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What effect does the bankruptcy have on our lien?

Long story short- Customer filed a claim with insurance, had work done, and now isn't paying. Not only not paying us, but the home is on the verge of foreclosure, the customer has filed for Chapter 13 bankruptcy as well. I will be filing the complete lien here shortly. She used the Bankruptcy to sort of us tell us to not file the lien (which is all the more reason I am going too), what effect does the bankruptcy have on our lien?

1 reply

Nov 7, 2019

Bankruptcy will throw a wrench into recovering payment in any industry, but mechanics liens actually fare pretty well in the face of a bankruptcy filing.

Can a mechanics lien be recorded after bankruptcy is filed?

Yes. In most situations, a mechanics lien can be recorded even after a customer has filed bankruptcy and even after the automatic stay is instituted. Mechanics liens generally relate back to the first time when labor, materials, or equipment were furnished to the property by the lien claimant. So, even where the lien hasn't been recorded, it technically attaches to the property once work begins. As a result, a mechanics lien can generally be filed during the automatic stay where the debt actually arose and attached before the automatic stay. Or, in other words: If the construction project was underway before a bankruptcy is filed, then a party performing work on that job will typically be able to file a lien on that job even after bankruptcy is filed and the automatic stay is instituted.

Other considerations for mechanics lien claimants facing a customer's bankruptcy

There are plenty of other considerations that will come into play when the property owner has filed for bankruptcy. Can a filed lien be enforced? What happens to lien priority? Will I be able to recover full payment? The list goes on and on. For more information on these topics and more, Levelset has an excellent resource: How to Protect Your Payments When Dealing with a Construction Bankruptcy.

Arizona's basic mechanics lien requirements will still apply

Note that Arizona's basic mechanics lien requirements will still apply, even where bankruptcy is in play. For more information on the required timeframes, notices, etc: - Arizona Mechanics Lien Guide and FAQs - How to File an Arizona Mechanics Lien – A Step by Step Guide

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