Cunningham v. T & R Demolition, Inc. (In Re ML & Associates, Inc.)
301 B.R. 195 | United States Bankruptcy Court, N.D. Texas | 2003
What This Case Means for Subcontractors
A bankruptcy trustee tried to recover a $62,182 payment made to subcontractor T & R Demolition as a preferential transfer. The court ruled the trustee could not recover the payment because T & R would have received the same amount anyway from the project's payment bond in a Chapter 7 liquidation. This protects subcontractors who get paid from payment bonds—those payments generally cannot be clawed back by a bankruptcy trustee.
Key Takeaways
- •If you're paid from a payment bond on a public project, that payment is safer from bankruptcy clawback than other payments because you'd receive it anyway in liquidation
- •The trustee must prove you received MORE than you would have gotten in Chapter 7; if a payment bond covers your claim, you likely received what you were entitled to
- •Keep detailed records showing payment bond coverage for your work—this documentation helps defend against preference actions if the general contractor files bankruptcy
T & R did not receive more than it would have received had the transfer not been made.
Frequently Asked Question
Can a bankruptcy trustee take back my payment if the general contractor goes bankrupt after paying me?
Not if you were paid from a payment bond. A court ruled that payments subcontractors receive from payment bonds cannot be recovered because you would have received that money anyway through the bond in bankruptcy. The trustee can only recover payments that give you more than you'd get in liquidation.
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