As discussed in previous blogs, due to a loophole in the law, those who file bankruptcy in New York and who live in rent-controlled or rent-stabilized apartments risk losing their homes. Although there has been no resolution of this unfortunate situation, there have been some developments in two different arenas.

The first arena is in the courts and particularly in a case known as Santiago-Monteverde v. Pereira.  In this matter, Ms. Santiago-Monteverde, who lives in a rent stabilized apartment, filed a Chapter 7 Bankruptcy in Manhattan after the death of her husband when she found that she could not afford to keep up with her bills.

The bankruptcy trustee, John Pereira, was approached by Ms. Santiago-Monteverde’s landlord, who offered Mr. Pereira money if Ms. Santiago-Monteverde would vacate the apartment.  Under a provision in the bankruptcy code, Mr. Pereira accepted the offer. 

Ms. Santiago-Monteverde’s bankruptcy attorney then amended her bankruptcy petition to exempt the rent stabilized lease under a New York exemption that protects a “local public assistance benefit”.  Mr. Pereira objected and the bankruptcy court decided in favor of Mr. Pereira. 

Ms. Santiago-Monteverde appealed to the United States District Court for the Southern District of New York.  The District Court also decided in favor of Mr. Pereira.  Ms. Santiago-Monteverde once again appealed, this time to the United States Court of Appeals for the Second Circuit.  On March 31, 2014, the U.S. Court of Appeals decided that this was a matter of interpreting New York law and sent the matter to the New York Court of Appeals.

On May 13, 2014, the New York Court of Appeals accepted the question of whether the rent stabilized apartment is exempted as a public benefit.  It will likely be several months before the matter is heard and there is a decision. 

The second arena in which this matter may be decided is the New York legislature.  There is a bill that would protect rent controlled and rent stabilized tenants who file bankruptcy.  The bill has been in the assembly’s judiciary committee for some time.  If the judiciary committee votes in favor of the bill, it will be presented to the New York State Assembly, where hopefully there will be a vote and the bill will be approved.

However, even if the Assembly approves the bill, it will not become law unless a corresponding bill is introduced into the New York State Senate and approved. 

Another complication with the legislative resolution of this matter is the fact that the legislative session ends on June 20, 2014.  The next session will begin in January, 2015.  If the Assembly and the Senate do not both vote in favor of the bills by June 20th, they will need to start the whole process over in January.

Not every person who lives in a rent controlled or rent stabilized apartment and files bankruptcy is in danger of losing the person’s home.  Only an experienced bankruptcy lawyer will be able to make that determination.