A few weeks ago,Levelset Chief Legal Officer Nate Budde wrote a blog series on the relationship between bankruptcy and the mechanics lien. The last post of the series summarized “Does a mechanics lien secure debt in bankruptcy?” In large part, this article addresses why having a mechanics lien claim helps you avoid the bankruptcy process in general and seek payment remedies outside of the complicated, expensive and pessimistic bankruptcy process.
Out of the 8th US Circuit Court of Appeals last week, however, is some news that addresses the importance of mechanics lien claims within a bankruptcy proceeding (See also, Does A Mechanics Lien Secure Debt In Bankruptcy). The case is part of a monster bankruptcy for the “West Edge” project in Kansas City, MO, in which the federal courts must decide whether the lien claimants or the lenders have top priority in the split of approximately $7 million in money held by the bankrupt estate.
The recent 8th Circuit ruling allocated another $1m of fought-over funds into the “mechanics lien pot,” having previously ruled that the mechanics’ lien holders have higher priority to recover money than the lenders.
This case not only highlights the importance of mechanics lien claims when facing bankruptcy, but the importance of mechanics lien claims generally. The West Edge situation in Kansas City was a financial disaster, and lots of contractors lost millions and millions of dollars. But the bankruptcy process is mitigating those losses, and contractors are going to recover almost 50% of the debt. Not terrific, but half is better than none. And what about the contractors and suppliers who didn’t file their mechanics lien?
You know the answer to that.