RUSH QUESTION – IMPORTANT

7 days ago

I input all the lien online with Levelset on 9/18/19, however, it was not RECORDED until 9/24/19, and our customer filed Chapter 13 BK on 9/23/19, the DAY BEFORE IT WAS RECORDED in Cook County, IL. The customer knew this lien was coming and filed BK. I read the BK does not wipe out the lien, HOWEVER, since we can prove that it was in your system on 9/18 but not recorded until the day AFTER she filed Chapt 13, is our lien still valid? Her atty is wanting us to void out the lien and if it is valid, we will not void it out. Pls let me know so we can respond to him accordingly? Thank you.

Guest
Anonymous

We are a Levelset customer – Bath Planet Chicago

Senior Legal Associate Levelset

A mechanics lien is one of the most valuable tools available when a customer is facing bankruptcy. In fact, a mechanics lien can often be filed after bankruptcy is filed and remain valid and enforceable.

If your customer is going bankrupt, but they aren’t the owner of the property, that bankruptcy will typically have little effect on the viability of a mechanics lien claim. However, when the property owner has gone bankrupt, that could create a little more confusion.

Levelset discusses mechanics liens and bankruptcy in depth in this article: How to Protect Your Payments When Dealing with a Construction Bankruptcy. Still, let’s look at some important factors in play here.

Mechanics liens and the automatic stay

Under §362(b) of the Bankruptcy Code, a mechanics lien may be able to be filed after the automatic stay as long as the lien was “created” before that time. This may sound counterintuitive, but in fact, a lien claimant will generally have a stake in the property long before they actually file a mechanics lien (if such a lien becomes necessary).

Essentially: In a large number of states, a lien claimant technically has their lien from the date they start work, and potentially even earlier. But, that right isn’t perfected and published for the world to know until the lien is filed in the property record. Nonetheless – the lien is still often considered “created” long before the lien is filed in the record. But, that comes down to state law (which, as I’ll explain below, appears favorable in Illinois).

When is a lien created in Illinois?

Illinois mechanics lien rights are generally created by § 60/1 of the state’s mechanics lien statute. Under § 60/1(a), “this lien attaches as of the date of the contract.” So, when a direct contractor contracts for a work of improvement, beginning on the date of the contract, they’ll have a lien against the property.

Bottom line

Putting the above ideas together: Illinois contractors have a lien against the project property from the time they contract for the work of improvement. And, generally, when a mechanics lien is created before bankruptcy is filed, that mechanics lien can be perfected even after the automatic stay, pursuant to the exception to the automatic stay created by §362(b) of the Bankruptcy Code.

Of course, bankruptcy is nasty and complicated business – and construction payment disputes are hard enough to navigate without that complicating factor. So, in order to best pursue a mechanics lien when bankruptcy has been filed, it’d be wise to consult a local attorney familiar with bankruptcy and construction disputes.

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Guest
Anonymous

Thank you so very much Matt. I appreciate your help.

Guest
Anonymous

Matt, re “….pursuant to the exception to the automatic stay created by §362(b) of the Bankruptcy Code.” I looked up this code and it does not pertain to a mechanic’s lien.  Please advise.

Also, can you legal staff file a claim in the BK matter re our lien filed with Levelset for Angel Collins?  If a claim is not filed they may be able to waive their rights.  PLEASE LET ME KNOW RE THIS ALSO.

 

 

Senior Legal Associate Levelset

11 U.S. Code § 362(b) creates exceptions to the automatic stay created by bankruptcy. Specifically, § 362(b)(3) provides an exception for  “…any act to perfect, or to maintain or continue the perfection of, an interest in property to the extent that the trustee’s rights and powers are subject to such perfection under section 546(b) of this title…

And, to be sure, 546(b)(1)(A) states that the rights and powers of a bankruptcy trustee are subject to the perfection of an interest in property when the rights in the property were gained by the claimant prior to the actual perfection of the interest.

Thus, the perfection of a mechanics lien, which is a claim against real property, would very likely fall under that section in the event that mechanics lien rights exist against the property of an owner who’s gone bankrupt.

Making a bankruptcy claim

Levelset and its in-house legal team is not able to file any bankruptcy claim for any user. While we provide legal information here on the Expert Center, we’re unable to advise or file actions on behalf of our users.

In order to best pursue claims in bankruptcy, the help of a local Illinois attorney familiar with construction and bankruptcy law would be valuable. They’ll be familiar with the intersection of bankruptcy laws and the Illinois mechanics lien laws, and they would be able to review all of the relevant circumstances, documentation, and other information and advise on how best to proceed with your claim.

For help finding a bankruptcy attorney in Cook County, Illinois, sites like FindLaw, Justia, and LawInfo make it easy to compare and review bankruptcy attorneys in the area.

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Guest
Anonymous

Thank you.

 

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