Archive:June 27, 2016

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THE CURIOUS CREATURE THAT IS A MECHANIC’S LIEN IN BANKRUPTCY

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.

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