New York, NY – Assemblymember Linda B. Rosenthal (D/WF-Manhattan) today announced that the United States Court of Appeals for the Second Circuit, in a 5-2 decision, today decided that rent-regulated leases are “local public assistance benefits,” like Social Security and Medicare, and therefore cannot be counted as assets and liquidated by trustees in bankruptcy proceedings.

“I am so pleased that the Court finally got it right,” said Assemblymember Linda B. Rosenthal. “Filing for bankruptcy should not render anyone homeless, and today’s decision means that countless rent-regulated tenants living in my district and across the City who have fallen on hard times, can take advantage of the financial relief offered by bankruptcy filing without the very real fear of losing their homes.” Rosenthal has been leading the effort to exempt rent-regulated leases from being counted as an asset in bankruptcy and had a bill that would exempt them altogether.

At the center of the case was Mary Veronica Santiago-Monteverde, a 79-year-old widow who sought the protection of Chapter 7 bankruptcy after the death of her husband left her with thousands of dollars in unpaid medical bills. Santiago-Monteverde is also a rent-stabilized tenant who has lived in her Lower East Side apartment since the early 70s. Following her bankruptcy filing, the trustee allowed her landlord to buy her rent-stabilized unit to maximize her assets, which would be used to satisfy her creditors. Santiago-Monteverde, fearing homelessness, contacted an attorney.

The opinion for the majority highlighted the fact that rent-regulation was created by the Legislature and implemented by State and local agencies to protect a certain class of tenants who could not, and still cannot, afford skyrocketing rental prices during a continuing housing emergency. The Court also slapped back against the trustee’s argument that rent regulation could not be a local public assistance benefit because it is not directly subsidized by the State and no cash payments are directed to recipients. It clarified that the benefit conferred need not be direct financial assistance, and much like Medicare, rent regulation creates a regulatory framework by which a benefit, low rents with stable increases and the right to renewal leases among other things, are provided to a certain class of tenants by landlords.

“The Legislature never intended to create a situation in which rent-regulated tenants in this State would be forced to choose between availing themselves of the legal protections afforded by bankruptcy and being forced to give up their apartments,” continued Assemblymember Linda B. Rosenthal. “What’s more, allowing this practice to continue would have undermined the very system we created to provide affordable housing to working-class New Yorkers and their families. The Court recognized these facts and made the right decision.”

Assemblymember Linda B. Rosenthal is the sponsor of legislation, bill A.10186 that would provide an explicit exemption in New York State Bankruptcy law for rent-regulated leases. In addition, she took the lead among her colleagues in the State Legislature in drafting an amicus curie brief in the case clarifying legislative intent with respect to both New York State bankruptcy and housing law.

“As soon as the 2014-2015 Legislative session begins, I intend to work toward swift passage of my bill so we can codify the Court’s decision in statutory law,” Assemblymember Rosenthal concluded.