Filing for personal bankruptcy has become increasingly dangerous for those living in the Southern District of New York. Recent case law may surprise many New Yorkers who call cooperative apartments home. Prior to these recent decisions, when one would file for Chapter 7 bankruptcy his/her individual property would become part of the estate owned by the Bankruptcy Trustee. Now, however, in addition to having the property become part of the estate, one may lose the property all together.
A Bankruptcy Trustee, under section 365 of the Bankruptcy Code may be court authorized to sell a cooperative apartment back to the debtor’s landlord. Rent stabilized apartment owners are equally at risk. The section authorizing such acts is not new law, however implementation of it is just beginning to be seen.
How will the determination be made? A Bankruptcy Trustee will make a determination based upon the length of time the debtor has lived in the apartment and the rent the debtor is paying under the lease. The only recourse a debtor has is the option to pay the value of the apartment unit to the Bankruptcy Trustee. This is generally possible only if the debtor is able to pay it themselves or enlist the financial assistance of third parties. Although bankruptcy law is Federal law, New York state law does have its place. Hopefully the New York State legislature will address the issue in the not too distant future.