Menu
Home>Levelset Community>Legal Help>Why does a mechanical lien survive bankruptcy?

Why does a mechanical lien survive bankruptcy?

FloridaBankruptcyCollectionsLien Foreclosure

I need clarification on "the debtor’s personal obligation to pay may be extinguished by his bankruptcy, but the property’s obligation is not". Does that mean that that the initial filing of the lien is extinguished but due to the party's obligation to the property they still need to pay for example a sub-subcontractor?

2 replies

Nov 26, 2019
The quoted sentence means that, while an individual's personal liability for debts may be stripped by a bankruptcy filing, a mechanics lien is an obligation of the property itself, and is not discharged by the bankruptcy. This is why the ultimate remedy for a mechanics lien claimant is the foreclosure of the property itself in order to satisfy the debt. In most cases, a mechanics lien is a powerful tool in the face of a bankruptcy filing, and remains in force and enforceable to secure payment. So, for example, if a sub-subcontractor files a valid mechanics lien, and the property owner files for bankruptcy protection, the lien will remain on the property (and the enforcement deadline can be tolled through the bankruptcy proceeding) and the sub-subcontractor can enforce the lien after the bankruptcy is concluded. Or, if the sub-subcontractor files a valid mechanics lien and the GC or hiring sub files for bankruptcy protection, the lien can be enforced against the owner's property.
1 person found this helpful
Helpful
Nov 26, 2019
It sounds like you're quoting the following article re: mechanics liens and bankruptcy: How to Protect Your Payments When Dealing with a Construction Bankruptcy. I believe the interpretation provided above might actually be the opposite of the intended meaning of the section you quoted. That section of the above article is stating that even though the personal obligation to make payment between to parties may be wiped away by bankruptcy, a secured debt (i.e. a debt which is tied to specific property - like a mechanics lien filing) won't be tossed aside so easily. So, the filing, itself, generally won't be set aside - though the personal debt (between two parties, with no property involved) may not survive, itself.
0 people found this helpful
Helpful