Tenant Claims Rent-Stabilized Lease Is Exempt from Sale in Bankruptcy Case

Rent-stabilized tenant sought Chapter 7 bankruptcy protection, listing her unexpired lease as an executory contract. When the bankruptcy trustee told tenant that he would sell the lease to landlord, tenant tried to claim that the lease was personal property that was exempt under New York debtor/creditor law. The trustee objected. The court ruled that the value of tenant's rent-stabilized lease didn't qualify as an exempt public assistance benefit under New York law and remained bankruptcy estate property because the lease was an estate asset that could be sold for value. The court reasoned that the differential between rent payable for a rent-stabilized apartment and a comparable unregulated rent can be monetized in bankruptcy and isn't properly compared with the right of a qualifying debtor to receive a public assistance payment. Tenant appealed.

The federal appeals court ruled that questions as to the meaning of "local public assistance" as used in the New York exemption statute and as to whether the debtor-tenant had a property interest in protected value of her rent-stabilized lease that could be exempted as a "public assistance benefit" must be referred to New York's highest state court, which had not ruled to date on this question of public importance. The New York Court's decision was needed to determine the outcome in this case.

Santiago-Monteverde v. Pereira: Docket No. 12-4131-bk, 2014 WL 1272537 (CA2 [ny]; 3/31/14; Sack, Parker, Raggi, CJs)