Davis v. Best Supply Co. (In re WB Servs., LLC)
590 B.R. 553 | United States Bankruptcy Court, D. Kansas | 2018
What This Case Means for Subcontractors
A general contractor went bankrupt after receiving joint-payee checks from the project owner to pay suppliers. The bankruptcy trustee tried to recover these payments as preferential transfers (money given to creditors shortly before bankruptcy). The court ruled the payments were technically preferential but allowed the suppliers to keep the money because they provided new value by releasing their lien rights, which benefited the contractor.
Key Takeaways
- •Joint-payee checks from owners to pay your invoices may be recoverable by a bankruptcy trustee as preferential transfers if the contractor files within 90 days
- •You can protect yourself by ensuring lien waivers are exchanged for payment—this 'new value' defense shields you from having to return the money
- •Always document that you released lien rights in exchange for payment; this is your legal defense if the contractor later files bankruptcy
The transfers were preferential but entitled to new value defense under § 547(c)(1).
Frequently Asked Question
If a contractor I supplied goes bankrupt, can they force me to return a payment I received from the project owner?
Not if you released your lien rights in exchange for that payment. Courts recognize this as 'new value' that protects you. Always exchange a lien waiver for payment to create this legal shield. Without it, the bankruptcy trustee may demand repayment within 90 days of the contractor's filing.
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