New York, NY – In a recent trend, bankruptcy courts statewide have been allowing bankruptcy trustees to count the value of rent-regulated tenants lease as an asset when that tenant files for bankruptcy. Last year, Assemblymember Linda B. Rosenthal (D/WF-Manhattan) introduced legislation (bill A. 853) that would prevent a landlord from buying a rent-regulated tenant’s lease at cut-rate prices to satisfy a portion of the tenant’s debt in bankruptcy.

“Filing for bankruptcy won’t land you in debtor’s prison anymore, but if you’re a rent-regulated tenant, it could make you homeless, and that’s simply unfair,” said Assemblymember Linda B. Rosenthal. “That’s why I introduced legislation to ensure that rent-regulated tenants are afforded the same protections as homeowners when filing for bankruptcy.”

Last year, Assemblymember Linda B. Rosenthal was contacted by a constituent in her district who feared filing for bankruptcy protection because he did not want to lose the rent-regulated apartment in which he had lived for decades. Assemblymember Rosenthal, working with the New York bankruptcy bar and experts in the field, drafted legislation, bill A. 853, to ensure that the value of a tenant’s rent-regulated lease could not be counted as an asset for purposes of bankruptcy.

New York State provides homeowners filing for bankruptcy with an exemption, so that they will not lose their homes. The intent of bankruptcy is not to destabilize families and communities by rendering the filer homeless; the same should be true for rent-regulated tenants, whose apartments are just as much a home as is a house or other owned property. In addition, court decisions such as this have ripple effects, and will continue to deplete the already dwindling stock of affordable housing in this City.

“Unsuspecting tenants who through no fault of their own have found themselves in the midst of difficult financial times should have not to make a choice between ballooning debt and homelessness,” said Assemblymember Linda B. Rosenthal. “New York State law currently provides homeowners with an exemption; in a City where 68% of people rent their homes and 44% live in rent-regulated apartments, rent-regulated tenants must be entitled to the same legal protections.”

Essentially, when a rent-regulated tenant files for bankruptcy, s/he is assigned a trustee, whose job it is to calculate the total assets of the filer for the purposes of settling some portion of the outstanding debt. Recently, trustees, recognizing the value of an optimally located rent-regulated apartment, have been entering into agreements with the filer’s landlord. The tenant agrees to terminate his/her tenancy at some agreed upon point, and the landlord pays a cash amount to be applied to the tenant’s debt, one that grossly underestimates the going rent of an apartment on the open market. The landlord, with a vacant unit, can take advantage of a 20% vacancy bonus, make improvements to the unit and apply a percentage of the cost of the improvement to the rent and if the rent then exceeds $2,500 per month, the unit is deregulated.