Learn more about bankruptcy bonds, and apply today. Absolute Surety offers surety bonds nationwide through a convenient online application system.
What Are Bankruptcy Bonds?
When a bankruptcy petition is filed in bankruptcy court, the court appoints someone to serve as trustee in the matter. A bankruptcy trustee is granted fiduciary responsibility for the management and liquidation of the petitioner’s assets according to the rules governing the particular type of bankruptcy: Chapter 7, Chapter 11, Chapter 12, or Chapter 13.
A bankruptcy bond, also known as a bankruptcy trustee bond, is required in all states. It guarantees that a bankruptcy trustee will carry out his or her assigned duties in a completely lawful and ethical manner. The bond protects the petitioner’s creditors, not the bankruptcy petitioner.
Who Needs Them?
Any court-appointed bankruptcy trustee is required to obtain a bankruptcy bond. The exact terms of the bond will depend on the specific type of bankruptcy.
How Do They Work?
In this bond agreement, the court requiring the bond is the obligee, the bankruptcy trustee is the principal, and the company that underwrites and issues the bond is the surety. The bond amount is established by the court to cover the value of assets belonging to the petitioner or liquidated and not yet disbursed to a creditor or other party.
If the trustee violates any of the laws or court rules governing the performance of their fiduciary duties, the injured party may file a claim against the bond. The surety will pay all claims proven to be valid, but the trustee, as principal, must reimburse the surety the amount paid out to claimants. (Typically, the trustee will also forfeit all fees paid for the performance of fiduciary duties in the bankruptcy matter.)
What Do They Cost?
The key cost considerations for the surety pertain to the likelihood of a violation and the principal’s ability to repay any amounts paid to claimants should violations occur. Consequently, the surety’s underwriters will evaluate the trustee’s financial strength, personal capacity, and character in order to approve the bond application and set an appropriate bond premium rate.
The trustee will need to submit a resume or other proof of professional qualifications and reputation as well as the usual financial documentation as part of the bond application. A well-qualified applicant with good credit and strong financials may pay as little as 1% of the bond amount as the premium for the bond.
If you will be serving as a court-appointed bankruptcy trustee, we’ll help you get the bankruptcy bond you need. Use our convenient online system to apply today.