The Third Circuit Court of Appeals recently upheld that the filing of a mechanic’s lien following a bankruptcy violates the automatic stay. The opinion by the court was filed on March 30.
In United States bankruptcy law, an automatic stay is an automatic injunction that halts actions by creditors, with certain exceptions, to collect debts from a debtor who has declared bankruptcy. Under section 362 of the United States Bankruptcy Code, the stay begins at the moment the bankruptcy petition is filed.
Read more: Bankruptcy Attorneys in New Jersey
“Under New Jersey law, any contractor, subcontractor, or supplier who provides work, services, material, or equipment pursuant to a contract is entitled to a lien for the value of the work or services performed or materials or equipment furnished, in accordance with the contract, based upon the contract price,” an article on the Lexology website reads.
The Bankruptcy Code does provide an exception to the stay though, stating that the filing of a petition in bankruptcy does not stay any act to perfect, or to maintain or continue the perfection of, an interest in property to the extent that the trustees or debtor-in-possession’s rights and powers are subject to such perfection under section.
Section 546(b)(1) in turn provides that the rights of a trustee or debtor-in-possession to avoid a lien are subject to any generally applicable law that (A) permits perfection of an interest in property to be effective against an entity that acquires rights in such property before the date of perfection; or (B) provides for the maintenance or continuation of perfection of an interest in property to be effective against an entity that acquires rights in such property before the date on which action is taken to effect such maintenance or continuation.
Under New Jersey law, the filing of a mechanic’s lien, or any other lien, that under State law does not attach to a debtor’s property is not barred by the automatic stay.
The Court emphasized that its ruling relates to lien creation or perfection and not to enforcement or maintenance.
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