Can Chapter 13 Stop a Mechanic's Lien?
Bankruptcy is used by debtors to work through their debts under court protection, free from the threats of collection activities, including lawsuits. While bankruptcy can provide relief from a portion of or all of a person's debts, it will not eliminate a mechanic's lien against a piece of property owned by the bankrupt debtor. In some cases, bankruptcy may prevent someone from placing a mechanic's lien against a property.
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Definition
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A mechanic's lien can be placed against property when contractors or other suppliers have provided labor or materials to improve the property but have not been paid. This lien is placed to secure the payment of the bills by the homeowner.
Function
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Generally, any supplier or contractor, as well as a general laborer who is working on a building or improvement project, provides the homeowner with a notice that he has provided labor or materials toward the project. If the contractor does not pay for the supplies or labor, the person providing the goods or services can file a claim of mechanic's lien against the property with the county registrar of deeds.
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Enforcement
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The homeowner has a specified period of time to pay off the lien, usually between 60 days and six months. If the homeowner and the lien holder cannot reach an agreement by the end of the allowed timeframe, the lien holder can file a lawsuit to ask the court to enforce the lien. With a judgment, the court can force the sale of the home to pay off the lien.
Elimination
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A mechanic's lien is a serious matter, and it must be settled quickly. Negotiating payoff terms with the lien holder could help you avoid further collection actions. In addition, many subcontractors or laborers do not file the liens correctly, or within the timeframe allowed by law. In this case, a homeowner can generally ask the court to remove the lien. If it complies, the homeowner can pay the unpaid bill with other unsecured debts in a Chapter 13 bankruptcy, if he chooses to file.
Prevention
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Keep a record of all of the notices you receive from subcontractors or other vendors that are working on your property. Review these forms at the end of the project to ensure that all of the bills that could potentially become mechanic's liens have been paid. You can also write checks payable to both the contractor and subcontractor to ensure that all parties are paid correctly.
Bankruptcy Before Liens
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A Chapter 13 bankruptcy action places a court order against any collection activity by any debtor while the court-ordered repayment plan is being completed. Filing a lien against a property is a collections activity, and not allowed when a person is in bankruptcy. If the bankruptcy is filed before the mechanic's liens, a portion of the debt can be paid off in the repayment plan, free of any liens against the property.
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