NYC Rent Stabilized Apartments Exempt in Bankruptcy

Are NYC rent stabilized apartments exempt in Bankruptcy?  That was the question on everyone’s mind in New York, and we finally have clarity.

In The Matter of Mary Veronica Santiago-Montaverde v. John S. Pereira as Trustee, The U.S. 2nd Circuit Court of Appeals was asked this question- “May a bankruptcy debtor’s interest in her rent stabilized lease be exempted from her bankruptcy estate pursuant to New York State Debtor and Creditor Law?”  The Court answered with a resounding Yes.  Maybe not resounding, as two Justices dissented, but they did say yes.

This case resolves what happens when someone files for Bankruptcy in New York and lives in a rent stabilized apartment.  The Court answers- if you are currently living in a rent stabilized apartment, filing Bankruptcy will have no effect on that lease.  In other words, the Trustee cannot sell that lease to the Landlord and force you to move out, as Pereira, the Chapter 7 Bankruptcy Trustee, tried to do in Montaverde.

This is huge news for those New Yorkers who want to file for Bankruptcy, but were petrified that they would be kicked out of their apartments.  In Montaverde, the Court found that a rent stabilized lease, is in fact a “local public assistance benefit” as per New York State Debtor Creditor Law Section 282 (2).  As such, it’s exempt from being taken by the Trustee if someone files for Bankruptcy.


NYC Rent Stabilized Apartments Exempt in Bankruptcy

Here is the link for the decision.


One should also take a moment and realize that this Bankruptcy case should have never been filed.  The debtor, an elderly woman, was $23,000 in credit card debt with no income other than social security to speak of.  She was essentially judgment proof.  No creditor would have received a dollar from her, and she could have continued to live her life the same way as she has the day before filing.  Many attorneys have correctly pointed out that there was absolutely no reason for an attorney to advise this debtor to file.  No doubt she suffered through God knows how many sleepless nights, waiting to find out whether she’d be kicked out of her apartment that she’d live since 1963.  50 years.  It’s critically important that you know why you’re filing and the pros and cons before doing so.