News | FWM Software

Tuesday, December 18th, 2019

A client recently wrote to us asking about what to do about jobs where one of the parties to the job files for bankruptcy.  Well, that depends, but the Mechanic’s Lien laws do give you some option besides simply declaring your bill on your job as uncollectable.  It also depends on who is filing for bankruptcy, and the nature of your debt.

If you have delivered products or services to a property location, you hold a secured debt against the real property of an owner.  This improves your position for collection in the bankruptcy over the unsecured creditors– you have made improvements to the property, and this puts you higher on the list of the bankruptcy creditors.

Remember that filing a Mechanic’s Lien for your secured debt services is a lien against the real property you improved, not solely a claim against the bankrupt party for damages.  For the debtor, it is akin to owing money for his mortgage, and generally must be paid back because of your improvements.  This places you very near the top of the list of parties to get paid in the bankruptcy, assuming there are assets to pay the debts ay the end of the bankruptcy process.  Of course, the mortgage must be repaid first before any property liens, and the Mechanic’s Liens are paid in the order they were put on the property.  Time may be of the essence here because paying lien claims on a property depends on when the claim was filed.  If you have a number of other secured creditors filing their claims before your claim you can still end up “out of luck’.

This also means if the property has no equity in it above the mortgage, or if there are other lien claimants before your claim, leaving no value in the property, there may be nothing left to pay your claim.  But, if the debtor wishes to retain his property, bankruptcy does not relieve a debtor of the obligation to pay his secured debt.  Placing a mechanic’s lien on the property after a bankruptcy filing puts you in the best position to get paid if funds are available.  Let’s look a little deeper.

A bankruptcy filing by either of these parties does not affect your lien claim on an owner’s property at all.  Contact the owner about your claim.

Again, these are not owners of the property, although a bankruptcy by either of these parties may estop you from making a claim on these parties in court for other solutions.  Still, your interest in the real property is not affected.

The owner filing bankruptcy need not affect your secured claim against the real property, although it must be pursued under the bankruptcy court.   To protect your rights, do the following:

A bankruptcy confuses the mix of the already complex lien procedures.  We do encourage, especially on large amount claims, that you include your attorney in your action, or have your attorney recommend a good practicing bankruptcy attorney.  Still, the point is that your claim is secured and has a better chance of being paid by filing a mechanic’s lien against the real property.

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