Our company is owed roughly $1.4 million and the company that owes may file bankruptcy.
We were last on the job site August 23 and want to file a mechanic lien.
Do we need a pre lien?
How does the possible bankruptcy affect our plans?
Thank you.
1 reply
Oct 1, 2019
When a customer goes bankrupt, it becomes extremely hard to recover payment directly from them due to the automatic stay instituted after a bankruptcy filing. After bankruptcy is filed, a claimant won't have the same latitude of different available claims that would be present without the bankruptcy.
While a mechanics lien claim may still be available (more on that below), legal laims like breach of contract claims or recovery under the state's prompt payment laws will likely not be on the table once bankruptcy is actually filed.
So, if it looks like a customer may go bankrupt, it's generally a good idea to quickly consult with an attorney to see what legal claims may be on the table and to evaluate whether or not to bring those claims before bankruptcy is filed.
Bankruptcy and mechanics liens
A bankruptcy should have little effect on the ability to send a pre-lien notice in Oklahoma or the ability to file a mechanics lien against the project property if the property owner isn't the one going bankrupt. Mechanics liens are ultimately a claim against the project property, not against a customer themselves - so, a claimant will still be able to try and recover payment via a lien claim even when recovery from their customer may ultimately be blocked by a bankruptcy filing. But, even if it is the owner who may be filing bankruptcy - filing a mechanics lien before that bankruptcy filing can also put a claimant in the best position for payment recovery. This is because secured debts (like mechanics liens) tend to fare a lot better in bankruptcy than unsecured debts (like general unpaid obligations).
There are a lot of moving parts when bankruptcy and mechanics liens intersect, and we've got a great breakdown of those considerations in this article: How to Protect Your Payments When Dealing with a Construction Bankruptcy.
Oklahoma's pre-lien notice requirements
Oklahoma's pre-lien notice requirements will apply regardless of whether there's a bankruptcy on the project. Meaning - if a company is required to send notice, they'll still need to send the notice whether or not a bankruptcy is on the horizon.
In Oklahoma, lien claimants hired by someone other than the property owner will need to send a pre-lien notice when (1) the project property includes an owner-occupied residence; or (2) the claimant is owed more than $10,000 for their work on a non-residential project. The notice must be sent to the project's GC and the property owner.
And, even in a situation where a pre-lien notice might not be required, it might be a good idea to send one anyway. That way, the owner and GC are both aware the debt that's owed and the possibility of a lien filing on the project. With that knowledge, there's a fair chance they'll be more inclined to step in and try to resolve the issue before it snowballs into a more serious issue (like an actual lien claim).
More on OK pre-lien notices here: Oklahoma Pre-lien Notice Guide and FAQs.
Oklahoma's mechanics lien deadline
Like other state's, Oklahoma's mechanics lien deadline is a strict one, and the applicable deadline will depend on the claimant's role on the project. But, if the applicable deadline comes and goes without a lien filing, a would-be lien claimant may have to pursue some other recovery option. And, as mentioned above, those options may be limited when there's a bankruptcy in play.
When hired directly by the property owner, Oklahoma mechanics lien claimants will have 4 months from their last furnishing labor or materials to file a mechanics lien. Oklahoma mechanics lien claimants hired by someone other than the owner will have 90 days from the last date on which they furnish labor or materials to file a mechanics lien against the project property.
More on OK's lien requirements here: Oklahoma Mechanics Lien Guide and FAQsBottom line
If it looks like a bankruptcy is in play, a mechanics lien is an extremely valuable tool. And, if a lien claim isn't available, it's important to evaluate and potentially move forward with legal claims before the automatic stay is instituted.
In order to evaluate what options will be best for your particular situation, it would probably be a good idea to reach out to a local Oklahoma attorney who's familiar with both construction and bankruptcy law. They'll be able to thoroughly evaluate the situation, along with potential claims, and advise on what recovery options are best under your circumstances.