Last year, the media began buzzing around 79-year-old Mary Veronica Santiago, a recent widow who found herself filing for Chapter 7 bankruptcy after the death of her husband left her unable to pay her bills. At the time, Santiago had spent 50 years living in a rent-stabilized apartment in the heart of the East Village; her rent was a minuscule $703.
But filing for bankruptcy had the opposite of its intended effect: The question became whether Santiago's exiguously priced apartment could be considered an asset, and therefore seized like any other object of value. The quandary was weighed in the U.S. Court of Appeals for the Second Circuit for more than a year, before a conclusion was finally announced today: A rent-stabilized apartment—like Social Security and Medicare—is considered public assistance, and therefore cannot be liquidated in bankruptcy proceedings. The decision was voted on 5 to 2.
“I am so pleased that the Court finally got it right,” Assemblymember Linda B. Rosenthal, whose office announced the decision, said in a statement. “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.”
Rent-stabilized tenants are already a vulnerable group—the incentive for illegal eviction is high among greedy landlords in gentrifying neighborhoods, and cases can remain hamstrung in the dense bureaucracy of Housing Court for years.
The court batted back the argument that rent regulation does not qualify as public assistance because it is not directly subsidized by the state, and that the recipient receives no cash payments, clarifying instead that the benefits of rent regulation need not come in the form of direct financial assistance.
“This is not what bankruptcy is about,” Kathleen G. Cully, one of Santiago's lawyers, told the Times last year. “What’s next? Are they going to start going after food stamps?”
Though treating rent-stabilized property as an asset was initially upheld by both bankruptcy court and Federal District Court, Rosenthal emphasized that the practice only exposed the city's most vulnerable residents to even greater potential risk.
“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 homelessness,” she said. “What’s more, allowing this practice to continue would have undermined the very system we created to provide affordable housing working-class New Yorkers and their families. The Court recognized these facts and made the right decision.”