When then Governor David Patterson signed into law a bill in 2011 increasing the amount of assets that a person is allowed to keep when filing bankruptcy in New York, I expressed concern that individuals living in rent-stabilized and rent-controlled apartments were in danger of having their leases treated as assets in personal bankruptcy cases.   I was concerned that bankruptcy trustees, who earn a commission based upon the assets they take from debtors to pay off creditors, would offer to sell a rent-controlled or rent-stabilized lease back to the landlord.  This would result in the tenants being forced out of their homes. 

I promised to explore avenues of amending existing state bankruptcy exemptions to include protection for renters, just as it does homeowners. I contacted several state legislators and made personal recommendations in amending the current legislation. I suggested a simple two-part amendment to the existing New York State bankruptcy exemptions that would protect: 

a) The value of a rent stabilized or rent controlled lease

b) The value of a lease in a building that has converted to either Cooperative or Condominium units. 

Since then, I am happy to see that New York State Assemblywoman Linda Rosenthal of the 67th district has sponsored a bill, acknowledging the importance of granting tenants the “same legal protections currently extended to homeowners.”  The bill extends the value of bankruptcy proceedings and ensures that “people who find themselves in dire financial circumstances are not forced to choose” between bankruptcy and their home.  The bill would exempt up to $150,000 in value of a lease.  Married couples filing bankruptcy together would receive up to a $300,000 exemption for the value of their lease. 

Currently, the bill has been recommended to the Senate Judiciary Committee where it is being evaluated. According to a statement from Ms. Rosenthal’s office, the bill has received positive feedback from the committee.  However, due to budget negotiations, the bill has been stalled until April.  I will update the status of the bill on this blog when more information is available. 

Even if the bill gets approved by the assembly’s judiciary committee and approved by the full New York State Assembly, it the same must be done in the New York State Senate and then signed into law by the Governor.   The passage of such a bill in the Senate is less certain because the landlord lobby has more influence there. 

There is another way in which rent stabilized and rent controlled tenants can receive legal protection when filing bankruptcy; through the courts.  As discussed in a previous post,  a bankruptcy and a Federal District Court have ruled against protecting rent-stabilized apartments, and now the United States Federal Court of Appeals for the Second Circuit is hearing an appeal from Ms. Santiago-Monteverde - a tenant who was removed from her apartment of 50 years after the trustee assigned to her case sold her lease back to her landlord. 

 If the appeal is decided in favor of the tenant, Ms. Santiago-Monteverde, this may provide protection to rent stabilized and rent controlled tenants filing bankruptcy.  However, there would be no better protection than a law being passed providing such protection. 

It is ironic, that the most vulnerable and most in need of the protection of bankruptcy are the ones who risk losing their homes and becoming homeless if they file bankruptcy.  As I had stated before, I think when the state legislature expanded the homestead exemptions and increased the financial protection of homeowners from $50,000 up as much as $150,000, they omitted protections for renters only because they did not foresee that creative bankruptcy trustees would find a loop-whole that would put those with the least most at risk to lose their homes. 

This situation has already gone on too long.  I urge you to contact your New York State assembly and senate members today to pass a law that would protect rent stabilized and rent controlled tenants when filing bankruptcy.