Post-Bankruptcy Enforcement of Lien Rights Follow-Up

March 20, 2012

As I on February 24,  Bankruptcy Judge Doud of the Eastern District of North Carolina had under advertisement if he would follow the lead of two other Eastern District bankruptcy judges (one of whom has retired) and hold that a post-petition filing by a subcontractor of a claim of lien on funds owing to his contractor is a violation of the automatic stay of the Bankruptcy Code.  On March 14, Bankruptcy Judge Doud issued his ruling. As previewed in the earlier post, he followed the admonition of Senior District Judge Howard of the United States District Court for Eastern District of North Carolina, given in dicta in an opinion dated February 23, 2012 and held that the post-petition filing was permissible. While acknowledging that the District Court’s comments were dicta, Bankruptcy Judge Doud nonetheless found them “most instructive” that “compelled” him to reconsider this issue.  He specifically held that the post-petition service of a claim of lien upon funds does fit within the exception to the automatic stay as set out in 11 U.S.C. § 362(b)(3), and does not require a motion for relief from stay. So, for the time being, there is a split of authority on this issue between two of the bankruptcy judges in the Eastern District (the third bankruptcy judge in the district has not yet ruled on the issue). So, at present, the outcome could depend on the judge to which the bankruptcy case is assigned.