Is a Mechanics Lien Enforceable Post-Bankruptcy?
Generally, a mechanics lien will remain enforceable after bankruptcy adjudication, even if the bankruptcy discharges the debt, giving rise to the lien. A bankruptcy deals with secured and non-secured debts. A secured debt is a debt for which there is a tangible thing that can be sold to satisfy the debt, such as a house.
For example, a mortgage is a secured debt because even if the mortgagor cannot repay the mortgage, the house can be sold to cover the mortgage. A debt for work done on a piece of property is similarly secured because if a contractor performs work on a home and is not paid for it, he can file for a lien on the property on which he worked such that if his debt is not repaid, he can force a sale of the home to recoup his debt.
Bankruptcy can discharge the debt associated with a secured claim (e.g., the mortgage payment or the contractor’s invoice) but cannot eradicate the bank or contractor’s lien on the property. The confusing aspect of this matter is the interplay between state mechanics lien laws and the Bankruptcy Code.
When a debtor files for bankruptcy, an automatic stay is created on all of the debts, meaning that the creditors cannot actively pursue collecting the debt until the bankruptcy is over. The problem with mechanics liens is that most state laws, including Pennsylvania’s, require a deadline by which you must start your mechanic’s lien.
Thus, to comply with the state mechanics lien law would mean violating the bankruptcy law stay, and to abide by the bankruptcy stay would mean running afoul of the state mechanics lien law and losing your chance to perform a mechanics lien. The Bankruptcy Code does provide a way around this; a bankruptcy attorney will guide you through this.
And that’s where the Miller Law Group comes in. Contact us for a confidential consultation.