Court Affirms Rent-Stabilized Leases Off-Limits in Bankruptcy Cases

A U.S. appeals court recently ruled that an elderly Manhattan woman's rent-stabilized lease could not be seized and sold to satisfy her creditors after she filed for bankruptcy. The 2nd U.S. Circuit Court of Appeals said the rent-stabilized tenant’s lease, which she has had for more than four decades, qualified as a "local public assistance benefit" that state law places off-limits to bankruptcy creditors. The court said the public assistance exemption was designed to protect debtors' essential needs, including housing.

This ruling follows the one handed down in November by the New York Court of Appeals, the state's top court, which rejected claims by the bankruptcy trustee that only cash payments from the government count as public assistance. According to court records, the trustee offered to sell the lease to the building owner for about $150,000 to satisfy her debts and legal fees. She moved to exempt her lease from the proceedings, however, saying it would lead to her being evicted and losing the right to pass the apartment on to her adult son.