{"id":228229,"date":"2014-12-04T06:20:59","date_gmt":"2014-12-04T13:20:59","guid":{"rendered":"https:\/\/www.myconstructionexpert.com\/blog\/?p=228229"},"modified":"2014-12-01T16:21:26","modified_gmt":"2014-12-01T23:21:26","slug":"bankruptcy-by-the-developerowner-mechanics-lien-rights-may-still-prevail","status":"publish","type":"post","link":"https:\/\/www.myconstructionexpert.com\/blog\/bankruptcy-by-the-developerowner-mechanics-lien-rights-may-still-prevail\/","title":{"rendered":"Bankruptcy by the Developer\/Owner: Mechanics Lien Rights may still Prevail!"},"content":{"rendered":"<p>John W. Kim | Nossaman LLP | October 24, 2014<\/p>\n<p>The rate of bankruptcies among construction industry participants is higher than some think. \u00a0The bankruptcy of a developer creates an \u201cautomatic stay\u201d under federal law preventing almost all collection activities, including actions to perfect a lien. \u00a0However, there are unique exceptions to the automatic stay that will protect some parties in the construction industry, such as the right for a contractor to seek protections for payment of unpaid work on a residential or commercial project.\u00a0 \u00a0Upon a developer\u2019s bankruptcy, two sets of laws that may conflict need to be harmonized: federal bankruptcy law and applicable state law relating to mechanics liens. \u00a0Since a violation of the bankruptcy automatic stay is a contempt of court, it is important to understand what can and cannot be done once a bankruptcy has been filed.<\/p>\n<p>When any party files for bankruptcy, one of the first protections gained is the \u201cautomatic stay\u201d under United States Bankruptcy Code section 362. The automatic stay\u00a0broadly\u00a0bars collection efforts and other creditor actions against the debtor and\/or the debtor\u2019s property. While numerous, some of the specifically prohibited actions include: \u201c(4) any act to create, perfect, or enforce any lien against property of the estate; (5) any act to create, perfect, or enforce against property of the debtor any lien to the extent that such lien secures a claim that arose before the commencement of the case under this title; \u2026\u201d\u00a0\u00a011 U.S.C. \u00a7 362(a).<\/p>\n<p>Since a mechanics lien almost always qualifies as \u201ca lien against property of the estate\u201d, a cursory examination of the Bankruptcy Code leads to the conclusion that mechanics liens, and actions to record or otherwise perfect mechanics liens, are strictly prohibited after the filing of a bankruptcy case. \u00a0Claimants are concerned they may miss a deadline under state law to perfect a lien that would apply but for the bankruptcy. \u00a0However, mechanics lien claimants may be entitled to an \u201cexception\u201d from the automatic stay upon taking proper actions both inside and outside the bankruptcy case. \u00a0This exception permits significant relief for such a creditor:<\/p>\n<p>\u201c\u2026 to perfect, or to maintain or continue the perfection of, an interest in property to the extent that the trustee\u2019s rights and powers are subject to such perfection under Section 546(b) [of the Bankruptcy Code] \u2026 \u201d. \u00a011 U.S.C. \u00a7Section 362(b)(3).<\/p>\n<p>Despite one of the most important safeguards created for debtors in bankruptcy \u2014 the automatic stay \u2014 claimants may continue to record and perfect a mechanics lien even after the bankruptcy has been filed notwithstanding the automatic stay. \u00a0This is true as long as the lien or work giving rise to the lien arose prior to the filing of the bankruptcy petition, which is the case in the vast majority of mechanics lien claims in a bankruptcy situation. While mechanics lien law varies significantly between states, mechanics liens generally arise either when labor and\/or materials were supplied by the claimant, or when work on the project first commenced. \u00a0Both of these dates are generally well before the lien is perfected (filed). This means that, if the claimant, whether a general or subcontractor, provided work or supplied material prior to the bankruptcy filing, the lien is allowed to be perfected after the bankruptcy filing, even with the broad automatic stay. \u00a0Thus, the claimant\u2019s rights will generally survive a bankruptcy case and will not be discharged.<\/p>\n<p>It is important to note that the exception permitting a claimant to perfect the lien does not go so far as to allow actions to enforce the lien. \u00a0Nonetheless, the claimant\u2019s rights can still be protected since the bankruptcy filing will normally toll any deadline to enforce a lien during the bankruptcy proceeding, so that the lien can be enforced after the bankruptcy discharges most of the other claims.\u00a0 Many practitioners will simply seek a comfort order or a stipulation approved by the Bankruptcy Court permitting the claimant to proceed with its lien enforcement rights despite the bankruptcy.\u00a0 Mechanics lien claimants therefore have the ability to both 1) be perfected after the automatic stay, and 2) emerge \u201cwhole\u201d after the bankruptcy process concludes. \u00a0This exception places a mechanics lien claimant in a much better position to recover the money owed in (or after) a bankruptcy proceeding. \u00a0\u00a0Nossaman lawyers can assist both debtors and creditors in this and other types of bankruptcy proceedings.<\/p>\n<p>via <a href=\"http:\/\/www.lexology.com\/library\/detail.aspx?g=268ff416-986d-4d9f-ae4a-2646b3090815&amp;utm_source=Lexology+Daily+Newsfeed&amp;utm_medium=HTML+email+-+Body+-+Federal+section&amp;utm_campaign=Lexology+subscriber+daily+feed&amp;utm_content=Lexology+Daily+Newsfeed+2014-11-21&amp;utm_term=\">Bankruptcy by the developer\/owner: mechanics lien rights may still prevail! &#8211; Lexology<\/a>.<\/p>\n","protected":false},"excerpt":{"rendered":"<p>John W. Kim | Nossaman LLP | October 24, 2014 The rate of bankruptcies among construction industry participants is higher than some think. \u00a0The bankruptcy of a developer creates an \u201cautomatic stay\u201d under federal law preventing almost all collection activities, including actions to perfect a lien. \u00a0However, there are unique exceptions to the automatic stay&hellip; <a class=\"more-link\" href=\"https:\/\/www.myconstructionexpert.com\/blog\/bankruptcy-by-the-developerowner-mechanics-lien-rights-may-still-prevail\/\">Continue reading <span class=\"screen-reader-text\">Bankruptcy by the Developer\/Owner: Mechanics Lien Rights may still Prevail!<\/span><\/a><\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"jetpack_post_was_ever_published":false,"_jetpack_newsletter_access":"","_jetpack_dont_email_post_to_subs":false,"_jetpack_newsletter_tier_id":0,"_jetpack_memberships_contains_paywalled_content":false,"_jetpack_memberships_contains_paid_content":false,"footnotes":"","jetpack_publicize_message":"","jetpack_publicize_feature_enabled":true,"jetpack_social_post_already_shared":true,"jetpack_social_options":{"image_generator_settings":{"template":"highway","enabled":false},"version":2}},"categories":[14,8],"tags":[5844,76],"class_list":["post-228229","post","type-post","status-publish","format-standard","hentry","category-construction-2","category-mechanics-lien-rights","tag-bankruptcy","tag-mechanics-lien","entry"],"jetpack_publicize_connections":[],"yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v25.0 - https:\/\/yoast.com\/wordpress\/plugins\/seo\/ -->\n<title>Bankruptcy by the Developer\/Owner: Mechanics Lien Rights may still Prevail! - Advise &amp; Consult, Inc.<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/www.myconstructionexpert.com\/blog\/bankruptcy-by-the-developerowner-mechanics-lien-rights-may-still-prevail\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Bankruptcy by the Developer\/Owner: Mechanics Lien Rights may still Prevail! - Advise &amp; Consult, Inc.\" \/>\n<meta property=\"og:description\" content=\"John W. Kim | Nossaman LLP | October 24, 2014 The rate of bankruptcies among construction industry participants is higher than some think. \u00a0The bankruptcy of a developer creates an \u201cautomatic stay\u201d under federal law preventing almost all collection activities, including actions to perfect a lien. \u00a0However, there are unique exceptions to the automatic stay&hellip; Continue reading Bankruptcy by the Developer\/Owner: Mechanics Lien Rights may still Prevail!\" \/>\n<meta property=\"og:url\" content=\"https:\/\/www.myconstructionexpert.com\/blog\/bankruptcy-by-the-developerowner-mechanics-lien-rights-may-still-prevail\/\" \/>\n<meta property=\"og:site_name\" content=\"Advise &amp; Consult, Inc.\" \/>\n<meta property=\"article:publisher\" content=\"https:\/\/www.facebook.com\/Advise-Consult-Inc-126949043996790\/\" \/>\n<meta property=\"article:published_time\" content=\"2014-12-04T13:20:59+00:00\" \/>\n<meta name=\"author\" content=\"admin\" \/>\n<meta name=\"twitter:card\" content=\"summary_large_image\" \/>\n<meta name=\"twitter:creator\" content=\"@adviseconsult\" \/>\n<meta name=\"twitter:site\" content=\"@adviseconsult\" \/>\n<meta name=\"twitter:label1\" content=\"Written by\" \/>\n\t<meta name=\"twitter:data1\" content=\"admin\" \/>\n\t<meta name=\"twitter:label2\" content=\"Est. reading time\" \/>\n\t<meta name=\"twitter:data2\" content=\"4 minutes\" \/>\n<script type=\"application\/ld+json\" class=\"yoast-schema-graph\">{\"@context\":\"https:\/\/schema.org\",\"@graph\":[{\"@type\":\"Article\",\"@id\":\"https:\/\/www.myconstructionexpert.com\/blog\/bankruptcy-by-the-developerowner-mechanics-lien-rights-may-still-prevail\/#article\",\"isPartOf\":{\"@id\":\"https:\/\/www.myconstructionexpert.com\/blog\/bankruptcy-by-the-developerowner-mechanics-lien-rights-may-still-prevail\/\"},\"author\":{\"name\":\"admin\",\"@id\":\"https:\/\/www.myconstructionexpert.com\/blog\/#\/schema\/person\/0a11abe008083d5fb19c2b0feefe7bd7\"},\"headline\":\"Bankruptcy by the Developer\/Owner: Mechanics Lien Rights may still Prevail!\",\"datePublished\":\"2014-12-04T13:20:59+00:00\",\"mainEntityOfPage\":{\"@id\":\"https:\/\/www.myconstructionexpert.com\/blog\/bankruptcy-by-the-developerowner-mechanics-lien-rights-may-still-prevail\/\"},\"wordCount\":746,\"commentCount\":0,\"publisher\":{\"@id\":\"https:\/\/www.myconstructionexpert.com\/blog\/#organization\"},\"keywords\":[\"Bankruptcy\",\"mechanics lien\"],\"articleSection\":[\"Construction\",\"Mechanics Lien Rights\"],\"inLanguage\":\"en-US\",\"potentialAction\":[{\"@type\":\"CommentAction\",\"name\":\"Comment\",\"target\":[\"https:\/\/www.myconstructionexpert.com\/blog\/bankruptcy-by-the-developerowner-mechanics-lien-rights-may-still-prevail\/#respond\"]}]},{\"@type\":\"WebPage\",\"@id\":\"https:\/\/www.myconstructionexpert.com\/blog\/bankruptcy-by-the-developerowner-mechanics-lien-rights-may-still-prevail\/\",\"url\":\"https:\/\/www.myconstructionexpert.com\/blog\/bankruptcy-by-the-developerowner-mechanics-lien-rights-may-still-prevail\/\",\"name\":\"Bankruptcy by the Developer\/Owner: Mechanics Lien Rights may still Prevail! 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