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New Yorkers Who File Bankruptcy Will No Longer Lose Their Apartments

Allegory of Justice
A recent pair of court decisions will protect New Yorkers living in valuable, rent-controlled apartments from being evicted in the event that they file bankruptcy.

According to a March 3 Bloomberg article, the two decisions, made in the New York State Court of Appeals and the U.S. Court of Appeals for the Second Circuit, prohibit landlords of below-market-rate apartments from evicting bankrupt tenants who are up-to-date on their rent payments.

Since the World War II era, rent-control and rent-stabilization laws have kept rents for some New York City housing stock stable, meaning the thousands of tenants inhabiting these dwellings pay significantly less than the average New York City rent each month. Jewish Political News and Updates reports that approximately 2.2 million city residents currently live in rent-stabilized apartments.

The rulings apply particularly to tenants who file Chapter 7 bankruptcy, which discharges the individual’s debt in exchange for his or her assets or property — property like a New York City apartment. In Chapter 13 bankruptcies, it’s usually easier for the filer to hold on to assets like a home, apartment or car.

In a 5-2 ruling, the state Court of Appeals determined that rent-stabilization rights are an exempt asset; a means of public assistance, that a bankruptcy trustee doesn’t have the right to sell. The Second Circuit agreed with this decision, saying a below-market apartment lease is a public benefit and cannot be claimed by a creditor during a bankruptcy.

The joint court ruling was not without its critics, however. The Rent Stabilization Association of New York City Inc., a group that represents New York City landlords, said the decisions “open the floodgates of imposing unprecedented financial and legal obligations” on “private property owners who provide rent-controlled apartments.”

Yet for New Yorkers genuinely in need of a living space where rents are stabilized, these rulings offer a key form of protection if they ever need to resort to filing bankruptcy.