What to Do When a Builder Goes Broke

Knowing what to do when a builder goes broke is important if you’re getting involved with any construction project with a significant cost. It’s an unpleasant situation for everyone involved, but you must prioritize your own needs in this case.

You must also act fast, because you might run into scheduling problems or other issues once it turns out that you can’t continue your project with your current contractor. Finding someone on short notice can be difficult. Depending on the complexity of the project, it may even be impossible.

Confirm the situation

Before you take any action, you should confirm what’s actually going on. Make sure you have an official confirmation from the building company itself, rather than relying on rumours and relayed messages.

It’s possible that something got miscommunicated and the company isn’t actually going broke. If you immediately jump into action based on unverified assumptions, you can find yourself in an awkward situation that would jeopardize your entire contract.

Set up a meeting with the project manager and ask them about what’s going on. If possible, get a written statement about the company’s financial situation. 

Prioritize finding a replacement

Once you’ve verified that the company is indeed going broke, your next step should be to find a replacement. Looking for a new builder should be done with a high priority, because delays could often jeopardize your project.

Ideally, you should have a few alternatives already lined up from your initial research into the project. Maybe there’s another company that you were considering using, but in the end you decided to go with your current contractor. Give them a call and see if they are still available and open to the idea of working with you.

Keep in mind that more specialized contractors can be very difficult to replace on short notice. It’s not rare that you’ll find them booked for weeks, even months ahead. This makes it important to be as quick as possible in starting your search for a suitable replacement.

Do you need to take legal action?

If your relationship with your current contractor didn’t end on a good note, you might have to take legal action against them. This is unpleasant and can take a lot of time. But in the end, it may be your only way to recoup lost investments.

This is especially true if the contractor leaves something half-finished but was already paid for the full job. If they’re going broke, it’s very unlikely that repaying you will be a high priority for them. This means that you will have to recover your money though the legal system.

However, don’t set your expectations too high in this case. If the company is out of money, they may have no means to pay you even if the lawsuit is successful. Consult an attorney and ask them about your options. Be realistic with how you approach this. Losing out on the initial investment is bad enough, but you don’t want to find yourself in a situation where you waste even more money on a pointless lawsuit.

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