Bankruptcy bonds are required in every state as a condition for being named as a trustee in a bankruptcy action. It’s common for some attorneys to serve as a trustee for multiple bankruptcies, and they may purchase a blanket bond that covers all of their bankruptcy cases.
Bankruptcy Bonds for Court Cases
Trustees and parties in bankruptcy proceedings need a bankruptcy bond when the court requires fiduciary or payment protection. Surety Bonds Agent provides nationwide support with careful quote coordination. Request a bankruptcy bond quote online.
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What Are Bankruptcy Bonds?
Bankruptcy bonds are more appropriately referred to as bankruptcy trustee bonds. When an individual or company files for bankruptcy, a trust is established to hold and manage their assets while the court-approved bankruptcy plan is being executed. The specific fiduciary responsibilities of a bankruptcy trustee depend on the type of bankruptcy: Chapter 7, Chapter 11, Chapter 12, or Chapter 13.
A bankruptcy trustee typically is responsible for the following:
- Liquidating non-cash assets such as real estate or stocks and bonds
- Distributing payments to creditors
- In some cases, operating a business that is being reorganized
- In some cases, preparing and filing financial statements and tax returns
- In some cases, accounting for how the bankrupt entity’s assets are used and distributed
A bankruptcy bond is the trustee’s guarantee to fulfill all fiduciary responsibilities lawfully and ethically, in accordance with the U.S. Bankruptcy Code, which requires “faithful performance” of a trustee’s duties. It indemnifies the court against liability for financial damages resulting from the trustee’s malfeasance or negligence. It also provides a source of funds for compensating parties (typically creditors owed distributions from liquidated assets) who are harmed financially by the trustee’s unlawful or unethical actions.
Who Needs Them?
How Do They Work?
A bankruptcy bond is a legally binding contract between three parties:
- The court that orders the bond and establishes the required bond amount is the “obligee.”
- The bankruptcy trustee ordered to purchase the bond is the “principal.”
- The bonding company that underwrites and issues the bond is the “surety.”
Any malfeasance by the principal, such as embezzlement, theft, or other misappropriation of funds that causes a creditor or other beneficiary to experience a financial loss can lead to a claim being filed against the bond. The terms of a bankruptcy bond legally obligate the principal to pay all valid claims up to the required bond amount (known as the bond’s “penal sum”). To ensure prompt payment to the claimant, however, the surety typically will pay a claim upfront and then be repaid by the principal for the resulting debt.
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What Do They Cost?
The annual premium for a bankruptcy bond is a small percentage of the bond’s penal sum. The court will establish that amount based on the value of the assets the principal will be managing as a trustee. The premium rate, however, is determined by the surety at the time the bond is purchased by the principal.
The surety’s main concern is the risk of not being repaid for claims paid on behalf of the principal. Consequently, the underwriters will look closely at the principal’s creditworthiness, as indicated by his or her personal credit score.
With good credit, the premium rate for a bankruptcy bond should be in the range of one to three percent.
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How Do Bankruptcy Bonds Work?
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Choose Your Bond Type
Select the bond you need — commercial, contract, or any specialized bond. We help you find exactly what is required in your state.
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Submit a Quick Application
Complete a short online form. It only takes a few minutes, with no extra paperwork or long verification steps.
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Get Approved & Receive Your Bond
Get fast approval and receive your bond instantly by email. Your document is ready to use right away.
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