Bankruptcy Trustee Bonds Explained
Bankruptcy trustee bonds are a type of court bonds. You may need to provide such a bond if you are appointed as a bankruptcy trustee. The court may demand the bonding to ensure you will adhere to all obligations you have been entrusted in this role.
In this way, the court aims to guarantee that the interests of trustee beneficiaries are protected. In case you fail to fulfill your duties as a bankruptcy trustee, the harmed party can file a claim to seek reimbursement.
Your bond is a contractual agreement between three entities, with you as the bankruptcy trustee being the principal. The court that requires the bond is the obligee in order to safeguard trustee beneficiaries. The surety provides you with bonding.
Questions about Bankruptcy Trustee Bonds
When do I have to post a bankruptcy trustee bond?
You may need to provide a bankruptcy trustee bond if you have to act as a bankruptcy trustee in a court case. By requiring this bond, the court aims to guarantee an additional layer of protection for trustee beneficiaries, which are typically the creditors of the entity that is filing for bankruptcy. The bond also ensures that the U.S. Bankruptcy Code is being upheld in full and that you will lawfully take care of any collection, disposition, liquidation, or distribution of property and assets ordered by the court.
There are three main types of these bonds, depending on the bankruptcy case:
Chapter 7 trustee bonds - typically provided as a blanket bond, but may also be on an individual basis; they are needed in cases of liquidation when the trustee has to distribute property and assets.
Chapter 11 trustee bonds - provided on an individual basis; they are required in cases when the trustee is assigned to operate and reorganize the company in bankruptcy.
Chapter 12 and 13 trustee bonds - can be provided to individuals, or as a blanket bond to a panel of trustees; they are required in cases of debt adjustment.
How much does the bonding cost?
The price that you will have to pay for a bankruptcy trustee bond depends on the bond amount that the court has assigned to you. The surety bond cost represents a small percentage of it, called the bond premium.
The bond price is determined through a thorough examination of your finances. Depending on whether you're an individual or a business, the factors that matter would be either your personal credit score and personal statements, or will be accompanied by company financials as well in the case of a business. By considering these indicators, the surety that you apply with judges the level of bonding risk, which is the likelihood of non-payment on proven claims against your bond.
Can I obtain this bond with bad credit?
Typically, surety underwriters do not provide court bonds to applicants with bad credit. The decision whether a bankruptcy trustee bond can be provided to you would depend largely on the strength of your finances. The better the shape, the higher your chances of getting bonded would be.
How do I get bonded?
The process for obtaining your bankruptcy trustee bond is the following:
Fill them out and send them to [email protected] or fax them to (267)-362-4817.
Would you like to learn more about the bonding process and its intricacies? You can refer to our extensive How to Get Bonded page.
Lance Surety Bonds' experts are available to address your queries and help you with your bond application. You can reach us at (877) 514-5146.
What is the process in case of a bond claim?
In case a bankruptcy trustee fails to fulfill their legal obligations, or engages in fraud or theft of the entrusted assets or property, a harmed party such as a trustee beneficiary can file a claim against the bond. The maximum compensation is the bond amount posted.
If the case is proven, the trustee will have to provide the required financial compensation. The surety ensures a fast reimbursement and may step in to pay the claim at first. However, the bankruptcy trustee is ultimately liable for all incurred costs. Thus, claims are a serious financial threat, and it is best to avoid them.