyers, fearing her eventual eviction despite an agreement to let her stay in the unit, challenged that decision.

After both a bankruptcy court and a federal district court sided with the bankruptcy trustee, the tenant appealed to the United States Court of Appeals for the Second Circuit. The federal court deferred to the state court as the final authority on the question of whether the lease should be exempt under New York law.

Both the state and New York City filed amicus briefs in support of the court’s eventual decision. The New York attorney general’s office and the city’s Law Department argued that treating a lease like property that could be sold, like a car or a piece of land, would undermine the safeguards that both bankruptcy and rent laws are supposed to provide.