Can we get back our money after a contractor declares bankruptcy?

Asked By: march_penn on Monday, January 26, 2009
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Answer My husband and I signed a contract with a builder a year ago. Things progressed slowly, but our "dream home" was actually becoming a reality. We have given him $40,000.00 in 3 separate payments and have now learned that he has declared bankruptcy. There are no responses to our phone calls and we are desperate. What can we do? Is there a list anywhere of contractors &/or companies that can warn the public of disreputable builders? Thanks for any help you can give us.

This is a sad but somewhat common situation especially in today's economy. My company has had to go in and complete work that other contractor's started on several occasions and in some cases it was because the company had gone bankrupt after more money was paid to the builder then work that was performed.

One of the problem is that unless the builder is very reputable, in good standing the BBB and with all the building departments and possibly a member of the HBA or NARI, you can run the risk of the builder collecting the large sums of money, not paying or only partially paying his sub contractors, after you gave him the money to pay them in full.

To try to prevent this from happening, homeowner have a right to receive a copy of signed lien releases from the sub contractors that the contractor has then sign when they are paid. This would guarantee you that they have either been paid for the portion of the work you paid the builder for or for the completed work you paid the builder for. 

For example if the plumbing contractor finished the rough plumbing portion of the contract, he would sign a lien release stating that he had been paid in full for that portion of his work. The home owner would have already paid the builder for that portion of the plumber's work and the lien release would verify this. A Builder should never be hesitant to do this for the home owner and include it as part of his contract.

Back to your case, once a builder files bankruptcy, you can bet there you are now on a list of people who he owes money to. It will go through the court and the court will allocate the funds that he has, if any, but most probably there will not be enough there to pay everyone back the money he or she owes. 

In one case that I know of, the builder had no money left and owed hundreds of thousands of dollars to home owners for incomplete work and sub contractors and suppliers who trusted in him but did not get paid some or all of their money. The court gave him a jail sentence and required him to pay back what he owed over time. With all the money he owed it would take years for him to repay it.

Most people had to try to get the banks to loan them more money to complete the homes and then they ended up with a higher mortgage with a higher then expected payment.

In your case, you will need to talk to a prosecutor, if one has not already been assigned the case, and proceed with the necessary steps provided by the court. Hopefully, you will be able to get some of the money back or at least court require payments form the builder that will help offset the addition money you have to pay to complete your home.

Click on the following links for more help. 5 Things You Should Not Do, 10 Things You Should Do, before hiring a contractor.

I wish I could be of more help. Good Luck.

Rick Maselli

Founder of

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