VBA Journal

WIN 2014

The VBA Journal is the official publication of The Virginia Bar Association.

Issue link: http://vba.epubxp.com/i/436865

Contents of this Issue

Navigation

Page 34 of 42

30 • VBA JOURNAL 3 0 • V B A J O U R N A L Who Is Affected by the Bankruptcy? Te potential impact of the bankruptcy fling, and conse- quently the automatic stay, can difer depending on which party (owner, general contractor, subcontractor or lien claimant) is in bankruptcy. Te courts can grant relief from the automatic stay, pursuant to 11 U.S.C. § 362, (1) for cause, including the lack of adequate protection of an inter- est in property of such party in interest; and (2) if the debtor does not have any equity in the property, and the property is not necessary to an efective reorganization. 9 How the court will apply these factors depends on which party is the debtor. Typically, when the general contractor or subcontractor fles for bankruptcy, the general contractor or subcontractor has no ownership interest in the real property, and therefore no equity in the real property, and the real property would not be necessary to an efective reorgani- zation. Likewise, if the general contractor or subcontractor has no interest in the real property, it is less likely that the general contractor or subcontractor would be willing or able to provide adequate protection of the creditor's interest. As a result, the court is more likely to grant relief from the au- tomatic stay. However, if the property owner fles for bankruptcy, the court will have to consider whether the owner has equity in the property, and whether the property is necessary to the bankruptcy. If there is equity or if the owner is willing to make adequate protection payments to protect the equity cushion, the court is more likely to deny relief from the au- tomatic stay. A mechanic's lien should not be afected by the lien claim- ant fling for bankruptcy. Te automatic stay does not pro- hibit a lien claimant from continuing to prosecute the claim; however, any money obtained would become part of the bankruptcy estate. What Should Lien Claimants Do When a Company Upstream Files Bankruptcy? Although each situation is diferent, here are some general guidelines to best protect your clients' lien rights: 1) If you suspect that an owner, general contractor or sub- contractor (i.e., someone upstream from your client) may fle for bankruptcy protection, a mechanic's lien is your cli- ent's best, and possibly only, way of getting paid everything your client is owed. 2) Pay close attention to the 90-day and 150-day deadlines by which you must have fled your mechanic's lien. Te au- tomatic stay does not afect these deadlines. Advise your cli- ents to develop a consistent system to fag and handle delin- quent accounts before they reach these important deadlines. 3) If a contractor, subcontractor or owner on a project your client is working on fled for bankruptcy, determine your client's rights as quickly as possible. In addition to mechan- ic's lien rights, your client may have reclamation or other remedies that carry a very short deadline. 4) When recording a mechanic's lien, notice is very impor- tant and numerous diferent kinds of notices need to be given before, during and after a lien is recorded, depend- ing on the type of project and where your client falls in the

Articles in this issue

Archives of this issue

view archives of VBA Journal - WIN 2014