Miller, Ross & Goldman
Global Commercial Debt Collection & Legal Services
Global Commercial Debt Collection & Legal Services
Mechanics’ liens can offer creditors priority protection in bankruptcy, but only if they are properly perfected and filed on time. Bankruptcy may pause enforcement, but it does not automatically eliminate valid lien rights.
When a debtor files for bankruptcy, creditors often assume their ability to collect is immediately eliminated. For contractors, suppliers, and construction professionals, that assumption can be costly. Mechanics’ liens operate under a different set of rules, and when properly handled, they can provide meaningful protection even in bankruptcy proceedings.
Understanding how mechanics’ liens intersect with bankruptcy law is critical for preserving payment rights and avoiding missed opportunities for recovery.
A mechanics’ lien is a statutory security interest granted to contractors, subcontractors, and material suppliers who provide labor or materials to improve real property. When properly filed, the lien attaches to the property itself, securing payment for the work performed.
Unlike unsecured claims, mechanics’ liens create a direct interest in real property. This distinction is especially important in bankruptcy, where secured claims are treated differently than unsecured debts.
When a debtor files for bankruptcy, an automatic stay goes into effect. This stay immediately halts most collection activity, including lawsuits, demands for payment, and enforcement actions.
However, the automatic stay does not erase existing rights. It temporarily pauses enforcement while the bankruptcy court evaluates claims. Creditors with secured interests, including mechanics’ liens, may still retain leverage depending on how and when those liens were filed.
Priority determines who gets paid first. In bankruptcy, secured creditors generally stand ahead of unsecured creditors, and properly perfected mechanics’ liens often fall into this secured category.
Lien priority can depend on several factors, including state law, the timing of the lien, and whether the lien relates back to the commencement of work. When prioritized correctly, a mechanics’ lien may place a creditor ahead of lenders or other claimants.
Timing is one of the most critical factors in lien enforcement. Liens filed before a bankruptcy petition are typically evaluated as existing secured claims. In contrast, attempts to file or perfect a lien after a bankruptcy filing may be restricted or prohibited without court approval.
Missing pre-bankruptcy deadlines can significantly weaken a creditor’s position. Acting early preserves options that may not be available once bankruptcy proceedings begin.
Perfecting a mechanics’ lien requires strict compliance with state statutes. This often includes providing preliminary notices, filing within statutory deadlines, and accurately identifying the property and parties involved.
Failure to meet these requirements can render a lien unenforceable, even if payment is clearly owed. In bankruptcy, courts closely scrutinize lien validity, making precision essential.
In many cases, yes. While bankruptcy may discharge a debtor’s personal obligation, it does not automatically eliminate a secured lien against property. If the lien is valid and perfected, it may survive the bankruptcy and remain attached to the property.
That said, certain liens may be challenged or avoided if they fail to meet legal requirements or if they impair exemptions. Each situation requires careful legal analysis.
Even strong lien claims can lose their effectiveness if key steps are missed. Creditors often encounter issues when mechanics’ lien requirements and bankruptcy rules overlap.
Creditors should evaluate a debtor’s financial stability early and consider lien protection when payment issues arise. Maintaining accurate documentation, tracking statutory deadlines, and coordinating lien filings with legal counsel are critical steps.
In bankruptcy scenarios, understanding when to seek relief from the automatic stay or how to assert secured status can significantly affect recovery outcomes.
Miller, Ross & Goldman assists creditors with construction lien services, bankruptcy compliance, and enforcement planning. By evaluating lien validity, priority, and timing, the firm helps protect creditor interests throughout the bankruptcy process. Each case is approached with a focus on preserving enforceability and minimizing legal risk.
Mechanics’ liens remain one of the most powerful tools available to construction creditors, even when bankruptcy is involved. The key lies in understanding the rules of construction liens, acting early, and ensuring strict compliance with statutory requirements.
With informed strategy and experienced legal guidance, creditors can protect their rights and improve recovery prospects despite a debtor’s bankruptcy filing. Contact us today to request a quote.
