From time to time, we are called upon to assist clients with regards to mechanic's lien issues in a bankruptcy setting. As most of you probably know, any time a party files for bankruptcy protection, there is an automatic stay against commencement or prosecution of actions against the bankrupt and the assets of the bankrupt. This means that if you are a plaintiff, you cannot pursue a legal action against a party who has filed for bankruptcy. You must stop (stay) all proceedings against that person. The Federal Bankruptcy Laws preclude you from pursuing an action against parties in bankruptcy without first obtaining court approval.
This creates a problem for the contractor, subcontractor, material supplier, etc., who has recorded a mechanic's lien because they have not been paid and they must file a lawsuit within 90 days, only to learn that the defendant has filed for bankruptcy protection. A mechanic's lien claimant is in a real bind. If the mechanic's lien claimant does not file a complaint to foreclose on a mechanic's lien within 90 days, the mechanic's lien becomes void. If you file a lawsuit, you are in violation of the Federal Bankruptcy Laws that prohibit you from pursuing legal actions against parties that are in bankruptcy. What do you do?