Liens and Bankruptcy

As a contractor, you may find yourself having to file a lien in order to get paid. However, what happens if your client that you place a lien against, files for bankruptcy?

When someone files for bankruptcy an automatic stay halts collection actions, which would include enforcing liens. However, all is not lost when it comes to your lien, and there are several factors that will be taken into account on whether the lien is discharged, reduced, or stays the same. 

The first factor is the type of bankruptcy that is filed. If they file for a Chapter 7 and aren’t exempt or challenge your lien, you could still be allowed to pursue collection if assets are liquidated. In a Chapter 13 the debtor usually creates a repayment plan over 3-5 years and you could receive a partial or full payment over time. 

Another factor is whether your lien is Secure or Unsecure. If you didn’t file correctly, or you missed deadlines, it could be considered an Unsecure lien, and a bankruptcy could wipe out your claim. 

So, what can you do to try and navigate and secure your payment as much as possible?

• Follow Proper Lien Filing: Make sure that you are following all state regulations and are keeping up on deadlines, notices, and recording requirements. A properly filed lien has a stronger chance of surviving a bankruptcy. 

• Have Your Lawyer Help Navigate: If this happens to you, talk to your attorney, there are ways that they can help try to make sure your lien stays intact. 

While bankruptcy may complicate the enforcement of a lien, it doesn’t mean that your business has to take a loss. Lien Counsel can make sure you are up-to-date on your pre-lien and lien filings and we work with legal teams that can help you navigate the legal aspects that come with making sure you get paid on your lien.