by The New York Court of Appeals determined that a rent-stabilized lease is a public assistance benefit subject to state exemption laws. Santiago-Monteverdi v. Pereira (In re Santiago-Monteverdi), 2014 NY Slip Op. 8051 (N.Y. Nov. 20, 2014).
The case came before the state’s highest court when the Second Circuit Court of Appeals certified the following question: “Whether a debtor-tenant possesses a property interest in the protected value of her rent-stabilized lease that may be exempted from her bankruptcy estate pursuant to New York State [DCL] Section 282 (2) as a ‘local public assistance benefit’?” In re Santiago-Monteverdi, 747 F3d 153, 157 (2d Cir. 2014).
The debtor lived in her New York apartment for 40 years when her husband died and she found herself unable to keep up with her credit card bills. She filed for chapter 7 bankruptcy and listed her rent on Schedule G as a standard unexpired lease. The owner of the building approached the trustee and offered to purchase the lease. Section 365(a) of the Bankruptcy Code permits a bankruptcy trustee to accept or reject any unexpired lease held by the debtor. The debtor amended her schedules to list the lease on Schedule B as personal property. She then sought to exempt the property as a public assistance benefit under DCL section § 282 (2).
The bankruptcy court found that the lease was “a quirk of the regulatory scheme in the New York housing market, not an individual entitlement,” and therefore not a public assistance benefit. In re Santiago-Monteverde, 466 B.R. 621, 622 (Bankr. S.D. N.Y. 2012). The district court affirmed. No. 11-15494 (S.D. N.Y. Sept. 12, 2012)
The state court began with the underlying principles of DCL section 282(2) which generally exempts public assistance benefits without specific reference to rent-stabilized leases. Turning to legislative history, the court of appeals found that the program was created to allow lower-income residents to retain their housing as the demand, and thus the cost, of New York housing rose precipitously. In determining that rent-stabilization was necessary, the New York City Council found “’that a serious public emergency continues to exist in the housing of a considerable number of persons within the city of New York,’ and that ‘unless residential rents and evictions continue to be regulated and controlled, disruptive practices and abnormal conditions will produce serious threats to the public health, safety and general welfare’ (Administrative Code of City of New York § 26-501).’” The court found that the rent-stabilization law has all the earmarks of a public assistance benefit: 1) its continued application depends on local need, 2) it was implemented at the local and state level and is therefore public, 3) it provides assistance to a segment of society that could otherwise not afford housing.
The court rejected as irrelevant the trustee’s distinction between rent-stabilization and other forms of public assistance such as welfare which involve direct payments to individuals. The court noted that many forms of public assistance do not involve direct payments to needy recipients, such as discount prescriptions and food stamps. The state exemption law refers to “benefits” not “payments.” Therefore, cash payments is not a requirement for finding that a program constitutes public assistance. Acknowledging that the rent-stabilization program is unique among social welfare programs, the court found the benefit, while not paid by the government, is conferred by the government. Where exemptions are liberally construed to protect a debtor’s essential needs, New York’s rent-stabilization program is properly interpreted to be a public assistance benefit.
Judge Smith filed a dissenting opinion arguing that, historically, the list of public assistance benefits does not include rent-stabilization, and that there are many comparable laws that benefit a particular segment of society that are not considered public assistance benefits, such as employment discrimination, minimum wage, and worker safety laws.