The automatic stay provided under section 362 of the Bankruptcy Code is an injunction, arising when a bankruptcy case is filed, which prevents all proceedings or actions against the debtor or the property of the estate without court permission - the so-called “lifting of the stay”.[1]

Over the past year, the Covid-19 pandemic upended many industries. While the construction industry has largely been able to operate throughout the pandemic, albeit with increased and ever-changing restrictions on jobsites, one consequence of these disruptions may be an increase in construction-related bankruptcy filings. Already in 2021, there have been over 70 construction-related bankruptcy filings across the country. For many property owners and real estate developers, these filings create a nightmare scenario where work may slow or even stop entirely.

In American jurisprudence, resolution of disputes often involves the use of important tools to obtain information necessary to achieving a client’s goals. These tools are collectively known as “discovery.” Discovery is most often used in litigation; however, it may also be used as part of the bankruptcy process, without the need for a pending lawsuit.

The imperative “justice, justice shall you pursue” is nowhere better illustrated than in the application of deadlines to perform an act, including filing dates, limitations dates, due dates for filing appeals, and deadlines for filing claims. Courts sometimes exercise their equitable jurisdiction rather than follow the literal language of rules of procedure.

When a debtor files bankruptcy, bankruptcy attorneys and creditors are well aware of the importance of assessing the need for creditors to file proofs of claim and making sure that proofs of claim are timely filed.

In general, a company has two bankruptcy alternatives: liquidation under Chapter 7 and reorganization under Chapter 11.

Under Chapter 7, upon the filing of a bankruptcy petition, a trustee is appointed to gather and sell all of the debtor’s assets as quickly as possible. Once the trustee liquidates all of the assets, it must pay creditors in accordance with the priority scheme mandated by the Bankruptcy Code:

In today’s economy, we continue to see bankruptcies occurring in the construction sector. An owner, contractor, or subcontractor in financial distress can easily delay a project — or worse, jeopardize the project in its entirety. Contractors need to understand their rights in order to minimize their exposure in bankruptcy-related situations.

Protecting Contractors — Frequently Asked Questions