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Regarding the bankruptcy

New YorkBankruptcyBond ClaimsMechanics Lien

We filed lien and payment bond claim to the company on Nov. 28, 2018 thoruhg zlien. Today, as of April 16th 2019, we received the bankrupcy notification from the company. Can we still get pay from the payment bond? Please let us know what we should for the next step.

1 reply

Apr 18, 2019
That's a good question, and I'm sorry to hear you've been having trouble collecting payment. I should also mention that I'm not able to advise on what any next steps should be, but I can provide some information that I think will be helpful in deciding how to move forward. Whether a lien or bond claim would persist in the face of bankruptcy is a question we get fairly often. Anyway, dealing with a customer's bankruptcy is never easy. Bankruptcy's automatic stay will act as a shield to protect the bankrupt business against claims made once the bankruptcy has been filed. But, in the face of bankruptcy, lien claims and bond claims do serve as two of the better options for ensuring payment. Let's look at them separately... When a payment bond claim is made, that claim is made against the surety's bond that was secured by the contractor on the job. So, a claim against that bond isn't actually made against any single business (even the one who went out and secured the bond). Rather, it's made against what essentially amounts to a pile of money that's been set aside by a surety, and it's specifically designated to pay potential claims. So, the protections in place that shield a bankrupt business should have little effect on the ability to make and enforce a payment bond claim since the claim isn't against the bankrupt business themselves, but against a payment bond provided by the surety. Looking to mechanics liens and bankruptcy... Mechanics lien claims are actually some of the strongest options when trying to recover payment in the face of bankruptcy. This is especially true when the bankrupt customer isn't the owner of the property, or when the lien is filed prior to the bankruptcy filing and automatic stay (regardless of who owns the property). When a mechanics lien is filed, that lien claim isn't against the customer themselves or against any single business. Rather, it creates an interest in the actual project property. This prompts payments from a number of parties - but importantly, it makes the payment dispute the property owner's problem. So, in a situation where the lien claimant was hired by a customer (other than the owner) who's gone bankrupt, a lien claim isn't really affected much by a bankruptcy filing. Further, even if the customer owns the property, if a lien was filed prior to the bankruptcy filing, a claimant is still in a good position to be paid since their security interest attached to the property before the automatic stay ("shield") was in place to block claims. Regardless of which recovery option will be pursued, it's important to note that enforcing either a bond claim or a filed lien claim will require legal action. So, before making any decisions on how to proceed, it'd be wise to consult a local construction and/or bankruptcy attorney. They'll be able to review the circumstances as well as any relevant documentation or other information then advise on how best to proceed. Plus, navigating when bankruptcy is in play always takes a little extra care. For more information on construction payment recovery and bankruptcy, this resource has some great background info: How to Protect Your Payments When Dealing with a Construction Bankruptcy. Lastly, keep in mind that there are strict deadlines for enforcing both lien claims and bond claims in New York - and you can find those deadlines here: New York Mechanics Lien FAQs and Bond Claim FAQs.
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