Spinoso v. Heilman (In Re Heilman)
241 B.R. 137 | United States Bankruptcy Court, D. Maryland | 1999
What This Case Means for Subcontractors
A homebuilder failed to complete a custom home for the Spinosos and they sued to prevent him from discharging the debt in bankruptcy. The court ruled that simply breaking a construction contract—even a major one—is not fraud or fiduciary misconduct. Because it was just a breach of contract, the debt could be discharged in bankruptcy. This matters to subcontractors because it shows courts won't treat contract failures as special debts that survive bankruptcy unless there's actual fraud or theft involved.
Key Takeaways
- •A homebuilder's failure to finish work is a breach of contract, not fraud—and breach debts are dischargeable in bankruptcy
- •Don't assume a contractor's bankruptcy will protect you unless you can prove actual fraud, embezzlement, or a fiduciary duty was violated
- •Get clear change orders and payment terms in writing; vague or incomplete contracts are harder to enforce against a bankrupt debtor
- •If you're owed money by a contractor in financial trouble, file a claim immediately—you'll be treated as an unsecured creditor and may recover only cents on the dollar
A mere breach of contract does not render a debt nondischargeable.
Frequently Asked Question
If a contractor doesn't finish my job and files bankruptcy, can they get out of paying me?
Yes, if it's just a breach of contract. Courts treat incomplete work as a regular debt that can be discharged in bankruptcy unless you can prove actual fraud, theft, or that the contractor owed you a fiduciary duty. File your claim immediately and expect to recover only a portion of what you're owed.
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