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Hirschler bankruptcy attorney Brittany Falabella and construction attorney Nathaniel Story co-authored an article for Construction Executive discussing strategies for subcontractors to secure payment when a contractor, or subcontractor higher in the supply chain, files for bankruptcy.

“Regardless of whether a contractor or subcontractor files under chapter 7, 11 or subchapter V, the ‘automatic stay’ is immediately imposed upon the filing (absent certain circumstances related to multiple and/or bad faith filings), which prohibits any effort to collect debt or alter the rights and interest in the property of the filing contractor or subcontractor (now the debtor),” Falabella and Story explained.

Subcontractors should seek counsel from a bankruptcy attorney, as remedies to ensure contractor payment are case-dependent. Among some of the options an attorney may suggest:

  • Make a claim on a payment bond or owner if working on a project that is bonded;
  • File and perfect a mechanics lien if in a jurisdiction where this does not violate the automatic stay;
  • File a motion for relief from the stay to enforce a mechanic’s lien;
  • Make a reclamation demand in bankruptcy;
  • Require payment by joint checks from the owner and/or general contractor to assure timely payment and provide some defenses against the payment being clawed back in bankruptcy; and,
  • File a proof of claim and monitor the case closely.

For the full article, please click here.

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Luis F. Ruiz

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