Can you be bonded after a bankruptcy? It depends.

Category: Uncategorized
Published: Oct 2, 2014
Bankruptcy

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Obviously nobody wants to file for bankruptcy, but sometimes people have no choice. A bankruptcy can affect your life in many ways and it is only natural for you to want to know more about them and be better prepared.

One way in which a bankruptcy can have an impact on you is by affecting your chances of getting bonded, i.e. obtaining a surety bond. Not all bonds, however, are the same. To what extent a bankruptcy will affect your ability to get bonded will depend on the type of bankruptcy, the type of the bond and several other factors. Whether you have recently filed for bankruptcy or have one on your history read on to find out how you can still get a surety bond.

Types of bonds

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There are many types of bonds and a bankruptcy will affect them diffirently

Like I said, when an applicant has filed for bankruptcy, whether they can get bonded or not will depend on the type of the bond they wish to obtain. There are two main types of surety bonds: license bonds and contract bonds.

You need license bonds, also known as commercial bonds, in order to get a business permit or license for your business. For example, an auto dealer in Texas will need an auto dealer bond and a mortgage broker in New York will need a mortgage broker bond if they want to legally operate in their respective states.

That being said, there is one type of license bond, which some employers require from their employees or prior to hiring a cindadate. It is called a fidelity bond and it protects employers from some common forms of employee dishonesty such as theft and fraud. People are frequently concerned about their ability to get that particular bond following a bankruptcy.

Then there are contract bonds which are a bit different. Also called construction bonds, they are required from general construction contractors working on certain public projects.

The effect of bankruptcies

Injured Piggy Bank WIth Crutches

A bankruptcy makes you a high-risk applicant, but you can still get a surety bond.

In order to know how a bankruptcy can affect your ability to get a surety bond, you need to know more about how the bonding process works.

When a surety underwrites your bond, they assume a legal and financial responsibility on your behalf. That is why they prefer to work with applicants which pose a smaller risk of trigger a claim and getting them involved in legal trouble. They take your personal credit score as on estimate of how like you are to fulfill your contractual obligations, therefore not cause a claim to be filed against you.

If you have bad credit (typically 650 or below) you will be considered high risk by the surety. The end result is that you either cannot get bonded or can do so but at a higher price. Now is the time to say that high-risk applicants can obtain license bonds, but not contract bonds.

As you are probably aware, filing for bankruptcy will severely compromise your credit score and will automatically turn you into a high-risk applicant. It will continue to impact your credit score for as long as it is listed on your report, depending on the type of bankruptcy.

A bankruptcy in itself is also considered a read alert for your surety along with other credit issues such as unpaid dues, civil judgments or tax liens. Still, you shouldn’t get discouraged as most high risk applicants are able to obtain a license bond. The only exception to this is if your bankruptcy is open in which case sureties are certain to deny you a surety bond.

A word on fidelity bonds

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It’s best to disclose your financial history during job interviews.

Even though fidelity bonds also fall under the category of license bonds, there are people who worry they won’t get the bond and will be denied a job position. You should know that is illegal for any employer to discriminate against you, whether you are an employee or a job applicant, just because you have filed for bankruptcy.

There is a market for high-risk applicants for fidelity bonds, so you should be able to obtain the bond without too much hassle. If your criminal record is clean, this will further increase your chances of getting a bond.

The only exception might be if you are applying for some government positions, such as high positions at the U.S. Treasury, but these are very rare cases. Keep in mind that the bond requires you to disclose your financial history of up to 10 years to your potential employer, so your best policy will be to be honest as possible during the interview.

Conclusion

Lance Surety Bonds has a rich expertise in bonding applicants with all sorts of credit issues. If you are worried about your bankruptcy affecting your ability to get bonded, call one of our agents and (877) 514-5146 and they will be happy to assist you.

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Victor Lance is the founder and president of Lance Surety Bond Associates, Inc. He began his career as an officer in the U.S. Marine Corps, serving two combat tours. As president of Lance Surety, he now focuses on educating and assisting small businesses throughout the country with various license and bond requirements. Victor graduated from Villanova University with a degree in Business Administration and holds a Masters in Business Administration (MBA) from the University of Michigan's Ross School of Business.