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Mechanic's Lien and Bond Rights in Bankruptcy Preference Cases


The US District Court for the Eastern District of North Carolina ruled in 1996 in Precision Walls Inc v. Crampton that a creditor would have to return an alleged preferential payment, unless it had actually perfected the mechanic's lien at the time of receipt of payment. In a recent case, Angell v. United Rentals Inc, the creditor had both mechanic's lien and bond rights at the time of the payment. The Bankruptcy Court for the Eastern District of North Carolina first ruled that the creditor had received a preference despite the mechanic's lien rights, because of the 1996 Precision Walls case. The creditor hopes to establish in Angell v. United Rentals Inc that the proper standard is whether the creditor received more than it would have in a Chapter 7 and did not diminish the estate, not proof that the creditor actually did enforce or actually would have enforced mechanic's lien or bond rights.

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