What happens if a home builder goes bankrupt

Bankruptcy litigation can take years to unfold, and unless your claim is large, you'd likely be better off with a smaller, but faster, cash payment. Trying to sue an individual business owner is one way to bring him or her to the negotiating table. It isn't uncommon for small contracting company to be owned and operated by a single individual; the same person who negotiated with you on the original contract and handled most of the work.

Even if the builder is part of a larger company, you can often discover the name s of the individual officer s or owner s. If solely the company, and not the individual, plans to file for bankruptcy, it might be smart to sue both the company and an individual officer of that company. While LLCs and corporations are common legal constructs meant to protect the individual business owners from liability, courts will sometimes ignore this corporate shell.

This is known as " piercing the corporate veil. Though this remedy is rare, courts will consider it, particularly in cases where the LLC or shell company was undercapitalized, or where the individual business owner perpetrated a fraud. This alone can sometimes scare a person into a settlement. Remember, for your purposes, it doesn't matter whether the money comes from the defunct company's account or the owner's personal account; you just want to get paid a settlement before the bankruptcy proceedings begin.

One of the primary reasons that businesses file for bankruptcy is to avoid creditors. In this situation, you are a creditor of your contractor; you are claiming that the contractor owes you money for defective work.

Most commonly, Chapter 7 bankruptcy filings can save both individuals, and the businesses they run, from certain types of liability. It involves liquidating all business assets; that is, selling the contractor's equipment, vehicles, and office furniture.

That provides cash to pay debtors and wind up the affairs of the business. However, don't get too excited. Chances are, you are not the only creditor. There will be a long line of others looking to pick at the company's remaining flesh.

If you are still interested in suing your bankrupt contractor, you probably have a significant claim against it. Most debts will be discharged by the court; however, an adversary proceeding is a separate lawsuit that challenges the dischargeability of a debt the contractor owes. Because bankruptcy is a complicated and highly specialized area of law, it would be wise to consult a bankruptcy litigator.

This attorney will have experience dealing with the bankruptcy court and appointed bankruptcy trustee to try to get your debt paid. Note that this can be a lengthy and expensive process. Homeowners struggling to fix problems like leaking roofs can seek the new contractor's help, if one emerges to complete the project. If the new contractor's decision is negative, the homeowner must foot the bill himself. Depending on their state's law, contractors and subcontractors can assert lien rights against bankrupt homebuilders.

Variously known as artisan's, construction, materialmen's or mechanic's liens, the amount depends on the value of goods or services provided. This allows contractors to press repayment claims against the property, as long as they satisfy their state's laws. In states like Washington, homeowners can be held liable for these costs -- even if they have paid the homebuilder in full.

Prospective homeowners can seek two contractual provisions to protect their rights. One method is putting the money in a third-party escrow account, which allows the deal to end if a bankruptcy occurs. With all due respect to Martha Elana, follow Bevangel's advice immediately. Do not wait to collect information about subs if you can get in to see the right attorney right now. That is most important. The situation is even worse. One inside person of the company took the money a lot and disappear.

This is a small company general builder. They didn't pay for some materials like brick. I don't think they have money to continue.

All I want to do is get out from the contract and get back my money. I am so stupid, I did not put the deposit in escrow account. Almost cry. Thanks for all the replies. Frog, Of course Mike has to get an attorney as soon as possible.

No doubt bevangel knows better what to do in a situation like this. I should have said: in addition to the attorney If he is not aware of who was working on the house he can have more surprises, some people take advantage of situations like this. Most likely the attorney is going to ask this info anyway.

It sounds like you don't own this property if you have only paid a deposit and your contract should be voided if the builder is unable to complete the project. In a Chapter 7 bankruptcy, all of the assets owned by the contractor or his company will be liquidated and creditors paid some amount from the proceeds. There might be a creditor that has a claim on the property and you could buy it from them. You might make money on the project. I would not be worried about liens at this point unless you have contracts with the subs or have paid them directly at some point.

Chapter 7 should wipe the slate clean. If you own the property and have only paid the builder a deposit for the work then the court will have to decide what belongs to you and what belongs to the builder.

That's complicated. The first thing you want to do is secure the site and make sure no one removes materials that might belong to you.

Photograph everything and ask the local police to keep an eye on the site. Thanks for the help. I don't own the property. I didn't pay anything except the deposit. I don't have contract with subs. I hope I can get out from the contract and get back money after bankruptcy. How much of a deposit did you pay? You need to weigh that amount against how much it will take financially and emotionally to get it back.

You can at least be thankful you aren't stuck with owning a half completed property and no money left to finish it. Sorry but I'm sure the deposit is gone for good. It would be highly unusual for someone to be paying debts right before declaring bankruptcy. Avoiding those payments is the reason for doing it. I lost a computer because it was at the computer store to be repaired when the company went bankrupt.

Suddenly I was a creditor. I filed a claim and got a few bucks many years later. An engineering firm owed me a fee and the same thing happened.

Because the builder owed you the deposit by defaulting on your deal, you may be able to claim it as a bad debt on your taxes so find the written records of all of your costs and show them to a professional tax preparer but don't delay talking to a lawyer; dont rely on my or anyone else's opinion..

Figure out who will own the property, decide if you want to buy it, and find out who to contact in order to avoid having to do it at auction. This could be an opportunity. If you do buy it make sure the seller protects you from any and all claims against it. You are extremely lucky to have not lost a great deal more money. There will be many people more seriously hurt by the bankruptcy so count your blessings.

I bet there's more of this going on than usual. Let alone the trades left high 'n dry by bankrupt builders and contractors. And vice versa! An employee of the cabinet maker later told me I was their only production for the company's final month!

This is one reason that people need to be aware of the statutory limitations on deposits in their state.