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GC Filing Bankruptcy

We are a millwork sub in Texas who still have approximatly 8k due on a job that is completed. Third month notices will be due on 9/15. We received communications from a firm that says that the GC is filing bankruptcy and that 17 of our fellow subs are hiring them to collect their money. If this is true and the GC files bankruptcy, does that change the owner's obligation to pay off any lien we file? The firm says the owner will just 'bond off' the lien and we won't get paid.

1 reply

Aug 20, 2020

There are a number of points that can be considered here. 1. Does Lien Apply When GC Files Bankruptcy? Generally, if a mechanics lien is validly filed it provides string protection to get paid in the face of a GC's (or other higher-tiered party's) bankruptcy filing. This is because the lien encumbers the property itself, and can obligate the property owner to satisfy the debt. If the monthly notice requirements have been complied with, such that a lien is appropriate, and the owner was obligated to "trap funds" the bankruptcy of the GC has no direct consequence to the effectiveness of the lien claim. You can read more about mechanics liens and bankruptcy here. 2. What Does Bonding-Off Lien Mean? Bonding-off a lien is not a negative consequence of a lien being filed, it merely changes the property in which the claimant has a security interest. When a lien is bonded off, the property is released from being encumbered by the lien claim, and instead the claimant has an interest in a "pile of money" that is specifically provided for that purpose. In some cases, bonding off a lien actually makes it easier to get paid, as a suit to recover from the pile of money won't potentially end up in a foreclosure sale of the property like a lien enforcement action can. You can learn more about bonding off liens here. Whether to continue with a lien claim or go with a third-party collections firm is a business decision, but in many cases a lien is strong protection to get paid - even when bankruptcy plays a part.

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