A mechanic’s lien operates as a form of security for contractors and sub-contractors who build or repair anything from a home to a skyscraper. They also operate to protect the sellers of materials that are used on those projects. If circumstances are forcing you into a position where you’re thinking about a bankruptcy, and you own a home, it’s important that you speak with us. We’ll want you to get a grasp on this complicated area of bankruptcy law. Our knowledgeable and experienced bankruptcy lawyers have helped countless people to extricate themselves from crushing debts.
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Can a mechanic’s lien be discharged in bankruptcy?
The general rule on whether a mechanic’s lien is dischargeable in bankruptcy turns on whether proper notice of the lien has been given, whether it has been properly drafted and where it was recorded. It must be recorded in the county that the property is situated in. A properly noticed and drafted lien is then said to be perfected. If it has been perfected, it’s extremely difficult to discharge it in a simple Chapter 7 consumer bankruptcy proceeding, although it might get restructured in a Chapter 13 proceeding. If the mechanic’s lien hasn’t been properly noticed, drafted or recorded, and there’s a proper objection to it, the bankruptcy courts treat it as unsecured debt. That usually means that if the person who is claiming an unperfected lien gets anything at all, it will only be pennies on the dollar.
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A perfected mechanic’s lien in California is like a “first in and first out” rule in accounting. Mechanic’s liens follow the “first in line rule.” After the debtor’s mortgage is adjudicated, the first mechanic’s lienholder might get paid something more than pennies on the dollar. That’s because the first mechanic’s lienholder holds secured debt. Perfection of a lien increases the likelihood that the lienholder will get paid in the event that the owner of a property declares bankruptcy.
Delivery of clear title
As per any mechanic’s liens on the title of a property that you own, you need to know about those both before and after filing for bankruptcy. Any mechanic’s liens could come back to haunt you if they’re not discharged or otherwise resolved before property can be sold with clear title. If a seller can’t deliver clear title, a closing might not happen.
Don’t hesitate to contact us about any mechanic’s liens on your property. We’re here to help you get through all of this. Contact us by phone or online to arrange for a free consultation. We want you out from under all of that debt with a new start on life.