Recovering Compensation when the Negligent Homebuilder Goes Bankrupt

Filing an insurance claim and suing the subcontractors are some of the compensation-recovery options available to a homeowner when a negligent contractor goes bankrupt. Just because a homebuilder has filed for bankruptcy protection to restructure debts, that doesn’t entirely absolve the homebuilder from liability for construction defects.

How to Recover Compensation from a Negligent and Bankrupt Builder

Filing an Insurance Claim

When a negligent homebuilder goes bankrupt, it’s easy for a homeowner to get intimidated and think that he or she is out of options as far as recovering compensation for construction defects is involved. Fortunately, the homebuilder is legally required to have an insurance policy to pay for construction defects. The homeowner can, therefore, make a claim against the insurance cover and possibly collect damages. Filing for bankruptcy doesn’t nullify an insurance policy.

Suing the Subcontractors

Homebuilders usually hire different subcontractors to complete certain construction tasks. They might hire one for electrical work, one for masonry, and another one for landscaping. If the homebuilder has gone bankrupt, the homeowner can bring an insurance claim or a suit against any subcontractors who were responsible for the construction defect. Although finding the liable subcontractors and tracking them down is a time-consuming process, this is a worthwhile option for homeowners who detect construction defects after their homebuilder has filed bankruptcy.

Pursuing the Homebuilder’s Individual Assets

Trying to bring a lawsuit against an individual business owner is an effective way to compel him or her to come to the negotiating table. Sometimes small construction companies may be owned and managed by one person; the same individual who was contracted by the homeowner and performed most of the work. Even when the homebuilder works with a bigger company, a homeowner can still determine the name(s) of the owner(s) or individual employee.

If it’s only the company, and not the owner, that is intending to file for bankruptcy, filing a lawsuit against both the company and owner of that company might be a wise idea. Although LLC and corporation are legal principles designed to safeguard individual business owners from legal responsibility, courts may at times overlook this corporate shell. This is called piercing the corporate shell.

Common Types of Construction Defects

Construction defects can arise from deficiencies in the building itself or deficiency in the design, installation, operation, or maintenance of a specific part of the building. Damages might be noticeable immediately, like a burst water pipe, or might become obvious with time, like a gradually shifting foundation.

Design Deficiencies

Design deficiencies refer to flaws in the design of a building. Examples of design deficiencies include poor drainage, insufficient structural support, or defective roof designs that lead to water penetration.

Material Deficiencies

Material deficiencies include failure because of faulty or damaged building materials. Typical examples of material deficiencies are substandard products with a short lifespan and window frames damaged during transportation that don’t permit proper installation, resulting in water intrusion.

Construction Deficiencies

Construction deficiencies include poor quality workmanship that can lead to a variety of damages. A perfect example is incorrect plumbing work that results in leaks that might destroy electrical cables in a wall or encourage mold growth.