How are liens treated if the Owner files Bankruptcy?
Perfecting lien rights can make the difference between being an unsecured creditor, which typically means no compensation or a de minimus pro rata payment on the outstanding obligation and being a secured creditor, which typically means an opportunity to be paid in full. If there is a properly recorded Notice of Commencement for a construction project, a Claim of Lien is effective on the date the Notice of Commencement was recorded. Consequently, an automatic stay in a bankruptcy proceeding does not preclude the filing of a Claim of Lien so long as a Notice of Commencement has been recorded. This gives the lienor a secured claim in the bankruptcy proceeding as opposed to unsecured creditor status. A lienor may also make a demand to reclaim any unused materials that were furnished to the project within 10 days of the bankruptcy filing, but the demand must be made within 10 days of the bankruptcy filing. If no Notice of Commencement has been filed or it has expired, recording a Claim of
