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Can filing for bankruptcy invalidate a mechanics lien?

New YorkBankruptcyMechanics Lien

We filed a lien on a commercial project in March. We recently received a letter from an attorney stating that our lien is invalid because our customer has filed for bankruptcy. The property owner has paid our customer, but our customer has not yet paid us. Could there be any truth to this notice?

1 reply

May 28, 2020
This is a fairly challenging question to give you a definitive answer on. Here's a very simplified answer, but beware that exceptions can play a part as well: If the bankrupt party has no ownership of the property (a hired GC, for example), the bankruptcy does not negate the mechanics lien. In most cases, the lien can even be filed after the bankruptcy. It can also most likely before foreclosed upon during the bankruptcy process. If the bankrupt party is an owner of the property, it's a different story. The property becomes protected by the Automatic Stay, and unless the Bankruptcy Court allows it, the mechanics lien won't be enforced until after the stay is lifted. The good news is that bankruptcy law extends the window for perfecting mechanics liens. Here's some useful information pertaining to mechanics liens and bankruptcy.
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