Service Area: Notice and Mechanic’s Lien Services

Filing a Bankruptcy Proof of Claim as a Secured Creditor

Posted on May 1, 2014 by - Credit Risk Management

Filing a Bankruptcy Proof of Claim as a Secured Creditor

In the event of a debtor’s bankruptcy, secured creditors are paid before unsecured creditors; therefore, creditors want to file a Proof of Claim as a secured creditor whenever possible.

What is a Secured Creditor?

The United States Bankruptcy Court defines a secured creditor as “a creditor holding a claim against the debtor who has the right to take and hold or sell certain property of the debtor in satisfaction of some or all of the claim.”

Properly executing a mechanic’s lien, bond claim or UCC, grants the creditor a secured interest, which increases the likelihood of payment in the event of a bankruptcy. Mechanic’s Liens, Bond Claims & UCCs are credit tools, proven to put creditors in the best possible position to get paid, but they aren’t the only tools available. A creditor may also be considered secured if there is a Corporate Guarantee or Personal Guarantee in place.

What is a Proof of Claim?

A Proof of Claim, per The United States Bankruptcy Court, is “a written statement and verifying documentation filed by a creditor that describes the reason the debtor owes the creditor money. “

The Proof of Claim is filed by creditors, in order to notify the bankruptcy court there is money owed to them by the debtor. Typically a Proof of Claim will include the amount of the claim, the basis for the claim, whether or not it is a secured claim and of course, backup documentation supporting the claim.

Beware!

Although the Proof of Claim form may seem straightforward, here are a few common missteps:

  • Be on Time! Too often, creditors miss the bar date to file.
  • Know your Claim! Including all amounts owed for all accounts and affiliates is a must.
  • Secured or Unsecured, that is the Question? Know whether or not you are a secured creditor and file properly.

Did You Know?

A creditor can have a secured & unsecured claim in the same bankruptcy! If you need assistance with filing your Proof of Claim or have questions on how to become a secured creditor, please contact us.

Missing Information in Preliminary Notice Invalidates Lien

Posted on April 22, 2014 by - Mechanic's Liens & Bond Claims

No Party Address? No Project Address? No Problem, Assuming You Aren’t Interested in Securing Mechanic’s Lien Rights

The Case: Consolidated Pipe & Supply Company v. Genoa Construction Services Inc., 690 S.E.2d 894, 302 Ga.App. 255 (Ga. App., 2010) 

The Parties:

  • Owner: St. James United Methodist Church, Inc.
  • General Contractor: Genoa Construction Services (“Genoa”)
  • Surety for General Contractor: Westfield Insurance Company (“Westfield”)
  • Subcontractor: Red-Hawk Construction, LLC (“Red-Hawk”)
  • Material Supplier aka Lien Claimant: Consolidated Pipe & Supply Company (“Consolidated”)

The Mistake:

Omission of required information in the Georgia Notice to Contractor

The Consequences:

A claim amount of $109,654.22 and an unenforceable mechanic’s lien

Let’s Dive In

Red-Hawk ordered $109,654.22 worth of construction materials from Consolidated. Unfortunately, Red-Hawk filed for bankruptcy and never paid Consolidated for its materials.

Consolidated filed a mechanic’s lien on the project for the value of its materials plus interest. Westfield, as surety for Genoa, issued a payment bond for the project, as well as a mechanic’s lien release bond to discharge Consolidated’s claim of lien. Consolidated demanded payment from Genoa and Westfield. Genoa and Westfield failed to pay, so Consolidated filed suit.

Genoa and Westfield moved for summary judgment, urging that Consolidated’s Notice to Contractor failed to include certain information required under Georgia law.

Specifically, OCGA §§ 10-7-31(a) and 44-14-351.5(c), require that the Notice to Contractor set forth the name and address of each person at whose instance the materials are being furnished and the name and location of the project. Consolidated listed the debtor & project names, but did not list the debtor’s address or project location.

Consolidated claimed the omissions were immaterial because the contractor knew the location of the project and knew Red-Hawk was working on that project. The Georgia district and appellate courts, however, found the omission to be fatal to Consolidated’s mechanic’s lien. The court held the statute was clear and shall be applied according to its terms.

“…Given that the statutory provisions at issue explicitly stated that the location of the construction project and the address of the entity be set forth in the Notice to Contractor, they are matters of substance; thus, the statutory requirements to include the information may not be disregarded as mere technicalities.18 Because Consolidated’s Notice to Contractor wholly omitted the cited information, it failed to comply with either OCGA §§ 10-7-31(a) or 44-14-361.5(c)”

A mechanic’s lien must comply with the jurisdiction’s lien statutes. Each state has a very specific procedure for perfecting a mechanic’s lien, with numerous deadlines and required forms. Statutes generally set out the language that must appear in your preliminary notice, notice to contractor or notice of commencement, and the notice or claim of lien. Failing to follow the state’s statutes can result in the loss of your ability to use the remedy of a mechanic’s lien. Unfortunately for Consolidated, Georgia requires strict compliance with statutory lien laws.

Don’t lose your rights for failing to meet the state’s technical requirements.