What are my options if a contractor goes bankrupt mid-project?

If your contractor goes bankrupt mid-project in Ottawa, you have several legal protections and recovery options, but acting quickly is crucial to protect your investment.

When a contractor declares bankruptcy in Ontario, all work typically stops immediately, and you become an unsecured creditor in the bankruptcy proceedings. However, you're not without recourse - Ontario's Construction Act and consumer protection laws provide several avenues for recovery.

Immediate Steps to Take

Contact the contractor's bonding company immediately if they're bonded. Many reputable Ottawa contractors carry completion bonds or performance bonds that specifically cover project completion if the contractor defaults. Check your contract for bonding information, or call the contractor's insurance provider directly.

File a lien against your property within 60 days of the work stopping. Under Ontario's Construction Act, you can place a lien on your own property to preserve your right to payment from any insurance proceeds or to protect against other creditors. Contact a construction lawyer immediately - many Ottawa firms offer free consultations for lien matters.

Notify your homeowner's insurance company right away. Some policies include coverage for contractor default or bankruptcy, though this varies significantly between insurers. Even if not covered, they need to know about the incomplete work for liability purposes.

WSIB and Licensing Board Options

If the contractor was WSIB-registered, contact WSIB immediately at 1-800-387-0750. While WSIB doesn't guarantee project completion, they may have information about the contractor's assets or other ongoing projects that could affect recovery.

File complaints with the appropriate licensing bodies. If it was electrical work, contact ESA at 1-877-372-7233. For gas work, contact TSSA at 1-877-682-8772. While these won't recover your money, they prevent the contractor from working under their license elsewhere.

Legal Recovery Options

Contact Ontario's Consumer Protection Branch at 1-800-889-9768 to file a formal complaint. They can investigate violations of the Consumer Protection Act and may facilitate mediation between you and the contractor's bankruptcy trustee.

Consider joining other affected homeowners in a group action. Bankruptcy trustees often prioritize larger creditor groups, and shared legal costs make litigation more affordable. Check with other homeowners in your Ottawa neighborhood - contractors often work multiple projects simultaneously.

Financial Recovery Strategies

Review your contract for any deposits or advance payments. Under the Construction Act, you should never have paid more than 10% down plus the value of materials delivered to your site. If you overpaid, you may have stronger recovery rights.

Contact your bank or credit card company if you paid by credit card or line of credit. Many credit cards offer purchase protection that may cover contractor default, especially for deposits. Some banks also offer construction loan protection.

Check if the contractor had accounts payable insurance or trade credit insurance. Some larger Ottawa contractors carry insurance specifically for customer deposits and project completion.

Finding Replacement Contractors

When hiring a replacement contractor, ensure they're willing to work with the existing permits. Contact City of Ottawa Building Code Services at 613-580-2424 to transfer permits to the new contractor. Some permits may need to be reissued, which can add time and cost.

Get detailed assessments of completed work before proceeding. The new contractor needs to verify that existing work meets Ontario Building Code standards. Work that appears complete may need to be redone if not properly inspected or permitted.

Prevention for Future Projects

Always verify WSIB clearance certificates and liability insurance before starting any project. Check ESA licensing at esasafe.com for electrical contractors and TSSA certification for gas work. Never pay large deposits - Ontario's Construction Act limits deposits to 10% for good reason.

Consider requiring performance bonds for projects over $50,000. While this adds cost, it provides completion guarantees that can save thousands if problems arise.

The key is acting within the legal timeframes - you typically have 60 days for liens and 90 days for some insurance claims. Contact a construction lawyer immediately to understand your specific rights and recovery options.