A bankruptcy trustee tried to recover payments made to a subcontractor (V3 Construction Group) as preferential transfers before the company went bankrupt. The court ruled against the trustee, finding that payments made in exchange for lien releases are held in trust under Illinois law and therefore belong to the subcontractor, not the bankrupt company. This means the trustee cannot claw back those payments. The decision protects subcontractors who receive payment for releasing their mechanic's liens.
When you release a lien in exchange for payment, that money is legally yours under Illinois Mechanics Lien Act—the contractor cannot claim it as their own property in bankruptcy
Payments for lien releases are protected from being recovered by a bankruptcy trustee as 'preference transfers' because they are trust funds, not debtor property
Document your lien release agreements clearly and keep records showing the payment was specifically for the lien release to strengthen your position if bankruptcy occurs