This is a question that is asked frequently by folks who are thinking about filing a lien, or who already have a lien and are worried about the solvency of its debtors.  The intersection of bankruptcy law and mechanic’s lien law can be very complicated, as both sets of laws are complex in their own right. Combining these laws together can be a challenge even for lawyers.

Unfortunately, in today’s economic climate, bankruptcy filings are up and mechanic lien rights within bankruptcy is becoming more and more important.

I’ve written about bankruptcy’s effect on a mechanic’s lien in the past on this blog, which you can read through the Bankruptcy tag. I must, however, give a great complement to Michael R. King, an attorney with Gammage & Burnham PLC, who wrote an excellent piece for Construction Executive magazine’s July 2011 feature on construction law.

His article – Lien Rights and the Bankruptcy Code – breaks down some specifics about what a mechanic lien claimant can and should do to enforce its lien rights against a party in bankruptcy.  Specifically addressing how you can enforce your lien rights without violating the bankruptcy stay, and how you can position yourself against other creditors by leveraging your lien.

Mr. King’s article does a great job at its mission of explaining how a mechanic’s lien fits within the bankruptcy code, but its not within the article’s scope to discuss how mechanic’s liens help you collect outside the confines of the bankruptcy code.  This, however, can sometimes be more important.

If a debtor files bankruptcy, the mechanic’s lien remedy is so terrific because it gives you the opportunity to collect from other parties.  You can collect from the party who hired the bankrupt party, for example, and the property owner.

So while there are lots of ways to enforce your lien rights after a bankruptcy filing, sometimes the best way is to look for money from the non-bankrupt parties obligated to you through the lien.

Well, Atlanta-based roofing company American Shingle just filed for bankruptcy (bankruptcy filing legal docs here), and they are illustrating this same point on a tiny scale.   Instead of a billion dollar mega-project, mechanic liens are affecting residential properties across Georgia and elsewhere.

Folks frequently ask me: what’s the benefit of filing a mechanic lien?

An article I wrote in February 2008 answers this question in detail, but for the purposes of this discussion about American Shingle, here’s an excerpt:

If you’re unable to get paid on a construction project, you have a legal remedy under contract law only against the person who hired you.   A mechanic lien, however, completely changes this paradigm.  With a lien, you can sue the person who hired you, along with the property owner – regardless of how far you are down the contracting chain [depends on state laws].

What this means for the American Shingle situation is highlighted by a news story from the Atlanta NBC Affiliate 11 Alive:  American Shingle Customers Could Pay Twice.

Unlike the 11 Alive story, the Construction Lien Blog focuses on creditor’s rights (versus consumer rights).   If you’re a consumer, you can check out the “Consumer Ed” resource published by the GA Department of Consumer Affairs, which has information on liens.

For creditors, however, the American Shingle situation is a good lesson.   Protect your lien rights by sending required notices and filing your liens within the legal time frames.   You never know when companies may run into financial difficulty and file bankruptcy (American Shingle was a pretty big company).   When something like this happens, your lien rights will be invaluable.

Related articles by Zemanta

• Liens Make Your Payment Problem the Entire Project’s Biggest Problem (constructionlawmonitor.com)
• American Shingle files for bankruptcy (walletpop.com)
• Preserving and Executing Lien Rights Leads to Prompt Payment (constructionlawmonitor.com)
• Why Lien? – The Why Lien tag at Construction Lien Blog

Contractors and Suppliers large and small are facing non-payment scenarios, and sometimes, while waiting for a prolonged payment some are getting feared news:  that the owner or general contractor is filing bankruptcy.

Christopher Hill, a construction attorney in Virginia, just this week published a short and easy-to-read article on JDSupra explaining how Virginia Mechanic’s Liens Survive Bankruptcy.   Mr. Hill summarizes his point with the following:

[I]n today’s climate, contractors should not feel that they are completely helpless in the bankruptcy fight.   Filing a mechanics lien…can put a contractor or subcontractor in as good a position as possible should the owner of a project file bankruptcy.

While the article regards the mechanics lien statutes in Virginia, many other states’ lien statutes operate the same way.

Generally speaking, mechanics lien statutes are written to protect those who contributed to construction projects.   Regardless of what errors in payment occur on a construction project, mechanics liens are the best tool for your company to protect its right to get paid.

But the right doesn’t last forever, and if you file incorrectly, the rules are uncompromising.

Get Started with Zlien to file your claim of lien, and protect your company’s right to payment.