Business Bankruptcy in NYC: 6 Facts About Filing in Manhattan or Brooklyn

A Brooklyn company in chapter 11 will find the Trustee staff assigned to its case working in Manhattan, at One Bowling Green, in the same Custom House that holds the Manhattan bankruptcy court. New York City is split between two federal districts, and the split is less tidy on the ground than it looks on a map.

The Code is the same in both courts, as it is in every court. What differs between Manhattan and Brooklyn is the building, the local rules a debtor must satisfy on its first day, the way each court handles a request to use cash, and where the government's watchdog actually sits. Six facts cover most of it.

1. The Borough Chooses the Court

Manhattan (New York County) and the Bronx are in the Southern District of New York. Brooklyn (Kings County), Queens, and Staten Island (Richmond County) are in the Eastern District, under 28 U.S.C. 112. A Queens business therefore files in Brooklyn, not Manhattan, even if its lender, its funder, and its accountant all have Manhattan addresses.

Within the Southern District, Local Bankruptcy Rule 1073-1(a) directs the clerk to assign a case whose principal place of business is in New York or Bronx County "to a Judge sitting in New York County."

2. Manhattan's Bankruptcy Court Sits in the Custom House

The Southern District's Manhattan courthouse is at One Bowling Green, New York, NY 10004-1408, the Alexander Hamilton Custom House, "Serving Bronx and New York Counties," open 8:30 a.m. to 5:00 p.m. The district also sits in White Plains and Poughkeepsie, which a city company will not ordinarily see.

The court publishes a long shelf of procedural guidelines: for prepackaged chapter 11 cases under Local Rule 3018-2, for asset sales under Local Rule 6004-1, for claims bar dates under Local Rule 3003-1, for professional fees under Local Rule 2016-1, and General Order 634, with guidelines for a combined disclosure statement and plan, combined hearings, and conditional approval of a disclosure statement.

3. Brooklyn's Court Is on Cadman Plaza, and Its Trustee Staff Are Not

The Eastern District's Brooklyn courthouse is the Conrad B. Duberstein U.S. Courthouse, 271-C Cadman Plaza East, Suite 1595, Brooklyn, NY 11201, "Serving Kings, Queens and Richmond Counties," telephone (347) 394-1700.

The United States Trustee's Brooklyn office is a different matter. The Justice Department states that "The Brooklyn, NY office of the United States Trustee serves the Brooklyn Division of the Eastern District of New York," and then gives its address as the Alexander Hamilton Custom House, One Bowling Green, Suite 510, New York, telephone (212) 206-2580. The Region 2 headquarters is in the same building (Suite 739), as is the Manhattan field office (Suite 534). A Brooklyn debtor's lawyers file in Brooklyn and correspond with Manhattan, which is a small thing until a document has to be delivered by hand on a deadline, and then it becomes a question of which subway line, and whether the building's security desk opens before the deadline does, and whether anyone on the team has ever been inside the Custom House at all.

The arrangement resembles a Brooklyn restaurant whose health inspector reports to an office across the river, in a building that also houses a different restaurant's landlord.

4. Manhattan Requires an Affidavit That Tells the Whole Story on Day One

In the Southern District, Local Bankruptcy Rule 1007-2 requires a chapter 11 debtor to file an affidavit, and under subsection (c), "In a voluntary chapter 11 case, the affidavit must accompany the petition." The affidavit begins with "the nature of the debtor's business and a concise statement of the circumstances leading to the debtor's filing under chapter 11," and continues through the holders of the twenty largest unsecured claims, the five largest secured claims, a summary of assets and liabilities, the premises from which the business operates, and the location of its substantial assets and its books and records.

One item carries particular weight for a business that files under pressure from merchant cash advance funders. The affidavit must describe "the nature and present status of each action or proceeding, pending or threatened, against the debtor or its property where a judgment against the debtor or a seizure of its property may be imminent." A company that has been sued by two funders, has received a restraining notice at its bank, and has a third funder's demand letter on the desk puts all three in a sworn statement on the first day of the case, and the court has that statement before it from the first day, which means that the story of why the business is in court is told in the debtor's own words, under oath, before the funders have told theirs.

If the business will keep operating, subsection (b) adds forward-looking figures: the estimated weekly payroll to employees, excluding officers, directors, stockholders, and partners, "for the thirty (30) day period following the filing"; amounts paid and proposed to be paid in that period to officers, stockholders, directors, and any retained financial or business consultant; and a thirty-day schedule of estimated cash receipts and disbursements. The court may waive items on a showing of impracticability, but not the first four, which include the story itself and the lists of largest creditors.

For a small company, assembling this in the days before filing can be the most demanding task of the first week, and the rule does not wait until afterward. The affidavit is due with the petition.

5. Manhattan's Cash Collateral Rule Penalizes Buried Terms

Under the Southern District's Local Bankruptcy Rule 4001-2, a motion to use cash collateral or obtain credit must highlight listed provisions, which "should be prominently highlighted and easily identified in the motion; failure to do so may result in" those provisions being deemed denied. The list begins with "the amount of cash collateral the party seeks permission to use or the amount of credit the party seeks to obtain." Financing motions must "describe in general terms the efforts" made to obtain financing, a motion subject to a budget "shall include a copy of such budget," and a proposed interim order "shall include a finding that immediate and irreparable loss or damage will be caused to the estate if immediate financing is not obtained."

The rule protects the court and the other creditors from a term hidden in paragraph forty of a proposed order (which lenders' counsel would describe as ordinary drafting, and which the rule treats as grounds for denying the term). In Brooklyn, the Eastern District addresses the same kinds of motions through its own financing guidelines, adopted by administrative order.

6. Both Courts Offer Mediation, and Neither Requires It

The Southern District's Local Bankruptcy Rule 9019-1 provides for alternative dispute resolution, with procedures governing mediation, early neutral evaluation, and mediation followed by voluntary arbitration, and the court keeps a list of approved mediators. The Eastern District runs its own mediation program under its Local Rule 9019-1, with a register of mediators. Parties in either court can use a mediator for a dispute with a funder. Neither rule, on the materials read for this page, makes mediation compulsory.

What the City's Owners Carry Into Either Court

All five boroughs sit in the top tier of New York's homestead exemption under CPLR 5206, which the Department of Financial Services lists at $204,825 as adjusted effective April 1, 2024, for an owner who files personally. A company has no homestead. New York's Commercial Finance Disclosure Law also applies citywide, requiring an estimated APR disclosure on covered offers of sales-based financing of $2,500,000 or less, a document counsel reads against the contract without treating it as proof that an advance was a loan.

A company that needs the stay, or a plan that binds a funder who will not agree, needs New York bankruptcy counsel admitted in the right district. Delancey Street is not a law firm and files nothing in Manhattan or Brooklyn. It reviews merchant cash advance and other business debt at no charge and in confidence, to see whether a negotiated resolution is realistic, and it brings in independently licensed counsel when legal work is needed. For some businesses the affidavit never has to be written. Others will need one within the week, and the list of threatened seizures is where it begins.