If a general contractor fails to pay a subcontractor and files for bankruptcy, what happens to the subcontractor's payment?

In the context of a general contractor's bankruptcy, the subcontractor's ability to recover payment hinges on the nature of bankruptcy law. When a general contractor files for bankruptcy, it typically triggers an automatic stay on all claims against the contractor, meaning that creditors, including subcontractors, are barred from pursuing their claims until the bankruptcy court resolves the situation.

In many cases, subcontractors may find it difficult or impossible to recover payments that are owed to them, especially if the general contractor has limited assets. The bankruptcy process prioritizes debts, and unsecured creditors, like most subcontractors, often receive little to nothing if the assets are insufficient to cover the debts owed.

Understanding these dynamics illuminates why the assertion that the subcontractor cannot recover in the case of bankruptcy is correct. This situation underscores the importance for subcontractors to secure their payments through mechanics liens or other protective measures before a contractor may potentially face insolvency.