Bankruptcy Court Grants In Rem Stay Relief for Two Years, Strengthening Protections Against Serial Bankruptcy Filers
In a recent decision that reinforces creditor protections against serial bankruptcy filers, the United States Bankruptcy Court for the Southern District of New York granted in rem stay relief against a property for two years under Section 362(d)(4) of the Bankruptcy Code, even though Debtor did not own the property and the property’s owner objected to the relief sought. In re Wallace, No. 25-12304 (Bankr. S.D.N.Y. Jan. 26, 2026).
In this case, U.S. Bank Trust, N.A. (“U.S. Bank”) tried to foreclose on a residential property in Manhattan owned by Kenneth Laub (“Laub”). Laub defaulted on a $9 million mortgage loan in 2016. Three scheduled foreclosure sales were stayed by three bankruptcy petitions, each filed on the eve of a sale: (i) Laub’s own chapter 11 case, filed the day before a scheduled foreclosure sale and later dismissed; (ii) a chapter 13 case filed by Winsome Wallace (“Debtor”), a tenant at the property, one week before a scheduled foreclosure sale; and (iii) a second chapter 13 case filed by Debtor five days before a scheduled foreclosure sale. In both chapter 13 cases, Debtor filed “bare bones” petitions listing the property as her residence. In each case, Debtor failed to file the required schedules and disclosures. U.S. Bank moved for stay relief and for in rem relief as to the property.
Bankruptcy Judge John P. Mastando III granted relief from the automatic stay to the extent it was still in effect, so U.S. Bank could proceed with its foreclosure sale. Judge Mastando further granted in rem relief for two years to prevent future abusive bankruptcy filings with respect to the property. In rendering his decision, Judge Mastando focused on the pattern of filings, noting the repeated deficient bankruptcy petitions filed on the eve of foreclosure sales were sufficient in and of themselves even though Debtor did not own the property. The court concluded the filings were “deployed merely to invoke the automatic stay to delay foreclosure, rather than to prosecute a Chapter 13 case in good faith.” The court further found that fraud need not be proven if there was evidence of “hindrance or delay.” The court also rejected Laub’s arguments that in rem relief could not be granted because the Debtor did not own the property and because his own chapter 11 case had been filed in good faith, stating “the remedy runs with the property to prevent future filings – by debtors or non-debtors – from repeatedly invoking the stay against the same collateral.”
This decision is significant for lenders and secured creditors, as in rem relief attaches to the property itself and bars any subsequent bankruptcy cases that try to affect the property. Any future filing, whether by Debtor, Laub, a relative or a transferee, will not receive the protection of the automatic stay. Thus, the Wallace case serves as a reminder that secured creditors are not powerless against serial filers and can be successful in using this provision of the Bankruptcy Code as a weapon to battle bad-faith and serial bankruptcy filers. Lenders facing repeated eve-of-sale filings should consider seeking in rem relief at the first opportunity.
For more information, contact Falcon Rappaport & Berkman’s Bankruptcy & Restructuring Group. Our attorneys counsel lenders and creditors on stay relief, in rem remedies, and creditor rights in complex bankruptcies. Falcon Rappaport & Berkman will continue to provide updates to its clients and colleagues on this issue.