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Lien with Chapter 7 Bankruptcy

We just found out that the hiring subcontractor, MK fabrication, has filed chapter 7 bankruptcy. We were a sub-sub contractor and filed the lien against the property. I am not sure we are able to pursue the lien during the automatic stay period even though the attempt to collect is against the property owner, not the hiring party?

1 reply

Apr 17, 2018

That's a good question, and the intersection of mechanics liens and bankruptcy law is a tough one to navigate. In bankruptcy, the automatic stay temporarily prevents the enforcement of a mechanics lien. However, if the necessary steps are followed, the time to enforce a mechanics lien will be postponed, and a lien claimant may eventually enforce their lien claim. We've written more on that idea here: The Indispensable Guide to Mechanics Liens In Bankruptcy. But, typically, the enforcement action is only barred against a claimant whose lien has attached to the property of the party filing bankruptcy. A mechanics lien filing attaches to the property owner's property, not the property of a contractor or subcontractor. Typically, this represents an attempt to recover from the property owner rather than some other party - even when nonpayment is the direct fault of someone other than the property owner - since recovery through a mechanics lien will come from the owner rather than a nonpaying higher-tiered contractor or sub. However, when dealing with a claim in bankruptcy, it's more than fair to use an abundance of caution. No one wants to deal with the bankruptcy court or potentially violating the automatic stay. Thus, before moving forward it would be wise to bring in a Colorado construction attorney to review the circumstances of this situation and to navigate the relationship between federal bankruptcy law and Colorado lien law.

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