The NY Times has covered this: Rent-Stabilized Leases Shielded in Bankruptcy.
Judge Sheila Abdus-Salaam wrote the Nov. 20, 2014 decision that the tenant could not be forced to give up her home and sell her rent stabilized lease to the landlord. Relying on a state law that exempts "public assistance benefits" from being seized by the bankruptcy trustee, Judge Abdus-Salaam said that rent stabilizes leases are such a benefit.
She supports the description of rent stabilized leases this way:
"We noted in [a case called] Manocherian that "[b]y regulating rents and providing occupants with statutory rights to tenancy renewals under rent stabilization . . . the State intended to protect dwellers who could not compete in an overheated rental market, through no fault of their own" (id. at 389)."
"The rent-stabilization program has all of the characteristics of a local public assistance benefit. It is plainly local in that it depends on periodic determinations by local authorities as to the continuing existence of an emergency in the particular jurisdiction. The program is public as it was enacted by the New York Legislature and implemented by legislative and administrative bodies at both the state and local level. Rent stabilization provides assistance to a specific segment of the population that could not afford to live in New York City without a rent regulatory scheme. And the regulatory framework provides benefits to a targeted group of tenants - it protects them from rent increases, requires owners to offer lease renewals and the right to continued occupancy, imposes strict eviction procedures, and grants succession rights for qualified family members."
Sue's two cents:
One question is why a rent stabilized lease is not treated as a home is in bankruptcy proceedings: it is protected from being seized when the owner declares bankruptcy - up to a certain high amount.
Most people in New York can't afford to live here without some form of rent regulation or subsidy. Too many people are paying more than the 30% of their income in rent that the federal Housing & Urban Development agency deems affordable. But rent regulation - which is supposed to level the playing field between landlords and tenants when there is an acute affordable housing shortage (as now), is not the same as a subsidy.
A good analogy the judge made: "Medicare, like the rent-stabilization program is not strictly for the needy. It is a public assistance benefit that regulates what doctors can charge for services, while rent stabilization is a public assistance benefit that regulates the rents property owners can charge protected tenants."
One paragraph gives me pause: "This uncommon regulatory program reflects the legislative intent to create a benefit for certain individuals who fall below certain income or rent thresholds, based upon the Legislature's conclusion that there is a continuing housing emergency." Rent regulation is only based on the tenant's income if it exceeds $200,000: Where the rent is at least $2500/month and the annual income is $200,000 or more for two consecutive years, the owner may de-regulate the apartment. But up to those two combined factors, one can live in a rent-regulated apartment at any income. (The median income is in fact something like $39,000/year for a family of four.)