In this issue Jessica L. Jasper, Esq. provides the basic information you need to know if your contractor or homeowner declares bankruptcy during or after a construction project. Additionally, we have guest editor Katie Walsh, Esq. providing you with the must-know information of juvenile law.
BANKRUPTCY AND CONSTRUCTION: YOU MUST ACT NOW
We hope that most of you do not have to experience the unpleasantness of Bankruptcy Court either as a creditor or a debtor. But, if you are a creditor in a bankruptcy action and owed money, you must act quickly to ensure that your rights are protected, particularly in the construction context. Bankruptcy Court can be tricky: it has specific laws and rules. And even if you have experience with litigation, it is different ballgame.
If the property owner, general contractor, or a subcontractor above you declares bankruptcy during the course of a construction contract what should you do? Please find below a brief overview of what you should do and what you can expect to happen if a bankruptcy action is filed in California during your California construction contract.
PART I: THE AUTOMATIC STAY
During most bankruptcies, creditors are prohibited from demanding payment, attempting to collect payment, and pursuing an action for payment or foreclose on a mechanic’s lien. This is called the automatic stay. If this happens, you can and should do the following to protect your lien rights:
- File a Notice of Continued Perfection to protect your interest in the Property. This Notice must be filed within the time for you to file your action on the mechanic’s lien (i.e. 90 days after mechanic’s lien is recorded). Filing this Notice is mandatory to preserve your claim during the bankruptcy action.
- Perfect Your Lien – If you have not recorded your mechanic’s lien, record it immediately. If you have not served your stop notice, serve it immediately. Then file the Notice of Continued Perfection.
- Request for Notice – As a creditor, when you first learn of the claim, you should file a Request for Notice with the Bankruptcy Court. If you do not file this request, the Court and Opposing Counsel do not have to send you notice of the actions in the Bankruptcy Court.
- Proof of Claim – File the Proof of Claim with the Bankruptcy Court, this asserts the amount that you are owed, whether it is secured or unsecured and whether your claim is entitled to priority. In some circumstances the debtor may file the Proof of Claim form with your claim, particularly when the amount is undisputed; however, you must check it for accuracy.
- Secured v. Unsecured – Determine whether you have a secured claim (i.e. mechanic’s lien against property when the property owner has declared bankruptcy) or an unsecured claim (usually when the general contractor has declared bankruptcy). Knowing which group of creditors you are in helps you determine your rights in the action.
- Attend the Creditor’s Meeting – Shortly after the bankruptcy is filed a meeting of creditors is held. At this meeting a representative of the debtor is sworn in and you will have the opportunity to ask questions. For example, you may ask about assets, debts, status of projects, where money went, future plans, etc. This is a good opportunity to collect information to help you evaluate if and how much you could be paid.
PART II: THE AUTOMATIC STAY DOES NOT COVER EVERYTHING
While the automatic stay applies to the debtor, it does not necessarily apply to all parties in the action. Thus, you may be required to file your action within the statute of limitations to preserve your rights. In addition to the items listed above, you should also do the following:
- Know Who the Other Parties Are – Determine the other parties to the action including the property owner, bonding company, general contractor, subcontractors above you, public entity, school district, loan company, payment guarantor, etc. Any or all of these parties may be responsible for some, or all, of the debt.
- File A Claim With and/or Against The Surety – Claims against the surety are usually not subject to the automatic stay. Therefore, file your claim with the surety in the exact procedures as provided by the surety to secure your claim. If the surety does not respond to your claim and your claim is timely you may file an enforcement action against the surety.
- Relief From Automatic Stay – While the automatic stay applies in most circumstances, there are some circumstances where you, the creditor, may seek relief from that stay. In the construction context that usually occurs when there is a disagreement as to the amount owed. The Bankruptcy Court may allow the Superior Court matter to proceed but only to determine the amount actually owed.
- Be Ready When the Automatic Stay Is Lifted – Whether you have been provided relief by the Bankruptcy Court or the Bankruptcy case is ended by some other means you must be prepared to file your mechanic’s lien (or stop notice) action as soon as the stay is lifted. The automatic stay tolls the statute of limitations for filing an action to enforce a mechanic’s lien and/or stop notice (i.e. A mechanic’s lien action must be filed within 90 days of recordation, 75 days after the lien is recorded the property owner declares bankruptcy and an automatic stay is in place, once the automatic stay is lifted you have 15 days to file your action to enforce the mechanic’s lien).
The information above is provided as a guide to help you understand your case. However, an attorney is likely in the best position to help you protect your interests when you find your construction contract in Bankruptcy Court.
GUEST EDITOR: KATIE WALSH
As we have done in the past, we have another great guest editor, Katie Walsh. Ms. Walsh is a Criminal Defense attorney emphasizing her practice on Juvenile Law. Ms. Walsh graduated with honors from Santa Clara University with a B.A., and received her Juris Doctor from Loyola Law School in Los Angeles. From there she spent 9 years as a prosecutor with the Orange County District Attorney’s Office where she served as a Juvenile Prosecutor, and as a Domestic Violence and Child Abuse Prosecutor. Ms. Walsh has tried approximately 60 jury trials in felony and misdemeanor matters. For more information, please visit her website at: http://katiewalshlaw.com/
Ms. Walsh answers two very important questions today that many parents keep in the back of their mind: 1) What happens when my child’s “harmless” prank is not so harmless and the juvenile system gets involved; and 2) What does this mean for their future?
OH NO, MY CHILD WAS ARRESTED – WHAT SHOULD I DO?
HIRE AN ATTORNEY!
Why is it so important to hire an attorney ASAP, versus having a public defender appointed or waiting until the first day of court?
The case needs to “start” as soon as possible. The wheels need to move immediately! Research and investigation need to be done and statements need to be obtained that possibly the police did not get or know about. When time passes people forget, they get afraid, and they do not want to be involved in the matter. For example: A friend of your child’s or a witness who was there, but not interviewed because the police felt there was already enough information with other witness statements to move the case along.
Often times the Police will not take statements from every witness. There could be a friend or witness that supports your child whom the police did not interview. It is important to gather evidence that will support your child, and present that to the District Attorney. It is possible with other evidence presented, outside the police report, the District Attorney will not file charges against your child, or file lesser charges than they were originally going to file.
Grades and school attendance need to be gathered for a detention hearing. To consider releasing your child from custody the judge will want to note the child’s grades, school attendance and family history. That information is harder to gather if you arrive to court without an attorney, or an attorney was just assigned to your child’s case the morning of court. This information can be the difference between your child being detained, pending the case or being released home.
WHAT ARE THE EFFECTS OF A JUVENILE “CONVICTION” ON YOUR CHILD?
The saying goes, “Everyone makes mistakes, right?” So will your child’s juvenile mistake haunt them the rest of their lives? Generally speaking: No.
The Juvenile Justice System is different from the adult system in that the goal of juvenile court is to rehabilitate the Minor; whereas in adult court the purpose is punishment. As such, all juvenile proceedings are closed, and private (not open to the public- as in Adult court).
In juvenile court a “conviction” is not called a conviction- it is referred to as a “sustained petition.” Therefore, when asked on a job application or college application “Have you ever been convicted of a crime?” Your child is able to mark NO. This is because, technically, they have not been “convicted of a crime.” They may have a “sustained petition,” but it is not considered a conviction.
To go one step further, after a certain amount of time; you will want to get your child’s record “sealed” (This procedure prevents anyone from seeing your child’s file unless they have a court order). The hope is for the minor to enter the adult world with a clean slate, without the negative effects of a “criminal record” following them around.
To be clear, certain government agencies will be able to see your child’s arrest in juvenile court, but a standard background check by private sector employers will not show the juvenile “conviction.”
This information applies to all crimes including serious & violent crimes (“strike offenses”). However, if your child commits another crime down the road, there are certain crimes that are “priorable” (such as a strike offense) and could affect the maximum amount of prison time exposure.
Law Offices of Katie Walsh
Katie Walsh is a former district attorney who now focuses on juvenile criminal defense.
If you would like to speak to an attorney with any questions or comments, please do not hesitate to contact one of the following:
Patrick M. Hartnett
714.738.1156 Ext. 210
Jessica L. Jasper
714.738.1156 Ext. 220
Bernard C. Jasper
714.738.1156 Ext. 218
Jessica L. Jasper, Esq.
HARTNETT LAW GROUP
“Business Law for the Business Person”
This post and all information contained herein is subject to the Hartnett Law Group Disclaimer.