A Tennessee contractor discovers that the homeowner has filed for bankruptcy during an active project. Under Tennessee lien law, what action should the contractor take immediately?
Correct Answer
B) Stop all work and consult with bankruptcy counsel
When a property owner files bankruptcy, contractors should stop work and consult bankruptcy counsel as the automatic stay affects lien rights.
Why This Is the Correct Answer
When a property owner files for bankruptcy, federal bankruptcy law imposes an automatic stay that halts nearly all collection and enforcement actions, including the filing of mechanics liens and demands for payment. Continuing work adds value to a bankruptcy estate without guaranteed payment. The correct first step is to stop work and consult bankruptcy counsel to understand how the stay affects lien rights and how to file a proof of claim in the bankruptcy proceeding.
Why the Other Options Are Wrong
Option A: Demand immediate payment for work completed
Demanding immediate payment violates the automatic stay imposed by the federal Bankruptcy Code. This could expose the contractor to sanctions from the bankruptcy court.
Option C: Continue work as normal
Continuing work without addressing the bankruptcy creates new, potentially unpaid labor and material costs. The contractor adds value to the estate but may have no mechanism to collect payment outside the bankruptcy process.
Option D: File a mechanics lien immediately
Filing a mechanics lien after the bankruptcy petition is filed also violates the automatic stay. While pre-petition lien rights may be protected, post-petition lien filing requires bankruptcy court approval.
Memory Technique
Bankruptcy = STOP sign for contractors. The automatic stay is a red light at every intersection — you cannot drive through (demand payment, file liens, continue billing) until a bankruptcy attorney gives you a green light.
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