Landlords Bombard Brooklyn Bankruptcy Court With Hopeless Cases

Financially distressed building owners in New York City’s outer boroughs and Long Island are filing untenable bankruptcy cases with abandon, flooding the district with hundreds of commercial cases that are doomed to fail from the start.

Those cases are surging in the US Bankruptcy Court for the Eastern District of New York, filed largely by corporate entities owning small, mostly residential properties that can’t keep up with their mortgages.

Complicating an already heavy volume of legitimate real estate bankruptcies in the city’s most populous boroughs of Brooklyn and Queens, the problematic filings often function solely to frustrate the foreclosure process. Real estate cases in the district are frequently dismissed mere weeks after being filed due to basic deficiencies in the property owner’s bankruptcy petition, including a lack of legal representation.

Corporate entities are prohibited from representing themselves in federal court, but that isn’t deterring small corporate landlords from attempting to do so, sometimes repeatedly.

More than half of the real estate corporations and limited liability companies that have filed for Chapter 7 or Chapter 11 bankruptcy in the Eastern District of New York since January 2020 did so without an attorney or with counsel information left blank, according to data compiled by BankruptcyData.com.

“There’s a bunch of people out there that are just filing corporate Chapter 7s and 11s without counsel,” said Long Island-based bankruptcy attorney Avrum Rosen. “It’s an abuse of the system.”

Using bankruptcy to stall or prevent an asset foreclosure is common practice nationwide. But of all the real estate cases filed pro se, or on one’s own behalf, across the country, nearly half were in one of the Eastern District’s two bankruptcy courts, according to the data.

“It is frustrating for the lenders but eventually the lenders get the property or get the money.” said Scott Markowitz, co-chair of the bankruptcy and corporate restructuring practice at Tarter Krinsky & Drogin LLP in New York. “It just delays it.”

Last-Ditch Relief

The bankruptcy court in downtown Brooklyn isn’t known for attracting large corporate filings. The small real estate cases there typically report assets and liabilities below $10 million, and often less than $1 million. Interest rate hikes caused a surge of property foreclosures beginning in 2022, leading to an uptick in bankruptcy filings by New York landlords, particularly in Brooklyn and Queens, home to some 5 million city residents.

The two boroughs abound with landlords whose rental income isn’t covering their mortgage payments and who are having trouble refinancing. Lacking the means to catch up with loan payments, restructure the property’s debts, or even hire bankruptcy attorneys, the owners often resort to infeasible case filings on the eve of foreclosure just to eke out whatever they can from renters.

“You have a lot of properties where the debtor has lost all of its economic interest in the property,” said New York bankruptcy attorney Yann Geron of Geron Legal Advisors LLC. “They really are just trying to get the last bits of value out of the property, and the bankruptcy process gives them the time to do that.”

Getting an injunction to block creditors from collecting on debts in most courts can be difficult, and little can be done to stop an imminent foreclosure.

But a bankruptcy filing provides immediate, automatic protection against debt collection with little work other than filling out some paperwork and paying a $338 fee for a Chapter 7 case or $1,738 for a Chapter 11. Although a Chapter 11 case would be the only option if the debtor seeks to reorganize, about half still file under Chapter 7.

“The automatic stay is one of the most unique things in the law because you get an injunction against the world, basically, just by filing a petition with the court,” Markowitz said.

Serial Filings

Judges in the Eastern District have on several occasions barred landlords from refiling cases for lengthy stretches of time in order to stop legal gamesmanship.

Judge Jil Mazer-Marino in September prohibited 1198 Decatur LLC from filing another bankruptcy for at least two years. The company, which owned a multifamily residential building in Brooklyn’s Bushwick neighborhood, filed for bankruptcy three times in 11 months between 2023 and 2024.

The debtor’s prior cases, filed without counsel, were dismissed because it failed to submit required financial disclosures or even appear for an in-court meeting with creditors.

The Justice Department’s bankruptcy oversight unit, the US Trustee, said shortly after the third case began that the company’s previous filings reflected an “unwillingness to adhere to the Bankruptcy Code and applicable rules.”

The district’s chief bankruptcy judge and the US Trustee’s office didn’t respond to requests for comment. Several of the district’s Chapter 7 trustees—professionals appointed to liquidate insolvent companies—also didn’t respond to interview requests.

More than 200 small real estate owners have filed repeat bankruptcies in New York’s Eastern District since the beginning of 2020, according to BankruptcyData.com. And more than 30 debtors in the district have filed three or more cases during that time span.

Rosen said he consults with company principals who file pro se and has taken on a small number of cases that might have a shot at resolving issues in bankruptcy. But it’s problematic when the debtor has filed a previous case to thwart a foreclosure because it strengthens the lender’s ability to challenge the borrower’s bankruptcy protections.

“I tell a lot of people who come through the door that I can’t do anything for them,” he said. “I think a lot of them just go out to find someone who will.”