Thursday, May 11, 2017

Liens v Bankruptcy: Who Wins? Getting Paid When Bankruptcy is Filed


We all dread the word. Whether it is uttered to you or about you, it raises the hair on your neck and is synonymous with not getting paid for your hard work. BANKRUPCTY!

Whether you are a material supplier, a subcontractor or even a general contractor, when anyone in the construction chain above you declares bankruptcy, the natural reaction is to assume that you are getting pennies on the dollar, if anything. However, what most contractors, subcontractors and material suppliers do not realize is that this is not always the case and sometimes, if you have filed a mechanics lien or construction lien, you can get PAID IN FULL.

getting paid when bankruptcy is filedWhen a company files a Chapter 7 bankruptcy, a trustee is appointed by the court and his job is to gather all the money that is owed to the bankrupt company to distribute among everyone who is owed money. This collection of money is called the bankruptcy estate. Obviously, if there was enough money owed or owned by the bankrupt party to pay everyone, they would not be filing for bankruptcy protection, so how can a lien help?

If there is money owed to the bankrupt party for the project that you worked on and a lien has been filed, your lawyer can argue that the money owed never should become part of the bankruptcy estate. The money is only passing through the contractor and, while the contractor may hold a legal interest in the funds it is you who hold the equitable interest in those funds. The court will examine State law in the State where the property exists to determine what property rights exist. If the funds do not become part of the bankruptcy estate, you may be the one getting paid in full.

File your construction lien. The sooner the better. Hire a lawyer to assert your rights and get paid.

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