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Introduced by Senator Sears of Bennington District

Referred to Committee on


Subject:  Bankruptcy; construction trust fund

Statement of purpose:  This bill proposes to:

(1)  provide materialmen in Vermont with certain protections afforded to creditors under the new federal Bankruptcy Abuse and Consumer Protection Act.  Under the federal act, if any person commits “fraud or defalcation while acting in a fiduciary capacity, embezzlement, or larceny,” the debt is not dischargeable under Chapter 7 (liquidation), 11 (adjustment of debt), or 13 (reorganization) of the bankruptcy code.

(2)  require contractors and subcontractors to hold money received from owners in an express trust for payment of the amount of money from that payment intended for supplies to those suppliers who have provided materials for the job.  Funds held in an express trust would not be required to be held in a separate account.

(3)  create a fiduciary responsibility that would make a debt owed to a building material supplier nondischargeable in bankruptcy proceedings.  The express trust is established by statute and does not require the contractor or subcontractor to set up any physical trust account to hold these funds.  The contractor receiving money from the owner needs to keep an accurate accounting of the funds as is required under existing law.

(4)  specifically exempt federal, state, and municipal projects from its requirements, and not affect title to real property.


It is hereby enacted by the General Assembly of the State of Vermont:

Sec. 1.  9 V.S.A. § 4005a is added to read:


                TITLE TO REAL PROPERTY

(a)  For the purposes of this section:

(1)  “Claim” means any valid claim for materials furnished or services rendered in the construction, repair, remodeling, improvement or renovation of any building or structure for which the claimant has a lien or the right to claim a lien.

(2)  “Express trust” means the relationship that is created when funds have been paid by an owner, for or in connection with materials or services used in an improvement of real property, which are to be held by a contractor or subcontractor for materialmen.  Any such contractor or subcontractor who accepts money from any owner or contractor shall become the trustee of the express trust that is created under this section.  Such express trust shall be considered in full effect only in the event a contractor or subcontractor files for bankruptcy under Chapter 7 (liquidation), 11 (adjustment of debt), or 13 (reorganization) of the United States Bankruptcy Code. 

(b)  Funds held in express trust are not required to be held in any separate account by a contractor or subcontractor.

(c)  No express trust shall be required for a federal, state, or municipal project.

(d)  The amount payable to any contractor or subcontractor under any contract for the construction, repair, remodeling, improvement or renovation of any building or structure shall, upon receipt by such contractor or subcontractor, be held in express trust by such contractor or subcontractor for the payment of all claims that are due and owing, or to become due and owing, by such contractor or subcontractor by reason of such construction, repair, remodeling, improvement, or renovation.

(e)  Any amount required to be held in express trust under this

section shall be applied to the payment of the corresponding claims specified in this section.

(f)  The existence of an express trust under this section shall not

prohibit the filing or enforcement of a lien against the affected real property by any claimant, and the filing of any such lien shall not release the holder of any amount required to be held in trust under this section from acting in a fiduciary capacity and carrying out the obligations created under this section.

(g)  Liability for sums due under this section shall only attach to the principal or head of the company which holds the funds under the express trust.

Published by:

The Vermont General Assembly
115 State Street
Montpelier, Vermont