When a general contractor files bankruptcy and owes you money, your ability to collect depends almost entirely on whether you filed a preliminary notice and perfected a mechanics lien before the bankruptcy petition was filed. A perfected mechanics lien is a secured interest in the property itself — not a claim against the GC's estate — which means the automatic stay triggered under 11 U.S.C. § 362 does not necessarily extinguish it. Subcontractors, material suppliers, and lower-tier subs who failed to serve timely preliminary notices are typically left as unsecured creditors in bankruptcy, recovering pennies on the dollar or nothing at all. Unsecured creditors in Chapter 7 construction bankruptcies recover an average of less than 10 cents per dollar owed.
What Happens to Your Payment When a GC Files Bankruptcy?
The moment a general contractor files for bankruptcy protection, an automatic stay goes into effect under 11 U.S.C. § 362, which immediately halts most collection actions against the debtor. That means you cannot sue the GC, garnish their accounts, or continue a pending lawsuit without court permission. What the automatic stay does NOT do, in most jurisdictions, is eliminate a mechanics lien that was already perfected against the property before the bankruptcy filing. Your lien attaches to the real estate, not to the GC's assets. The property owner still has skin in the game — and that is your leverage.
If you had not yet filed a lien when the bankruptcy was filed, your situation is more complicated. Filing a new lien after a bankruptcy petition may violate the automatic stay depending on your state and the timing. You need to consult a construction attorney immediately in that scenario. Do not wait.
What Is the Difference Between a Secured and Unsecured Creditor in Construction Bankruptcy?
A secured creditor holds a lien or security interest against a specific asset — in construction, that means a perfected mechanics lien against the property. An unsecured creditor holds only a promise to pay, backed by nothing but the debtor's word and whatever assets remain after secured claims are satisfied. In a Chapter 7 liquidation, secured creditors are paid first from the proceeds of the secured asset. Unsecured creditors split whatever is left, which is frequently nothing.
This is the core reason preliminary notices matter so much. Serving a preliminary notice preserves your right to file a mechanics lien. A mechanics lien converts your unpaid invoice into a secured claim against real property. Without that preliminary notice filed on time, you cannot file a valid lien, and without a valid lien, you are an unsecured creditor standing at the back of a very long line.
According to Rabbet's 2024 Construction Payments Report, 82% of contractors already face payment waits of over 30 days under normal conditions — bankruptcy accelerates that timeline to zero, with no recovery for those without lien rights.
Does a Preliminary Notice Protect You When a GC Goes Bankrupt?
A preliminary notice does not directly stop a bankruptcy, but it is the prerequisite for every protection that does matter. Serving a timely preliminary notice preserves your right to file a mechanics lien. That lien, once perfected, creates a secured interest in the property that survives the GC's bankruptcy in most circumstances. Deadlines vary by state:
- Florida: Notice to Owner must be served before the earlier of: before filing a lien or before 45 days after final furnishing, under Fla. Stat. § 713.06(2)(c). The notice must be served within 45 days of first furnishing labor or materials.
- California: 20-day preliminary notice must be served within 20 days of first furnishing, under Cal. Civ. Code § 8200. Late service limits protection to work performed in the 20 days prior to service.
- Arizona: Preliminary 20-day notice must be served within 20 days of first furnishing, under A.R.S. § 33-992.01.
- Nevada: Notice of Right to Lien must be served within 31 days of first furnishing, under NRS § 108.245.
- Washington: Notice to Owner must be served no later than 60 days after first furnishing, under RCW § 60.04.031.
- Oregon: Notice of Right to a Lien must be served within 8 business days of first furnishing, under ORS § 87.023 — one of the tightest deadlines in the country.
- Texas: Monthly notice requirements apply under Tex. Prop. Code § 53.056, with second and third month deadlines that must be tracked precisely.
If you are unsure where your deadline stands on an active job, check your state:
What Steps Should You Take Immediately When a GC Files Bankruptcy?
Move fast. Bankruptcy proceedings compress timelines and create additional deadlines layered on top of your state lien deadlines. Here is the sequence:
Step 1 — Verify the bankruptcy filing. Search PACER (Public Access to Court Electronic Records) at pacer.gov to confirm the filing, the case number, the chapter type (7, 11, or 13), and the bankruptcy court district. This is free to search.
Step 2 — Identify which chapter was filed. Chapter 7 is liquidation — the GC's assets are sold and distributed. Chapter 11 is reorganization — the GC tries to restructure debt and continue operating. Your strategy differs depending on the chapter.
Step 3 — Check your lien deadline immediately. State lien deadlines do not stop running because your GC filed bankruptcy. If you have not yet filed your mechanics lien and your deadline has not passed, you may still be able to file — but you may need court approval to do so without violating the automatic stay. Contact a construction attorney in your state the same day.
Step 4 — File a Proof of Claim in the bankruptcy case. The bankruptcy court will set a deadline (called a "bar date") by which creditors must file a Proof of Claim to participate in any distribution. Missing this deadline means you get nothing, even if you are owed money. The Proof of Claim form (Form B 410) is available on the U.S. Courts website.
Step 5 — Assert your lien against the property owner. If your lien is already perfected, you have rights against the property independent of the bankruptcy. Work with an attorney to enforce those rights.
Step 6 — Investigate the payment bond. On public projects and many private projects, GCs are required to carry a payment bond. If a bond exists, you can make a claim directly against the surety, which is completely separate from the bankruptcy proceeding.
Can You File a Mechanics Lien After a GC Files Bankruptcy?
Filing a new mechanics lien after a bankruptcy petition is filed is legally complicated and risky. The automatic stay under 11 U.S.C. § 362(a)(4) generally prohibits "any act to create, perfect, or enforce any lien against property of the estate." However, there is an important exception: under 11 U.S.C. § 362(b)(3), acts to perfect a lien that relates back to a pre-petition date may be permitted if state law provides a relation-back period. Courts interpret this exception differently, and it is state-specific.
The safest course is to file a motion for relief from the automatic stay in the bankruptcy court before filing or enforcing any lien post-petition. This takes time you may not have, which is why every day you delay before a GC goes under costs you leverage. The subcontractors who are protected are the ones who served preliminary notices and filed liens before the bankruptcy was filed — not after.
What If There Is a Payment Bond on the Project?
A payment bond is a contractor's promise — backed by a surety company — to pay subcontractors and suppliers if the GC defaults. On federal projects, the Miller Act (40 U.S.C. § 3131) requires payment bonds for contracts over $150,000. Most states have "Little Miller Act" equivalents for state and local public projects. Many private commercial lenders also require payment bonds.
If a payment bond exists, your claim against the surety is completely independent of the GC's bankruptcy. The surety is not in bankruptcy. You can pursue bond claims simultaneously with your bankruptcy proof of claim. Bond claim deadlines are strict — under the federal Miller Act, you must give written notice within 90 days of last furnishing and file suit within one year. State Little Miller Acts vary.
Request a copy of the payment bond from the project owner or the awarding authority as soon as you learn the GC is in financial trouble. Do not wait for the bankruptcy filing.
How Does Chapter 11 Reorganization Differ From Chapter 7 for Subcontractors?
In Chapter 11, the GC attempts to reorganize its debts and continue operating rather than liquidate. For subcontractors, this creates both risk and opportunity. The risk: the GC may reject your contract under 11 U.S.C. § 365, which converts your breach of contract claim into an unsecured pre-petition claim — again, likely worth very little. The opportunity: if the GC needs to complete projects to generate revenue for the reorganization plan, they may have incentive to pay ongoing subcontractors to keep work moving.
In Chapter 11, you may receive notice of a reorganization plan that proposes to pay your claim at a reduced amount, over time, or in some modified form. You have the right to vote on the plan and to object to confirmation if the plan does not meet the legal requirements. An attorney can advise you on whether objecting makes strategic sense.
According to NetSuite's construction payment management research, 95% of general contractors report frequently floating payments while awaiting developer disbursements — meaning GC cash flow problems often precede bankruptcy by months, giving subcontractors early warning signs to act on.
What Warning Signs Indicate a GC May Be Heading Toward Bankruptcy?
You rarely get zero warning. Contractors who track payment behavior can spot trouble early enough to act. Watch for:
- Payments slowing or becoming irregular — a GC who paid in 30 days is now at 60 or 75
- Joint checks suddenly offered — the GC proposes paying you and your supplier jointly, which means they are losing supplier trust too
- Requests to sign lien waivers before payment clears — a distressed GC wants to eliminate your lien rights while delaying cash
- Sub-GC gossip — other subs on the same job are also getting slow-paid or not paid
- Public records — UCC liens filed against the GC, judgment liens, or notices of default on the GC's own properties
- Owner complaints — if the project owner is withholding funds from the GC due to defects or disputes, that cash is not flowing downstream to you
When you see these signs, serve any outstanding preliminary notices immediately and consider filing your mechanics lien proactively rather than waiting for the default to become official.
Frequently Asked Questions
If the GC filed Chapter 7, am I guaranteed to get paid from my mechanics lien?
Not guaranteed, but a perfected mechanics lien gives you a secured claim against the property, which puts you ahead of the GC's general unsecured creditors. Your recovery depends on whether there is sufficient equity in the property above senior liens (like the construction lender's mortgage) to cover your lien. In many cases, subcontractors with valid liens recover substantially more than those without.
Can the property owner be required to pay me directly if the GC is bankrupt?
In many states, yes — to the extent the owner has not already paid the GC. If you hold a valid mechanics lien, the owner must either pay the lien amount (up to what they owe the GC) or face foreclosure of the lien. This is one of the most powerful aspects of mechanics lien law: your claim runs to the property, not just to the GC.
What is a Proof of Claim and do I have to file one?
A Proof of Claim is a formal document filed in the bankruptcy case stating that you are owed money and the basis for that claim. You must file one by the court's bar date to participate in any distribution from the bankruptcy estate. Even if you hold a mechanics lien, filing a Proof of Claim is advisable to preserve your unsecured claim for any amounts not covered by the lien. The form (B 410) is available free at uscourts.gov.
Does the automatic stay prevent me from finishing work on the project?
The automatic stay stops collection actions — it does not prevent you from continuing to perform under your contract if you choose to do so. However, if you continue working after the GC files bankruptcy, you are taking on risk of non-payment for that post-petition work. Post-petition claims are treated as administrative expenses in the bankruptcy, which rank ahead of pre-petition unsecured claims, but you should get clarity on payment before continuing work.
What if I already signed a lien waiver and the GC then filed bankruptcy?
If you signed an unconditional lien waiver, you likely waived your right to file a mechanics lien for the amounts covered by that waiver. Conditional lien waivers — which are only effective upon actual receipt of payment — are generally still valid if payment was never actually made. Review the language carefully and consult a construction attorney. This is why unconditional lien waivers should never be signed until the check clears.
How long do I have to file a mechanics lien after a GC stops paying?
State deadlines vary significantly and run from the date of last furnishing of labor or materials, not from when you discovered the GC was in trouble. Examples: Florida allows 90 days from last furnishing (Fla. Stat. § 713.08); California allows 90 days from completion of the project or 60 days after a notice of completion is recorded (Cal. Civ. Code § 8412); Oregon allows 75 days from last furnishing (ORS § 87.035). These deadlines are absolute — courts do not grant extensions because the GC went bankrupt.
Can I pursue a bond claim and a mechanics lien at the same time?
Yes. These are independent remedies and pursuing one does not waive the other in most states. On a project where both a payment bond and mechanics lien rights exist, you should pursue both simultaneously to maximize recovery. Bond claims have their own notice and suit deadlines separate from lien deadlines — missing either one is fatal to that specific claim.
What if I never served a preliminary notice and the GC is now bankrupt?
If your state requires a preliminary notice and you did not serve one, you generally cannot file a valid mechanics lien. That makes you an unsecured creditor in the bankruptcy. Your remaining options are: (1) a bond claim if a payment bond exists, (2) a direct claim against the property owner if the owner was unjustly enriched, or (3) pursuing the GC's principals personally if there was fraud or commingling of funds. None of these is as clean or reliable as a perfected lien. This is a painful lesson that is entirely avoidable on future jobs.
Protect Your Lien Rights Before the Next Job Goes Sideways
The subcontractors who get paid when a GC files bankruptcy are the ones who filed their preliminary notices before the project went sideways — not after. A single preliminary notice through LienFlash costs $24.99, takes under two minutes to file, and goes out via USPS Certified Mail with a Certificate of Mailing PDF you can use in court. If that notice preserves lien rights on a $20,000 subcontract, the math speaks for itself.
Do not wait for a GC to show signs of trouble. Serve your preliminary notice on every job, every time, from day one.