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

If your contractor goes bankrupt mid-project in Ottawa, you have several protection options, but quick action is essential to protect your interests and minimize losses.

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 completely without recourse.

Immediate Steps to Take

First, document everything immediately. Take photos of all completed and incomplete work, gather all contracts, receipts, and correspondence. Contact the contractor in writing to confirm the situation and request any materials or equipment they may have purchased for your project.

If you've been making progress payments, stop all payments immediately. Under Ontario's Construction Act, you have the right to hold back 10% of the contract value for 60 days after substantial completion - this holdback becomes crucial protection if available.

Your Legal Options in Ontario

You may be able to file a construction lien against your own property if the contractor owes money to subcontractors or suppliers who worked on your project. While this seems counterintuitive, it can actually protect you from having liens filed by others and gives you more control over the situation.

Contact any subcontractors or suppliers directly. Under Ontario law, if you haven't paid the general contractor for work performed by subcontractors, you may be able to pay them directly and deduct those amounts from what you owe the bankrupt contractor.

Insurance and Bonding Claims

Check if your contractor carried proper insurance and bonding. In Ottawa, legitimate contractors should have WSIB coverage (verify at wsib.ca/clearances) and general liability insurance. Some may carry completion bonds or bankruptcy insurance, though this isn't required by the City of Ottawa.

Review your own home insurance policy - some policies include coverage for contractor default or bankruptcy, though this varies significantly between insurers.

Finding a New Contractor in Ottawa

When hiring a replacement contractor, verify their credentials thoroughly through ESA (esasafe.com) for electrical work and TSSA (tssa.org) for gas/HVAC work. Check their WSIB clearance and ask for recent references from Ottawa-area projects.

The replacement contractor will need to assess what work can be salvaged versus what needs to be redone to meet Ontario Building Code standards. Get this assessment in writing before proceeding.

Financial Recovery Options

File a claim in the bankruptcy proceedings, though unsecured creditors typically recover very little. If the contractor was bonded or insured, file claims immediately as there are often strict time limits.

Consider small claims court if the amount is under $35,000, or Superior Court for larger amounts. However, collecting from a bankrupt entity is extremely difficult.

Prevention for Future Projects

For future projects, verify contractors through the City of Ottawa Building Code Services (613-580-2424) and ensure they have proper permits. Never pay large amounts upfront - Ontario's Construction Act allows for progress payments tied to completed work stages.

Consider asking contractors about completion bonds for larger projects, and always verify insurance coverage directly with the insurer rather than just reviewing certificates.

The key is acting quickly to preserve your rights and minimize additional losses while finding qualified replacement contractors to complete your project safely and to code.