Construction Law

Bankruptcy and the Construction Sector Part 3 featured image

Bankruptcy and the Construction Sector Part 3

As we discussed in sections one and two of this six-part article, a bankrupt entity can compromise a construction project and result in your need for a Jacksonville construction lawyer. For more information on bankruptcy law, please read sections four, five, and six.

The Proof of Claim

When the debtor files a bankruptcy petition, the creditor must file a timely “proof of claim” with the bankruptcy court to be eligible for payment by the bankrupt estate. This claim states the exact amount of compensation the debtor owed the claimant for their services prior to filing for bankruptcy. In some cases, there may be an objection to the claim and the bankruptcy court will determine the total for the claim.

There are many reasons why it’s critical to hire the right Jacksonville construction lawyer. The proof of claim needs to be filed by the deadline enforced by the bankruptcy court. The bankruptcy court also requires that the claim is formatted correctly and includes any relevant documents to the case.

Types of Claims

Here are the three types of claims a creditor can file under the federal Bankruptcy Code:

The Secured Claim: In the construction context, this claim is typically filed when an entity has placed a lien on the property. For example, a house mortgage is a form of a secured claim. In bankruptcy repayments, the secured claim takes precedence over all claims during the reimbursement phase. In other words, the debtor’s primary obligation is to reimburse the lien holder, bank, or lender that has interest on their property.

The Administrative Claim: These are generally the expenses the debtor must repay that transpired after filing for bankruptcy. For example, the debtor’s bankruptcy attorney fees are classified as an administrative claim. There are some exceptions to this rule. If a contractor provided materials for a project within a few weeks of the bankruptcy petition and could not return these materials then this may be considered an administrative claim.

The Unsecured Claim: There are two types of unsecured claims that exist: the priority claim and the general unsecured claim. As the name suggests, priority claims entail that the creditor is paid ahead of the other unsecured claimants. In many bankruptcy cases, priority claims are classified as certain tax payments, alimony, or child support. A general unsecured claim has the least priority of bankruptcy payments. These are classified as unpaid services or compensation owed to construction professionals and materials purchased. Unfortunately, general unsecured claimants are often only reimbursed a fraction of their total amount owed.

