I am a direct subcontractor that has filed liens against a company that is filing bankruptcy. (Chapter 11) The liens are in 6 states (New Jersey, New York, Illinois, Texas, California, Florida) What do I need to do?
1 reply
Jun 16, 2020
Your solution will depend on the timing of the bankruptcy filing.
If the bankruptcy is filed before your deadline to file an action to foreclose the liens in the states in question lapses (90 days from recording in CA), the automatic stay prevents you from taking any steps to enforce any of the mechanic’s liens in state court unless relief from the automatic stay is obtained. But the bankruptcy gives you a new, more convenient way to perfect all of the liens in this scenario. Bankruptcy Code section 362(b)(3) permits a mechanic’s lien claimant to perfect the mechanic’s lien by filing a notice with the Bankruptcy Court under Section 546(b)(2). Relief from the automatic stay is not required, but the you must take these steps in Bankruptcy Court within the same recording and filing periods required by the state mechanic’s lien law in question for each lien. This will perfect your lien and set it up for treatment as a secured obligation under the bankruptcy. It is important to note that perfecting the lien is different from enforcing the lien in state court by forcing a foreclosure sale of the property. To enforce the lien in state court, you will need to obtain relief from the bankruptcy court automatic stay. This step may be needed, especially if parties other than the debtor also hold title.
If the deadline to file your action to foreclose the liens in any of the states in question may lapse before the bankruptcy is filed, then you will need to file legal action to foreclose that lien at risk of expiring in state court before the lapse of the deadline. Once the bankruptcy is filed, the action(s) will be stayed by the bankruptcy and you will be considered a secured creditor (unless successfully challenged). Under certain circumstances you may want to attempt to obtain leave from the bankruptcy court to enforce the liens in state court.
If you need legal assistance, email me to schedule a free telephone consultation at ryan@huntortmann.com