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Can we file a lien on a customer who has recently filed for chapter 11 bankruptcy?

TexasBankruptcy

Would it give us more priority to do so? How do we know if they are in their "automatic stay period" (saw the answer to a question similar to this and said it depended on whether or not they were in that period or if it was lifted).

1 reply

Jul 2, 2019
That's a great question, but one for which the answer can vary depending on a lot of different information. Mechanics liens can be powerful tools to protect amounts due even in the face of a bankruptcy filing, but it is a very complex and nuanced intersection of law.

Whether a lien may be filed depends on several different factors, including the role of the party filing bankruptcy, whether the lien has already "attached," and more.

Generally, mechanics liens arise when the materials are first delivered or the work was first performed (if not before then – at the start of the project as a whole). This means that the lien has attached to the property well before the lien must be "perfected" by filing. This helps a mechanics lien claimant, because the bankruptcy code permits the lien to be perfected after the filing and during the automatic stay, if the lien has already attached. In other words, the bankruptcy code does not generally stop a mechanics lien creditor who performed work and/or supplied materials before the bankruptcy filing from perfecting or maintaining the lien. Note, however, that if the party filing bankruptcy owns the property, the property would become part of the bankruptcy estate – and subject to the provisions of the automatic stay.

Generally speaking, the takeaway is this: If the bankrupt party does not have an ownership interest in the property being liened, the lien may be foreclosed upon despite the bankruptcy proceeding. If the bankrupt party does own the liened property and the claimant wants to enforce their lien, leave of the bankruptcy court is required to enforce the lien during the automatic stay. Otherwise, the lien might be enforced after the automatic stay is lifted.

More information about mechanics liens and bankruptcy can be found here: https://www.levelset.com/blog/construction-company-bankruptcy/
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