“Extreme financial distress” and New York City’s decision “not to renew” the current owners’ lease has forced the Tavern on the Green to seek Chapter 11 bankruptcy protection.

The historic eatery, which was established in 1934, is located in Central Park on Manhattan’s Upper West Side. It was and continues to be an extremely popular haunt, raking in a reported $38 million in gross revenues back in 2007 — “the second highest-grossing independently-owned restaurant in the United States.”

But the owners, the family of Warner LeRoy, racked up debt as much as $50 million since they took title in 1974.

So after recently crunching the numbers it appears that the restaurateurs realized that repaying their long list of 200 creditors on time wasn’t going to happen. In addition, according to a Bloomberg.com report, the city recently awarded the lease to restaurateur, Dean Poll, for 20 years starting at the end of Dec. 31, 2009.

In short, bad economy + debt + no lease = Bankruptcy.

Here’s the good news: Tavern on the Green will remain open and operational during the “reorganization.” What’s more, Poll intends to make $25 million in upgrades when he takes the helm in 2010.

In the meantime, Tavern on the Green will likely be sold to the highest bidder in bankruptcy court where it will likely fetch a pretty penny — the name alone is valued at more than $19 million.