Bankruptcy is an unfortunate reality of a construction industry that is so heavily influenced by the fluctuating national economy. Sooner or later, a contractor may very well be faced with an owner who can’t pay and a cash flow shortage that threatens to derail their company. When that happens, there are only a few roads that a contractor can go down to secure payment for the work and materials provided on a project.
In this four-part series, a Charlotte construction attorney at Cotney Construction Law will be discussing the nature of bankruptcy in the construction industry and the mechanic’s lien, a contractor’s greatest tool in securing owed payments. Bankruptcy on a construction project can be a nightmare for contractors. It is a delicate problem with no easy solution, which is why you need to partner with an ally that will fight for what you are owed. Please consult with a Charlotte construction lawyer to ensure that every measure is taken to help you secure payment from a bankrupt entity.
What Causes Construction Bankruptcy?
We will begin by addressing what causes bankruptcy on a construction project in the first place. Often, bankruptcy begins with the owners and developers that spearhead a project. An owner may underestimate the cost of a project, or their main source of income could dry up. They may also be unable to keep up with payments on a loan funding the project. More exceptional circumstances, such as divorce, sickness, or an arrest, might seem outlandish, but are more common than you think.
Bankruptcy is even more common for contractors, subcontractors, and material suppliers that all rely on payments that may be few and far between. These entities are forced to essentially gamble on a project by investing large sums of money up front in the hopes that an owner will be able to make payments. A growing construction company can easily invest more money into projects than they can keep up with. And when payments do finally arrive, profits may not be enough to sustain a business.
As we continue this series, we will continue to cover bankruptcy and the ways that a contractor can secure payment from a bankrupt entity. Please join us in part two as we discuss the effect bankruptcy has on a construction project. In part three, we will be covering the mechanic’s lien. We will wrap up this series with part four, where we will be concluding with an account of how to file a mechanic’s lien.
Disclaimer: The information contained in this article is for general educational information only. This information does not constitute legal advice, is not intended to constitute legal advice, nor should it be relied upon as legal advice for your specific factual pattern or situation.