THE CURIOUS CREATURE THAT IS A MECHANIC’S LIEN IN BANKRUPTCY
By Joseph B.C. Kluttz, K&L Gates, Charlotte
“God looks out for drunks, fools and construction lawyers.”
— with apologies to Otto von Bismarck
Many contractors and non-bankruptcy practitioners are generally aware that upon the filing of a bankruptcy petition a variety of collection impediments spring into existence, including indignities like the “automatic stay,” lien-trumping provisions and “preferences.”
Many involved in the construction industry may be unaware, however, that because of special provisions and exemptions applicable to mechanics’ liens in bankruptcy, a contractor (or subcontractor) may be able to improve its position dramatically on the eve of — or even after — the filing of a bankruptcy petition by a counterparty. That could become increasingly important as clouds of economic and political uncertainty continue to gather on the horizon.