What is a Bankruptcy Trustee Bond?
The bankruptcy trustee bond is a type of court bond. It is usually required by a court of individuals that it appoints as trustees in bankruptcy proceedings.
What is the purpose of the bankruptcy trustee bond?
This bond guarantees that anyone appointed as a trustee in a bankruptcy case will comply with their obligations under the US Bankruptcy Code.
This includes their obligations towards the beneficiaries in the proceeding, such as the handling of assets during the proceeding, their collection, liquidation, disposition, or distribution.
If a trustee violates their obligations and thereby causes losses to the beneficiaries they were supposed to assist, a claim can be filed against their bond to secure compensation for such losses.
The Bankruptcy Code lists several different types of bonds which may be required of trustees, depending on the specific bankruptcy proceeding.
Under Chapter 7, the trustee is given authority to liquidate and distribute various types of assets, such as real estate, stockbroker assets and others. This bond is usually a blanket bond but may also be issued individually.
Under Chapter 11, a trustee is tasked with reorganizing and operating a business. In this role, they are often given fairly great decision-making authority about how to fix the business. The bond required of them in this instance is an individual one.
Under Chapters 12 and 13, the trustee's responsibility lies in implementing solutions to adjust a debtor's debts. This bond may be issued individually or as a blanket bond to a panel of trustees.
The amount of any of these bonds is determined by the court when it appoints the trustee.
If you have never heard of surety bonds before, see our ‘What is a surety bond' guide to understand how they work, and why you need one!
You can learn more about the cost of this bond, and how to get bonded in the sections below.
If you have any questions about the trustee bond you've been asked to obtain, call us at 866.450.3412 to consult with our bond experts!
What's the Cost of the Bankruptcy Trustee Bond?
Your bond's cost is a percentage of its full amount.
Once the court orders you to obtain a bond in a certain amount, the surety will offer you a rate at which you can get bonded which is based on the following financial factors.
Factors that determine your bond premium
The primary factor considered by sureties when determining an applicant's bond rate is your personal credit score.
The higher an applicant's score, the lower their bond rate usually is. A high credit score is an indicator for sureties that the applicant is financially stable and reliable, and that they are less likely to give rise to a claim against their bond.
Apart from credit score, the surety may also request to review your personal and business financial statements, obtain information about any fixed or liquid assets you possess, and even your professional background.
As a general rule, applicants with very good credit scores can expect to be offered a rate on their bond between 1% and 2% of the total amount of their bond.
How Do Bond Claims Occur?
If a bonded trustee to a bankruptcy proceeding is found to be in breach of their responsibilities toward beneficiaries, the latter may decide to file a claim against the trustee's bond.
Claims are typically filed when the violations of the bonded party lead to damages or losses to the party protected by the bond agreement (the obligee).
When a claim is filed against the trustee's bond, the surety will investigate the claim to determine whether and to what extent beneficiaries of the trustee have suffered losses. If the surety establishes the claim to be legitimate, it will then determine the appropriate amount of compensation to extend.
Even though the surety may compensate claimants, it is the bonded bankruptcy trustee who is liable for the claim. This means that the costs of a bond claim must be covered by the trustee who must reimburse the surety for any money it extends to claimants.
How Do I Apply For a Bankruptcy Trustee Bond?
To get started, see our court bond application page. You will need to download and complete several forms, and submit them to us.
We will then get in touch with you to provide you with your free bond quote, and more information about the bonding process.
Do you have any questions about this type of bond? Give us a call at 866.450.3412 to speak to one of our bond professionals!