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Mechanic's Liens and Bankruptcy in California

lien.jpgA mechanic's lien, also known as a construction lien, is an incredibly powerful collection tool that is available to contractors and subcontractors in California. In fact, any party that provides materials or labor in an effort to help improve real property may seek a mechanic's lien against the property in the event that they are not fairly paid for their contribution. Essentially, a mechanic's lien will give a person or company a creditor's interest in that property. Of course, if the owner of the property declares bankruptcy, things can quickly become extremely complicated. If your company is dealing with a mechanic's lien and a bankruptcy filing by the party that owns the property, please contact an experienced San Jose creditors' rights lawyer for immediate legal assistance.

Mechanic's Liens and Bankruptcy: Three Things You Need to Know

1. Proof of Claim

In order to initiate a bankruptcy filing, a debtor will be required to filing a Petition in Bankruptcy in the appropriate court. Within this, the debtor is required to list all of the creditors to which they still owe money. Each listed creditor will receive a 'Proof of Claim' form. This includes any party with a mechanic's lien. After all, once bankruptcy has been filed, a mechanic's lien becomes one more claim against an insolvent debtor. As such, any contractor with a mechanic's lien needs to take this process very seriously. They must ensure that their rights are fully protected. This starts with correctly filing the Proof of Claim form. The failure to do so could cost you your legal rights.

2. Automatic Stay

The next issue that needs to be considered is the 'automatic stay'. Under Section 362 of the Bankruptcy Code, filing parties are generally granted an automatic stay. Essentially, this means that once bankruptcy has been filed, a lawsuit cannot be filed in another court to seek a judgment against the debtor. However, this issue is not as clear when it comes to a mechanic's liens. In fact, in some cases, there may be a way to go around the automatic stay.

3. Mechanic's Liens and Bankruptcy: Protecting Your Rights

Once an automatic stay has been filed, there are several options available for parties with a mechanic's lien. First, they may be able to file an action for foreclosure in a California state court. Though, in some circumstances, this may be prohibited by bankruptcy law. Second, it may be possible to seek relief from an automatic stay by filing a motion with the bankruptcy court. A successful motion for relief will allow a contractor to bring a foreclosure lawsuit without any worries of being in violation of the bankruptcy code. Finally, in some cases, it may make sense to seek a stipulation for relief from an automatic stay. This will give a contractor an opportunity to negotiate with the debtor party. Ultimately, an experienced attorney should always comprehensively review your claim in order to determine which option will best protect your rights and interests.

Contact Our Office Today

At Diemer, Whitman & Cardosi, LLP, our passionate San Jose business bankruptcy attorneys have extensive experience handling a wide variety bankruptcy claims in California. If your company's mechanic's lien has been impacted by a bankruptcy filing, please contact our team today to schedule a no-fee, no-obligation review of your case. We represent businesses throughout the Bay Area, including in Marin County, Contra Costa County, and Napa County.

Source:

https://www.law.cornell.edu/uscode/text/11/362

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  • Santa Clara County Bar Association | 1917
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  • CWL | California Woman Lawyers
  • Bay Area Bankruptcy | Forun
  • The State Bar of California
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