Mechanics Liens and Bankruptcy: What Happens When the Owner or GC Files Chapter 7 or 11
✓ Verified against state statutes · Reviewed September 2026 · By Michael Evan — Founder · 50 states · 799 rules
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What Happens to a Mechanics Lien When the Owner Files Bankruptcy?
Three things happen at once. The automatic stay of 11 U.S.C. section 362(a) takes effect the instant the petition is filed, with no order, no hearing, and no notice required. Subsection (a)(4) stays any act to create, perfect, or enforce a lien against property of the estate, and subsection (a)(5) does the same for property of the debtor, which is why so many claimants read the notice and stop. Second, the project real estate becomes property of the estate under section 541, so it is controlled by the bankruptcy court rather than by the owner: draw requests stop, and the general contractor's contract becomes an executory contract the debtor may assume or reject under section 365. Third, and most important to the claimant, the character of the claim was already fixed before the petition was filed. In most states a mechanics lien is not created by the act of recording. It is created by the performance of work, and the recording perfects an interest that state law dates back to an earlier event. That sequencing is what places the claimant inside the stay's perfection exception rather than inside its prohibition.
Can You Still File a Mechanics Lien After a Bankruptcy Petition?
In most cases yes, and the permission comes from two sections that must be read together. Section 362(b)(3) provides that the stay does not apply to any act to perfect, or to maintain or continue the perfection of, an interest in property to the extent that the trustee's rights and powers are subject to such perfection under section 546(b). That sentence decides nothing itself; it points at section 546(b) and adopts whatever that section protects. Section 546(b)(1)(A) then provides that the trustee's avoiding powers are subject to any generally applicable law that permits perfection of an interest in property to be effective against an entity that acquires rights in such property before the date of perfection. A mechanics lien statute that dates the lien from commencement of work, and then lets a later recording take effect as of that date, is exactly such a law. Section 546(b)(2) supplies the provision almost nobody uses and almost everybody needs: where the applicable law requires seizure of the property or commencement of an action to accomplish or maintain perfection, and no seizure or action occurred before the petition, the interest shall be perfected, or perfection maintained or continued, by giving notice within the time fixed by such law. The working rule is a line between two verbs. Perfecting — recording the claim of lien, serving the statutory copy, giving the section 546(b)(2) notice — sits in the exception. Enforcing — filing the foreclosure complaint, seeking a judgment, moving toward a sale — sits inside the stay and requires relief under section 362(d). Courts have not applied the exception uniformly to every state's statute, and section 362(k) allows an individual injured by a willful stay violation to recover actual damages, costs, and attorney fees, so the recording decision in a live case is one to make with bankruptcy counsel rather than to skip.
Who Filed — the Owner or the General Contractor?
This is the first question to answer and the one most often answered wrong, because a bankruptcy notice looks the same either way. The stay under section 362(a) protects the debtor, property of the debtor, and property of the estate. It does not protect a solvent third party merely because that party is connected to the debtor. If the owner is the debtor, the project real estate is property of the estate and the stay applies to it: the claimant may generally record under section 362(b)(3), but the foreclosure action, any effort to force a sale, and any attempt to collect from the owner directly are all stayed, and the path runs through the bankruptcy case by filing a proof of claim and asserting secured status. If the estate sells the property under section 363(f), the sale can be clear of the lien, with the lien attaching to the proceeds instead, which is why monitoring the docket for sale motions matters. If the general contractor is the debtor and the owner is solvent, the owner still owns the land, it is not property of the estate, and section 362(a) does not reach it. Recording the lien and filing the foreclosure action against the owner's property are generally outside the stay because neither act targets the debtor or the estate. What is stayed is the claim against the contractor itself, including the breach of contract suit for the unpaid balance. Two wrinkles are worth knowing: debtors sometimes seek an extension of the stay to non-debtor parties, and in large chapter 11 cases courts occasionally enter first-day orders restraining actions against affiliates, so read the orders rather than assuming.
Does the Automatic Stay Pause Your Mechanics Lien Deadline?
No, and this is where more liens are lost than anywhere else in the bankruptcy sequence. Section 108(c) provides that where non-bankruptcy law fixes a period for commencing a civil action on a claim against the debtor, and that period has not expired before the petition date, the period does not expire until the later of the end of that period, including any suspension of it occurring on or after commencement of the case, or 30 days after notice of the termination or expiration of the stay. The first branch does not create a suspension; it preserves any suspension that some other law supplies. Most courts have read section 108(c) as an extension mechanism rather than a tolling provision, so the deadline keeps running and all the section guarantees is a 30-day tail after the stay ends. If a state gives 90 days from last furnishing to record and the petition lands on day 60, the claimant still has 30 days, not an indefinite pause. The operating sequence is to record inside the state deadline anyway and rely on section 362(b)(3) rather than on section 108(c); to complete every post-recording service duty on the normal schedule, since that service is part of perfection and the same exception covers it; to calendar the enforcement date separately and prepare a section 546(b)(2) notice or a motion for relief from stay under section 362(d) if suit would come due while the stay is up; and to file the proof of claim, which under Fed. R. Bankr. P. 3002(c) is timely in a chapter 7, 12, or 13 case if filed within 70 days after the order for relief, while in chapter 11 the court sets a bar date under Rule 3003(c)(3).
Can the Trustee Avoid Your Mechanics Lien as a Preference?
The trustee has two tools pointed at the lien, and both resolve into a single question of state law. The first is section 545(2), which permits the trustee to avoid a statutory lien that is not perfected or enforceable at the time of the commencement of the case against a bona fide purchaser that purchases such property at the time of the commencement of the case. The test is hypothetical: not whether anyone actually bought the property, but whether the interest would have prevailed against someone who did, on the petition date. In a relation-back state, a lien whose priority dates from commencement of work would have been ahead of a petition-date purchaser and survives. The second is the preference power under section 547(b), which reaches transfers of the debtor's interest in property made within 90 days before the petition, or one year for insiders, on account of an antecedent debt. A lien recorded five weeks before the filing superficially resembles a preferential transfer, but section 547(c)(6) closes that door: the trustee may not avoid the fixing of a statutory lien that is not avoidable under section 545. A mechanics lien is a statutory lien, so if it clears section 545 the preference analysis ends there. Both roads therefore run back to one variable, the date state law fixes as the effective date of the lien — the same relation-back rule that decides whether the claimant outranks the construction lender's deed of trust. In a project-wide commencement state, every claimant on the job shares one priority date, the day the first visible work happened, no matter when each one started or recorded. In a recording-date state, the same claimant holds a lien dating from the day the clerk stamped it, which may well be after the petition.
Mechanics Lien Priority Dates by State
Thirty states were checked against the statutory text for this guide, and twenty-two of them tie priority to commencement of work on the project as a whole: Alabama (Ala. Code section 35-11-211), Arizona (A.R.S. section 33-992(A)), California (Cal. Civ. Code section 8450), Colorado (C.R.S. section 38-22-106(1)), Connecticut (Conn. Gen. Stat. section 49-33(f)), Idaho (Idaho Code section 45-506), Iowa (Iowa Code section 572.18), Michigan (MCL section 570.1119(3), the first actual physical improvement), Minnesota (Minn. Stat. section 514.05 subd. 1, the first item of material or labor furnished for the beginning of the improvement), Missouri (Mo. Rev. Stat. section 429.060, the first spade rule), Nevada (NRS section 108.225(1)), New Mexico (N.M.S.A. section 48-2-5), Ohio (R.C. section 1311.13(A)), Oklahoma (Okla. Stat. tit. 42, section 141), Oregon (ORS section 87.025(1)), Pennsylvania (49 P.S. section 1508(a), visible commencement upon the ground), South Dakota (SDCL section 44-9-7), Tennessee (Tenn. Code section 66-11-104(a), visible commencement of operations), Texas (Tex. Prop. Code sections 53.123 and 53.124, inception of the lien), Utah (Utah Code section 38-1a-301), Washington (RCW section 60.04.061), and Wisconsin (Wis. Stat. section 779.01(4)). North Carolina alone in this group ties priority to the individual claimant's own first furnishing at the site under N.C.G.S. section 44A-10. Five fix priority at recording: Florida at the recording of the notice of commencement under Fla. Stat. section 713.07(2), Indiana at the recording of the notice of intention to hold a lien under Ind. Code section 32-28-3-5, Massachusetts at the recording of the notice of contract under M.G.L. c. 254 sections 4 and 7, New Jersey at the filing of the lien claim under N.J.S.A. section 2A:44A-10, and New York at the filing of the notice of lien under N.Y. Lien Law section 13(1). Illinois runs on the date of the contract under 770 ILCS 60/1 and 60/16, and Louisiana takes the earlier of the filed notice of contract or the commencement of work under La. R.S. section 9:4820. Priority contests also turn on case law, on whether a notice of commencement was recorded, on whether the competing encumbrance is a purchase-money or construction mortgage, and in several states on separate rules for residential work.
What Is a 503(b)(9) Claim, and Why Should Suppliers Care?
Section 503(b)(9) is the most valuable provision in the Code that material suppliers routinely fail to assert. It grants administrative expense priority for the value of any goods received by the debtor within 20 days before the date of commencement of a case, where the goods were sold to the debtor in the ordinary course of the debtor's business. Administrative expenses are paid ahead of general unsecured claims under the section 507 priority scheme, so in a case where unsecured creditors recover cents on the dollar, a supplier whose last three weeks of deliveries qualify may hold a claim in a materially better position for that slice of the balance. The limits are real. The provision covers goods, so labor, installation, and services generally fall outside it, and mixed contracts invite a fight over characterization. The goods must have been received by the debtor inside the 20-day window, which turns on delivery dates rather than invoice dates. And it is a claim asserted in the bankruptcy case on the court's schedule; it is not a substitute for the mechanics lien, and asserting one does not waive the other. A supplier facing a customer bankruptcy usually has three separate recoveries to preserve at once — the lien against the property, any payment bond claim, and the section 503(b)(9) claim — with three different deadlines and three different decision-makers.
How Is a Bond Claim Different When the Contractor Goes Bankrupt?
It is different in the way that matters most: the surety is not the debtor. A payment bond is an obligation of a separate, solvent company, and the automatic stay does not extend to that company merely because its principal filed. The claim runs on the bond's own terms and the statute's own deadlines and does not queue behind the estate's creditors. On federal projects that means the Miller Act: a second-tier claimant must give written notice to the prime contractor within 90 days of last furnishing under 40 U.S.C. section 3133(b)(2), and suit on the bond runs no earlier than 90 days and no later than one year after the last labor or materials. State Little Miller Acts set their own periods — Alabama requires written notice to the prime and surety within 90 days of last furnishing under Ala. Code section 39-1-1 and treats the bond as the exclusive remedy on public work. On public projects the bond is generally the only route, because publicly owned property cannot be liened. On private projects, an owner facing a lien during a contractor's bankruptcy may move to substitute a surety bond for the property, which removes the encumbrance from the land while the claim continues against the bond.
Does the Discharge Wipe Out Your Lien?
A discharge and a lien do different work. Section 524(a)(2) makes the discharge an injunction against collecting the discharged debt as a personal liability of the debtor and says nothing about in rem rights against property. The Supreme Court described the point in Johnson v. Home State Bank, 501 U.S. 78 (1991), reaching back to Long v. Bullard, 117 U.S. 617 (1886), for the proposition that a creditor's lien on the debtor's property ordinarily rides through bankruptcy unaffected. The qualifier is the important half: a lien rides through only if it is still there at the end, and liens are lost inside cases regularly. Avoidance under section 545 or section 547 removes it. A sale under section 363(f) can transfer the property clear of it, with the lien attaching to the proceeds. A confirmed chapter 11 plan can provide for its treatment. A claimant who never filed a proof of claim, never asserted secured status, and never objected to a plan that stripped the lien is unlikely to find much sympathy afterward. For claimants owed money by an individual debtor, many states have construction trust fund statutes that make contract funds a trust for the benefit of downstream claimants — Oklahoma's 42 O.S. sections 152 and 153 hold contract proceeds as trust funds for lienable claims and bind the managing officers personally — and where such a statute applies a claimant may argue the resulting obligation is non-dischargeable under section 523(a)(4) as defalcation while acting in a fiduciary capacity. That argument is fact-dependent and not automatic: the Supreme Court held in Bullock v. BankChampaign, N.A., 569 U.S. 267 (2013), that defalcation requires a culpable state of mind.
Five Mistakes Contractors Make When a Project Goes Into Bankruptcy
(1) Reading cease all collection activity as do nothing — the notice is drafted broadly because it is drafted for every creditor, and section 362(b)(3) exists specifically for parties whose interests relate back under state law, so letting a recording deadline pass in deference to a form notice forfeits an interest the Code was written to preserve. (2) Assuming section 108(c) tolls the state deadline — it extends the period only to the later of its own expiration or 30 days after notice the stay ended, and the first branch preserves only whatever suspension some other law already supplies. (3) Not checking who actually filed — a contractor bankruptcy and an owner bankruptcy produce almost opposite answers, so pull the petition, identify the debtor entity, and compare it to the record owner on the deed. (4) Perfecting the lien and then never appearing in the case — proofs of claim have deadlines, 70 days after the order for relief in a chapter 7, 12, or 13 case under Rule 3002(c) and a court-set bar date in chapter 11 under Rule 3003(c)(3), while sale motions under section 363 and plan confirmation move on the court's calendar whether or not anyone is watching the docket. (5) Abandoning the bond and the supplier claim — a payment bond runs against a solvent surety on independent deadlines that the principal's filing does not extend, and a section 503(b)(9) administrative claim covers goods received in the 20 days before the petition.
Frequently Asked Questions
Can you file a mechanics lien after the owner files bankruptcy?
Generally yes, and most bankruptcy courts treat recording as permitted rather than as a stay violation. Section 362(a) stays acts to create, perfect, or enforce a lien, but section 362(b)(3) excepts any act to perfect an interest in property to the extent the trustee's rights are subject to that perfection under section 546(b). Section 546(b)(1)(A) subordinates the trustee's avoiding powers to generally applicable law that lets perfection relate back against earlier purchasers — which is exactly what mechanics lien relation-back statutes do. Recording the lien is therefore ordinarily permitted; filing the foreclosure lawsuit is not, because that is enforcement rather than perfection.
Does the automatic stay stop your mechanics lien deadline from running?
No. Section 108(c) of the Bankruptcy Code does not toll a state law deadline on its own. It extends the period to the later of the end of that period, including any suspension provided by applicable non-bankruptcy law, or 30 days after notice of the termination or expiration of the stay. Practitioners who treat a bankruptcy filing as a pause on the recording deadline routinely lose liens. The safer sequence is to record inside the state deadline under the section 362(b)(3) exception, then use section 546(b)(2) to give notice in place of filing suit if state law would require an action to maintain perfection.
What happens to your mechanics lien if the general contractor files bankruptcy but the owner does not?
The automatic stay protects the debtor, property of the debtor, and property of the estate. If the general contractor is the debtor and the owner is solvent, the project real estate is not property of the estate — the owner still owns it. Recording a mechanics lien against that property and filing a foreclosure action naming the owner are generally outside the stay, because neither targets estate property. What is stayed is the claim against the general contractor itself, including a breach of contract suit for the unpaid balance. Because the subcontractor's real recovery usually runs through the owner's property or a payment bond rather than through the bankrupt contractor, this is often a far better position than it first appears.
Can the bankruptcy trustee avoid your mechanics lien?
Two provisions are in play. Section 545(2) lets the trustee avoid a statutory lien that is not perfected or enforceable at the commencement of the case against a hypothetical bona fide purchaser. Section 547(c)(6) then bars the trustee from using the preference power against the fixing of a statutory lien that is not avoidable under section 545. The state law priority date decides both. Where the lien relates back to the visible commencement of work on the project, a lien recorded after the petition typically dates from a pre-petition event and is treated as a pre-petition interest rather than a preferential transfer. Where the state fixes priority at recording, a post-petition recording is far more exposed.
What is a 503(b)(9) claim and why does it matter to material suppliers?
Section 503(b)(9) of the Bankruptcy Code gives administrative expense priority to the value of goods received by the debtor within the 20 days before the petition date, where the goods were sold to the debtor in the ordinary course of business. Administrative claims are paid ahead of general unsecured claims, so a supplier who delivered material in the final three weeks before the filing may hold a materially better claim than the rest of the unsecured pool. The provision covers goods, not services, so labor and installation work generally do not qualify. It is asserted in the bankruptcy case and is separate from — and in addition to — the mechanics lien against the property.
Does a bankruptcy discharge wipe out a mechanics lien?
A discharge extinguishes personal liability on the debt; it does not by itself extinguish a valid lien on property. Section 524(a)(2) operates as an injunction against collecting the discharged debt as a personal liability of the debtor, and the Supreme Court has long recognized that a creditor's in rem rights ride through bankruptcy unaffected unless something in the case disposes of the lien. That principle traces to Long v. Bullard, 117 U.S. 617 (1886), and was restated in Johnson v. Home State Bank, 501 U.S. 78 (1991). The practical caveat is that liens can still be lost inside the case — through avoidance, through a sale under section 363(f), or through the treatment provisions of a confirmed plan.
Should you file a bond claim instead of a mechanics lien when the contractor goes bankrupt?
Where a payment bond exists, pursue it. The surety is a separate solvent entity and is not in bankruptcy, so the automatic stay does not extend to the surety merely because the principal filed. Bond claims also carry their own deadlines that run independently of the lien deadlines — the Miller Act requires notice within 90 days of last furnishing for second-tier claimants under 40 U.S.C. section 3133(b)(2) and suit between 90 days and one year, and state Little Miller Acts set their own periods. On public projects the bond is usually the only remedy, because publicly owned property generally cannot be liened at all. Preserving both routes where both exist is the standard approach.