My contractor is bankrupt; do I need a lawyer?

Factual Questions
1

So we had a swimming pool installed at our house. Went swimmingly at first, then towards the end, the guy took longer and longer to get small things done. Finally, this weekend we got a letter informing us that he’s bankrupt, and listing us as a creditor.

Now, I’m not that keen on getting direct legal advice on the net; like medical advice, if you want the details covered, you need to see the professional. What I’m really wondering, though, is whether I have any legal reason that I would need a lawyer to protect me from any liability.

The contractor finished the construction, and left owing us a few small things, like a minor repair, start-up services, and a missing part. Likewise, we shouldn’t owe him anything. We had already paid off the amount in the contract. We were going to pay a small amount extra for an upgrade, but we were waiting on the completion of all the things he owes us before we pay him that, and the amount is less that what he owes us.

I don’t immediately see the need to bring a suit against him (although I could change my mind if I see reason to later), partly because it’s mostly complete and the remaining amounts are small, but mostly because I don’t think he has anything to pay.

What I’m worried about, though, is his liabilities affecting us. I’m thinking of (at the very least) asking for proof that he’s paid off any subcontractors of his that have worked on our pool. Also, should we send something to the bankruptcy court that says, “He still owes us X, Y, and Z, worth $___”? And most of all, is there any potential thing that can bite us in the butt that would mean I need to spend money on a lawyer just to prevent something bad happening later?

2

Your instinct to avoid getting legal advice on the net is sound. Even here, the home of sound advice and well-meaning folks. Would you spend a few dollars to call a lawyer that you trust and pay for a half an hour’s discussion on the matter? If you actually trust a professional, then go to him/her and get that person’s advice. If it turns out that you’re pretty much covered, then you’ve spent some money for some peace of mind that will last as long as the swimming pool. If you might need some legal back up, then you’ve done the right thing and you gain peace of mind as well as some financial security. Hope doesn’t come cheap sometimes.

3

You should indeed talk to a lawyer about this. Situations like yours can get very complicated fast.

4

How about I refine the question:

What types of things should I be worried about - to motivate me to want a lawyer, or to convince my wife we should pay for one?

Also, what kind of questions should I ask a lawyer if I get one?

5

I am not a lawyer, but I am a contractor and a consumer. I’m also not in your state, but I am fairly well aquainted with the lien laws in my state.

It seems like he’s 95-98% complete with your project. As a creditor to his bankruptcy you’ll likely get nothing----but it certainly seems that he owes you very little anyway.

Count your blessings—you didn’t pay him the whole amount to have him go bust when he was 5% done. If it costs you a couple hundred bucks to have a competitor of his tie up the last couple loose ends, suck it up and just be done with it. I wouldn’t waste my time with your status as creditor over a small sum.

If I was in your shoes, the only concern I would have is the possibility of one of his subs or materialmen filing a lien on your property because your contractor didn’t pay them. In my experience, that is less likely in residential settings (vs commercial/industrial) and less likely if the sums are small.

For that reason you may want to invest a hundred bucks to have a consultation with a lawyer. You may have some risk of a lien if the contractor’s subs/materialmen weren’t paid. Keep in mind that the laws of your state will determine who can file liens. So, YMMV. Of course it’s possible that all the subs have been paid. (have any subs or materialmen contacted you for payment?)

(A note to the lurkers: If you have expensive work done on your home, it may be worthwhile to talk to a lawyer to see if “Lien Waivers” are necessary/ a good idea in your state. If so, have your contractor sign lien waivers at every point that he receives a draw or progress payment)

6

Random question:

Was this guy bonded, perhaps?
I’m sure you wouldn’t be posting if he was, but it’s worth asking.

7

Good question!

Many locales require bonding as condition of getting a license. The bond may only cover you if he didn’t finish the job, or maybe for fraud. I don’t know if a bond would cover you if he didn’t pay his subs. (I am bonded but don’t remember if it would protect my customers from liens…)

8

Make sure the lawyer you consult is a commercial bankruptcy lawyer. Consumer bankruptcy lawyers don’t get much exposure to the issues you have here. And, yes, this is terribly complicated.

Among the many issues. Is there an argument you still owe money? If so, a bankruptcy trustee (or the debtor acting as his/its own trustee) might sue you. Is there any benefit to filing a claim? (You don’t sue; you just file a piece of paper. Whether and when claims are filed depends on the chapter of the case and whether the debtor designated it as a ‘no asset’ case.) This is important because, if you file a claim, it changes which judge hears the case against you. If you don’t file a claim, you can request a district judge; if you file a claim, the bankruptcy judge usually hears it. Which is the better place to have the fight is a related issue. Third, as you state, are you exposed to subcontractor liens? Fourth, if so, there are several issues with respect to discharge of your claim against the debtor. (These depend, among other things on the chapter of the case and whether its a corporate or personal filing, or both.) The deadline for filing such an objection, incidentally, will be stated in the notice telling you how to file a claim. It’s a combined notice, the main topic of which is a meeting of creditors. Be sure to take that notice to your lawyer. If you didn’t receive one, get a copy from the Clerk of the Bankruptcy Court.

As you might have guessed by now, I’ve done this, though I am no longer in active practice. Please understand that I don’t (and can’t) represent you. I’m just trying, as you requested, to identify issues and questions. There probably are others that didn’t occur to me off the top of my head.

9

Thanks for the replies, all. You’ve confirmed my fears - that there may be some issues I want to worry about.

10

$$$$$

Tell him all of the details and find out if his fee is more or less than what you stand to loose otherwise.

11

Shouldn’t your bond also cover your subs. My dad is a GC and IIRC they don’t generally take on jobs they can’t cover with their bond.

IF he has a bond it should pay to complete any work you have paid for. The bond people then go hunting to get their money out of him.

12

Yes they would.

I’ve been bonded for a long time but I’ve never has a default. We would typically think of a bond covering in the case of fraud, or where a job gets started and not finished. (like due to bankruptcy)

I’m just not sure however if the typical bond includes covering for a contractor who essentially completed the job. From the OP, it appears they did complete the job with the exception of a couple minor things.

I think the biggest thing the OP faces is not completing the job, (as what’s left is pretty minor) but the risk he didn’t pay his subs or materialmen. I’m not so sure the bond covers that. (although it certainly may…)