Mechanic’s Liens & Bankruptcy

A mechanic’s lien is a secured right to property by a contractor, subcontractor, or material provider in the property — usually a house. If you are planning to file for bankruptcy and there is a mechanic’s lien on any property, it’s important to discuss this with your bankruptcy attorney to understand how bankruptcy will affect the lien.

Understanding Mechanic’s Liens

Sometimes your property has a mechanic’s lien and you aren’t aware because these liens can result from many situations. For example, while refusing to pay a roofing company that puts a new roof on your home can result in a mechanic’s lien, a lien can also result if you remodel an area of your home and pay the general contractor who, unbeknownst to you, does not pay a supplier or subcontractor.

The law presumes that you can, in this situation, sue the general contractor. While you could do this, it doesn’t help you now. What if the general contractor spent the money that should have been paid to the supplier and has no assets? You may be left in the situation of owing the supplier thousands with little time to pay it before your house is sold to satisfy the lien.

The law usually requires suppliers or subcontractors do the following to get a mechanic’s lien:

• A subcontractor or supplier who does not have a direct contract with the homeowner must provide notice to what has been contributed within 20-30 days of the contribution,
• The supplier or subcontractor must file a claim of mechanic’s lien if they aren’t paid,
• The supplier or subcontractor has 2-6 months to reach a resolution with the homeowner or file a lawsuit.

Mechanic’s Lien in Bankruptcy

A lien claimant usually has 90 days within the recording date of the lien to file an action to foreclose or repossess before the lien rights are forfeited. If the property owner files for foreclosure before the time limit is up, the time limit to foreclose on the mechanic’s lien is suspended during bankruptcy due to the automatic stay protection of bankruptcy.

A mechanic’s lien is a secured claim that does survive bankruptcy, even though the underlying debt of the lien may be discharged. While the debtor’s personal obligation to pay the debt may be dissolved, the lien on the property is not affected by bankruptcy.

While bankruptcy cannot remove statutory (involuntary) liens like mechanic’s liens, the bankruptcy trustee in your case has the power to avoid or reduce the liens if you meet certain conditions in Chapter 7. A Chapter 13 bankruptcy may also be able to reduce or avoid some liens through a lien strip or cramdown, but modifying the lien can be very complicated.

Contact a Mechanic’s Lien Bankruptcy Attorney

If you have a mechanic’s lien on your home and you are planning to file bankruptcy, it’s important to consult with an experienced bankruptcy lawyer in Las Vegas because the issues surrounding the lien can be very complex. It may be possible to avoid or remove the lien in some cases and a bankruptcy attorney can help you understand your options. Contact Vegas BK today for a free consultation with a Las Vegas bankruptcy attorney to explore your legal options.