A wave of bankruptcies could wash up after the recent pandemic. Experts predict some industries to be hit harder than others such as retail stores and restaurants.

While the Paycheck Protection Program has been a saving grace for many businesses. Unfortunately, it did not help everyone as bankruptcies are currently up 26 percentsince last year.

Luckily, we don’t expect the construction industry to be one of the hardest hit.

Impact on the Construction Industry

It is still a little too soon to really tell how bad the construction industry will be hit from the pandemic and just how many will end up filing for bankruptcy. It may be up to the location, as some states considered construction essential and some states were impacted harder than others.

What is the biggest issue currently hitting the construction industry?

The stalling and delay of construction projects. This impacts the timeline of the project, payment, the budget, and more. The impact may end up being more long-term, as some are waiting to even start their construction plan as the future is so unpredictable.

What to do if Bankruptcy Does Hit a Construction Project

There are a few different scenarios that can happen when bankruptcy is filed. Either a project owner, a contractor or a subcontractor can file for bankruptcy. They are all pretty similar, but let’s take a brief overview of each.

Project Owner

When the project owner files for bankruptcy, an official notice will be given out. Once they file a petition with the U.S. District Bankruptcy Court, about a week later, a notice will be sent out to all creditors, contractors, subcontractors, and anyone listed on the petition.

When this happens, the prime contractor is still responsible to continue to perform work under the current contract.

If you have performed work on one of these projects and were not paid, you will need to file a Proof of Claim 90 days after the 1st meeting with the creditors for Chapter 7 and Chapter 13 bankruptcies. Chapter 11 cases will have the deadlines set by the court. 

A proof of claim is what a creditor files before getting paid in bankruptcy cases which lists the type of claim and how much is owed. The trustee will determine how much amount is to be paid to the creditor. 

General Contractor

If a primary contractor files for bankruptcy, a notice will be sent out as well, which will include all unpaid parties.

When this happens, the owner is not able to terminate the project and subcontractors must still be responsible to perform work under the contract.

If payment is not made, one can file a proof of claim under this circumstance as well.

Subcontractor

When a subcontractor files for bankruptcy, a notice will be sent out to the proper parties.

The general contractor can’t terminate the project and must continue to continue to perform work on the project. The same rules apply as the previous circumstances.

Tips to Getting Projects Completed

If an owner is looking to ensure that their project still gets completely, they have the ability to raise a claim against the general contractor.

When a general contractor is looking to ensure a project is completed, then they can make a claim against the subcontractor.

Working on a Construction Project?

If you are involved in a construction project and unsure of the future due to the pandemic, meet with an attorney who specializes in Phoenix construction law. The right attorney can help address all of your questions and help review all contracts, especially when a bankruptcy pops up.