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Property owner in Chapter 11. Will filing a lean be effective?

I've completed a job for a GC and haven't been paid. While researching the property owner, a church, I discovered they declared Chapter 11 bankruptcy in 2016. They filed their November Chapter 11 financial report in December 2018. Since they are still in bankruptcy will filing a lien help me get paid?

1 reply

Jan 2, 2019

That's a good question. Typically, when mechanics liens and bankruptcy intersect, the bankruptcy filing occurs either during or after the performance of work. It's rare that a party already in bankruptcy would hire someone to perform work then fail to pay that party - so this answer may be a bit theoretical. But it's important to remember how effective the mere threat of lien can be when payments aren't being made. Sending a warning like a Notice of Intent to Lien will often go a long way to compel payment - and when sent both to the property owner and the GC, a Notice of Intent to Lien can put pressure on both parties to resolve the issue. Further, when a party is in bankruptcy, notifying their receiver and/or the bankruptcy court of the potential lien filing can go a long way. The pressure of a potential lien filing is one thing (and can be an excellent recovery tool), but the pressure of the federal government is another altogether. A mechanics lien filing could destroy a bankruptcy plan and really complicate things for a property owner, so merely threatening to notify the receiver/court of the debt could go a long way, too. Changing gears, even when bankruptcy is in play, the actual filing of a mechanics lien can occur. County recorders offices typically have neither the authority nor the bandwidth to investigate each claim made. However, that does not necessarily mean that such a lien claim would be valid and enforceable. Thus, the real questions might be whether a mechanics lien filed in the above situation (1) would be proper and (2) could be enforced - and that's tricky. As to whether it'd be proper - that might be an open question. The automatic stay will typically prevent creditors from making claims after bankruptcy has been filed. Specifically, 362(a)(4) and (5) of the Bankruptcy Code prohibit the creation and perfection of liens during the automatic stay. At the same time - filing for bankruptcy doesn't give the bankrupt party free reign to incur debt and not pay it. Still, some remedy other than a mechanics lien may be more appropriate. Even if a mechanics lien is filed, the enforceability question remains. When bankruptcy is filed, the automatic stay is introduced - and the automatic stay will prohibit any filing of suit against the bankrupt party during the bankruptcy. Since mechanics liens have strict timeframes for filing an enforcement action, a situation often arises where the lien could expire prior to being enforced. Generally, where a mechanics lien has been filed, a claimant may be able to extend their time for filing a lien enforcement action. This is typically done by filing a lien preservation notice or by petitioning the bankruptcy court for relief. But again, in a situation where a lien is filed for work entered into during the automatic stay, that could be more complicated. Note that all of this discussion is under the assumption that the automatic stay is still in place. If the stay has been lifted, a claimant should be able to file a mechanics lien without much complication. For more clarity about the options available, it'd likely be beneficial to reach out to a local attorney familiar with bankruptcy and construction. They will be able to assess the situation, examine the relevant information and circumstances, and advise on how to proceed. For more background information on mechanics liens and bankruptcy, this article may be of use: How to Protect Your Payments When Dealing with a Construction Bankruptcy.

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