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The Project Owner is Bankrupt — Can You Still File a Mechanic’s Lien?

By on June 2, 2022 |

Many contractors in the region may be asking themselves this question right now.  Earlier this year, GT Real Estate Holdings, LLC, terminated its agreement with the City of Rock Hill for the construction of a new practice facility for the Carolina Panthers.  Construction on the project was already well underway.  Yesterday, GTRE filed a voluntary Chapter 11 petition under the Bankruptcy Code.  Contractors in similar situations may find themselves in a difficult position with limited options.

A bankruptcy petition automatically stays any effort to collect a debt from the bankruptcy debtor.  Violations of the stay can result in claims against the creditor for damages and attorney’s fees.

The good news for contractors is that a mechanic’s lien filing does not violate the stay, so long as the contractor’s work was performed prior to the bankruptcy filing.  South Carolina courts have long held that mechanic’s lien rights arise “when the labor is performed or the material is furnished.”  Butler Contracting, Inc. v. Court Street, LLC, 369 S.C. 121 (2006).  Those rights are perfected when the lien is filed and served in accordance with the lien statute.

The Bankruptcy Code provides that perfection of an existing property interest is an exception to the automatic stay.  Since the lien filing constitutes perfection of an existing interest, the stay is not violated.

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