The Building Contractor
Most insolvent building contractors are especially exposed to legal attack because of the Texas Trust Fund Law. This law provides that when the contractor is paid for a job, he holds those funds in trust for the subcontractors and material suppliers and other expenses related to that job. If a contractor is insolvent or without sufficient financial depth, he will often use the proceeds from one job to pay for the expenses of a different job. This is a significant problem because the funds paid against the first job are held in trust and the use of those funds for a different job is a crime. It is therefore essential that the insolvent building contractor address his exposure early on and structure his finances so that a criminal prosecution can be avoided.
Other issues confronting the contractor are, unpaid liens, unfinished construction, unpaid taxes, unpaid subs and material suppliers, delinquent rent and foreclosures on equipment.
The insolvent contractor is often like a house of cards. When one falls they all fall. There is never enough money to pay all the debts and the contractor often falls into the trap of simply paying all that he has until he has no more, never realizing that what he had left could have been used to pay creditors who are far more dangerous to him than a credit card or a bank loan.
The wise contractor sees the danger early on and establishes a plan for the safe liquidation of his debt-strangled business and plans for the creation of a new business or employment after he has been placed behind the formidable wall of a successful bankruptcy discharge.
Charles Chesnutt