Subcontractors Can Still Perfect Mechanic’s Liens After Prime Contractors File Bankruptcy

by Wickens, Herzer, Panza, Cook & Batista Co.

One of the most common and effective ways for a subcontractor to secure a payment claim is to file a lien. Assuming any applicable, pre-lien notice requirements are satisfied, an unpaid subcontractor can lien a private project site, or the public fund or account payable to the prime contractor on a public project. But what is the impact when the prime contractor files a bankruptcy petition before the sub perfects its lien? A recent case from the Fourth Circuit Court of Appeals indicates that the sub’s lien interest is protected from any bankruptcy stay, and the sub can still file its lien and secure its claim for payment.

In the case, In re Construction Supervision Services, Inc., 753 F.3d 124 (4th Cir. 2014), a group of subcontractors furnished materials and equipment on various construction projects to Construction Supervision Services, Inc. (“CSS”), who acted either as a prime contractor or a first-tier subcontractor. CSS failed to pay the subcontractors’ accounts for the materials provided, and then filed a Chapter 11 bankruptcy petition in January, 2012. CSS’s subcontractors still attempted to file their liens against project funds that were owed CSS, and asked the bankruptcy court for a ruling on the scope of the stay to permit the perfection of their lien claims without violating the stay.

Generally, when a bankruptcy petition is filed, 11 U.S.C. § 362(a)(4) provides for an automatic stay of any attempts by creditors to collect on their claims against the debtor. But among other exceptions, section 362(b)(3) provides protection from a stay for any creditor with an interest in property that predates the bankruptcy petition but is not yet perfected at the time the debtor files for bankruptcy (assuming, in the absence of the bankruptcy filing, the perfected interest would be effective against a third party acquiring rights prior to that perfection). In re Construction Supervision Services, Inc., 753 F.3d at 126.

In Construction Supervision Services, in response to the subcontractors’ request for clarification on the stay and confirmation that its post-petition notices were proper, the bankruptcy court held that the subcontractors “had an interest in property upon delivery of the materials and equipment, i.e., before lien notice and perfection… [A]nd because all other requirements for the pertinent stay exception were concededly met, the Subcontractors were not stayed from noticing, i.e., perfecting their liens.” Id. at 127. After an unsuccessful appeal to the Federal district court, CSS’s lenders appealed to the Fourth Circuit Court of Appeals.

Relying on law from the First and Seventh Circuits (among other sources), the Fourth Circuit affirmed. The Court held that the subcontractors had an interest in the property of CSS, despite the fact that they had not yet served notice (i.e., perfected) under the applicable North Carolina lien statutes prior to CSS’s bankruptcy filing. The subcontractors’ lien rights arose when the materials and equipment were furnished, not when they served notice of their lien claims. Thus, the subcontractors had an interest in property at the time CSS filed its bankruptcy petition, and the exception under section 362(b)(3) applied to permit the subcontractors to perfect their interests (i.e., their liens) post-petition.

Before concluding that In re Construction Supervision Services, Inc. means a subcontractor or material supplier can perfect its lien even after a prime contractor has filed for bankruptcy protection, a careful review of the home state’s mechanic’s lien statutes is necessary. Many states, however, are much like North Carolina’s: a contractor’s or supplier’s lien rights are created when the labor, material or equipment is furnished (as opposed to when the lien is perfected). As such, a subcontractor or supplier should be prepared to continue efforts to perfect its lien rights even if the project’s prime contractor files for bankruptcy.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Wickens, Herzer, Panza, Cook & Batista Co. | Attorney Advertising

Written by:

Wickens, Herzer, Panza, Cook & Batista Co.

Wickens, Herzer, Panza, Cook & Batista Co. on:

Readers' Choice 2017
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
Sign up using*

Already signed up? Log in here

*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Privacy Policy (Updated: October 8, 2015):

JD Supra provides users with access to its legal industry publishing services (the "Service") through its website (the "Website") as well as through other sources. Our policies with regard to data collection and use of personal information of users of the Service, regardless of the manner in which users access the Service, and visitors to the Website are set forth in this statement ("Policy"). By using the Service, you signify your acceptance of this Policy.

Information Collection and Use by JD Supra

JD Supra collects users' names, companies, titles, e-mail address and industry. JD Supra also tracks the pages that users visit, logs IP addresses and aggregates non-personally identifiable user data and browser type. This data is gathered using cookies and other technologies.

The information and data collected is used to authenticate users and to send notifications relating to the Service, including email alerts to which users have subscribed; to manage the Service and Website, to improve the Service and to customize the user's experience. This information is also provided to the authors of the content to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

JD Supra does not sell, rent or otherwise provide your details to third parties, other than to the authors of the content on JD Supra.

If you prefer not to enable cookies, you may change your browser settings to disable cookies; however, please note that rejecting cookies while visiting the Website may result in certain parts of the Website not operating correctly or as efficiently as if cookies were allowed.

Email Choice/Opt-out

Users who opt in to receive emails may choose to no longer receive e-mail updates and newsletters by selecting the "opt-out of future email" option in the email they receive from JD Supra or in their JD Supra account management screen.


JD Supra takes reasonable precautions to insure that user information is kept private. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. However, please note that no method of transmitting or storing data is completely secure and we cannot guarantee the security of user information. Unauthorized entry or use, hardware or software failure, and other factors may compromise the security of user information at any time.

If you have reason to believe that your interaction with us is no longer secure, you must immediately notify us of the problem by contacting us at In the unlikely event that we believe that the security of your user information in our possession or control may have been compromised, we may seek to notify you of that development and, if so, will endeavor to do so as promptly as practicable under the circumstances.

Sharing and Disclosure of Information JD Supra Collects

Except as otherwise described in this privacy statement, JD Supra will not disclose personal information to any third party unless we believe that disclosure is necessary to: (1) comply with applicable laws; (2) respond to governmental inquiries or requests; (3) comply with valid legal process; (4) protect the rights, privacy, safety or property of JD Supra, users of the Service, Website visitors or the public; (5) permit us to pursue available remedies or limit the damages that we may sustain; and (6) enforce our Terms & Conditions of Use.

In the event there is a change in the corporate structure of JD Supra such as, but not limited to, merger, consolidation, sale, liquidation or transfer of substantial assets, JD Supra may, in its sole discretion, transfer, sell or assign information collected on and through the Service to one or more affiliated or unaffiliated third parties.

Links to Other Websites

This Website and the Service may contain links to other websites. The operator of such other websites may collect information about you, including through cookies or other technologies. If you are using the Service through the Website and link to another site, you will leave the Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We shall have no responsibility or liability for your visitation to, and the data collection and use practices of, such other sites. This Policy applies solely to the information collected in connection with your use of this Website and does not apply to any practices conducted offline or in connection with any other websites.

Changes in Our Privacy Policy

We reserve the right to change this Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our privacy policy will become effective upon posting of the revised policy on the Website. By continuing to use the Service or Website following such changes, you will be deemed to have agreed to such changes. If you do not agree with the terms of this Policy, as it may be amended from time to time, in whole or part, please do not continue using the Service or the Website.

Contacting JD Supra

If you have any questions about this privacy statement, the practices of this site, your dealings with this Web site, or if you would like to change any of the information you have provided to us, please contact us at:

- hide
*With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name. Or, sign up using your email address.