Tenant's Rent-Stabilized Lease Exempt from Bankruptcy Estate

Rent-stabilized tenant had lived in her apartment for over 40 years. After tenant's husband died in 2011, tenant was unable to pay her credit card debts totaling $23,000 and filed for Chapter 7 bankruptcy. Tenant continued to pay her rent on time while the bankruptcy case was pending. Initially tenant listed her apartment lease on Schedule G of her bankruptcy petition as a standard unexpired lease. Landlord then asked the bankruptcy trustee if it could buy tenant's interest in her lease. When the trustee indicated that he planned to accept landlord's offer, tenant amended her filing to list the value of her lease on Schedule B as personal property exempt from the bankruptcy estate under New York Debtor Creditor Law Section 282(2) as a "local public assistance benefit."

The Bankruptcy Court granted the trustee's request to strike the claimed exemption, finding that the value of the lease didn't qualify as an exempt local public assistance benefit. Tenant appealed and lost at the federal district court. Tenant appealed again, and the federal circuit court sent the case to New York's highest court to answer the question of whether a bankruptcy debtor's interest in her rent-stabilized lease was exempted from her bankruptcy estate under the New York State Debtor and Creditor Law Section 282(2).

The court ruled for tenant. Under New York law, a debtor could exempt from the bankruptcy estate her right to receive or have an interest in certain benefits, including a Social Security benefit, unemployment compensation or a local public assistance benefit, veterans' benefit, disability benefit, alimony, and all payments under a pension or similar plan. The court found that tenant's rights under her rent-stabilized lease were a local public assistance benefit. The New York State Legislature had determined that rent stabilization was necessary to preserve affordable housing for low-income, working poor and middle class residents of New York City. The rent stabilization program was local public assistance provided to a specific segment of the population who couldn't otherwise afford to live in NYC, and provided benefits to a target group of tenants. In addition, "public assistance" refers to more than cash payments. 

Santiago-Monteverde v. Pereira: NYLJ No. 1202677001203 (Ct. App.; 11/20/14; Abdus-Salaam, J)