Q: What should I do if I paid a contractor 100% upfront and they have not done any work and they filed bankruptcy?

A: First, gather all documentation related to the payment and the contract with the contractor. This includes proof of payment, the contract itself, and any communications regarding the work to be done. These documents will be crucial in protecting your interests during the bankruptcy process.

Next, you should file a claim with the bankruptcy court as an unsecured creditor, providing the court with evidence of the amount you are owed. This process can be complicated, so staying informed about deadlines and procedures is critical. Unfortunately, in bankruptcy cases, unsecured creditors are often paid last, and the amount recovered may be limited.

In parallel, it may help to explore other legal options, such as reporting the contractor's conduct to the Texas Attorney General’s Office or other consumer protection agencies. These steps may not guarantee a full recovery but could add pressure on the contractor.

A: Construction payments are trust funds if they are made to a contractor under a construction contract for the improvement of real property in Texas. The contractor is a trustee of those funds until they are earned as provided by the contract and paid or disbursed from the construction account. As the property owner, you are a beneficiary of those trust funds. A contractor who misapplies construction trust funds amounting to $500 or more is guilty of a crime. It is a Class A misdemeanor but becomes a third degree felony if he did so with intent to defraud. Chapter 162 of the Texas Property Code describes this in more detail.

First, if you can trace your money into a specific account or asset, you have a strong argument in the bankruptcy court that those funds belong to you and are not part of the bankrupt contractor's bankruptcy estate at all. In that situation, you are not a simple unsecured creditor. You need a bankruptcy lawyer to assist you.

Second, if you file a police report and the district attorney prosecutes the contractor, they may seek restitution through the criminal justice system. Be forewarned, however, that district attorneys often choose not to prosecute this crime and consider it a "civil" matter.