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Will ch 7 bankruptcy by contractor void a property lien

TexasLien Releases

I paid a contractor to dig a pond. He didn't complete the job and he didn't pay a equipment rental company . The rental company filed a lien on my property. Contractor filed ch 7 bankruptcy and has no assets . His debt is cancelled. Will the lien on my property be removed.

6 replies

Apr 17, 2021
The contractor's filing for bankruptcy does not in and of itself affect the rental company's mechanic's lien. If the lien were proper, the rental company could sue you as the owner to confirm the validity of the lien, and to collect what you theoretically would owe under the circumstances. If the property is where you live, and you own the property, it may be your homestead. If so, then the contractor would have had to perfect a homestead mechanic's lien contract under Texas Property Code sections 53.254, et seq. Most contractors do not confect such a contract, which means that no subcontractor, supplier, or rental company could file a legitimate lien against your homestead. Also, the rental company would have had to provide you with notices of non-payment and to request that you trap funds that you owed to the contractor. Your liability to the rental company would be only for the funds that the rental company trapped in your hands, plus perhaps the 10% retainage (if you were required to withhold retainage). Retain a construction attorney to evaluate your legal rights, and to provide advice. Good luck.
1 likes
Apr 17, 2021

Hello,

Generally, the answer to that question is No.

Why? Let's walk through this. Initially, the debtor is the contractor and the creditor is the equiment rental company. The only secured interest is in the equipment being rented; it belongs to the equipment rental company.

When the equipment rental company files a lien on your property, they are securing their interest in being paid. If properly perfected, it means the debtor is potentially the Property Owner and the creditor is still the equipment rental company.

When the contractor declared bankruptcy, it would have discharged his obligation to pay the equipment rental company if the equipment rental company did not step in to maintain their interest in the bankruptcy court. Effectively, the contractor's debt has been discharged according to the ruling of the bankruptcy court. What is not extinguished is the equipment rental company's interest in getting paid through action against your property. The Property Owner and the equipment rental company are separate from the contractor so the lien would not have been addressed. Also, lien law is State and bankruptcy is Federal. The bankruptcy court would not have had much jurisdiction to deal with the lien if it was properly perfected and no one brought it to them as part of the proceedings.

With that being said, you do have some options.
1) Call the equipment rental company and ask them if you can provide an amount (that you're comfortable with) to make the issue go away.
2) Wait. In one year the right to execute on the lien goes away then, because the equipment rental company is not in privity of contract with you, it's going to make it that much harder for them to sue you.
3) Sue them. If you have paid the GC on a line item for equipment rental, or have paid the GC in full, you can show the court where you have paid and get the lien released. Then they are SOL because they did not pursue their claim in the bankruptcy court against the contractor.

E. Aaron Cartwright III
214.789.1354
Aaron@EACLawyer.com

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Apr 17, 2021

Also,

In addition to my #3 option above, you may challenge the validity or enforceability of the lien as Mr. Erikson described under Texas Property Code 53.254.

-Aaron

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Apr 17, 2021
I made a mistake in my question. I live in TX., but the property is in OK. But additional information is: The rental co. never informed me that the contractor was in arrears in payment. I never knew that the contractor was renting the equipment. My contract with the contractor was for $19,000. The lien is for $50,000+. The contractor, after the fact, told me he thought his rental contract was for hours used on the equipment. He let the equipment sit idle for months and was charged a weekly rate.
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Apr 17, 2021
If the property is in Oklahoma, Oklahoma law will apply to the institution and perpetuation of the mechanic's lien. Retain an Oklahoma construction attorney to evaluate your legal situation and to provide advice. Good luck.
1 likes
Apr 17, 2021

Hello,

You may be in luck. Based on your situation and THIS ARTICLE ON LEVELSET you may be in a good position. You will still need to ask this question in the Oklahoma section or contact an Oklahoma attorney.

-Aaron

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