What is a Bankruptcy Trustee Bond?

A Bankruptcy Trustee Bond is a type of court fiduciary bond that guarantees faithful performance of duty by court-appointed trustees in bankruptcy proceedings.

Both parties - creditors and debtors - involved in the bankruptcy case are not the Principals of this type of bond, but the Bankruptcy Trustee is. The bankruptcy trustee is assigned to the debtor, and the bond protects the creditors when a bankruptcy petition is filed.

The Obligee is the court that requires the bond to protect creditors, and the Surety financially backs up the bankruptcy trustee to ensure that he or she complies with court rules and ethical distribution of funds and assets to the appropriate creditors.

 

What is the role of a “Bankruptcy Trustee”?

The bankruptcy trustee plays a major role in fulfilling the purposes and procedures of the U.S. Bankruptcy Code. The trustee may play various roles depending on the type of bankruptcy case.

In a Chapter 7 bankruptcy case, the bankruptcy trustee may be in charge to "liquidate" and distribute real estate, stockbroker, and commodity assets, prosecute customer claims against third parties and administer bankrupt property.

In a Chapter 11 bankruptcy case, the bankruptcy trustee may be authorized to operate a business to "reorganize." He or she may timely file all financial statements and tax returns, refinance debt, examine the debtor’s business premises, books, and records at acceptable times, or other actions to re-establish the economic well-being of the debtor.

In Chapter 12 (for family farmers and fishermen) or Chapter 13 bankruptcy case, trustees most often "adjust" debts of a debtor by implementing a payment schedule and dividing up monthly cash payments for distribution to creditors.

The official duties of the trustee are defined in the Bankruptcy Code in Section 704. 

 

Why do you need a Bankruptcy Trustee Bond?

A Bankruptcy Trustee Bond is required by the courts to guarantee that the trustees perform their stipulated duties as prescribed in the Bankruptcy Code. The trustee is responsible for the collection, liquidation, disposition, and distribution of assets based on the type of bankruptcy case that has been filed.

According to Section 322 of the Bankruptcy Code, it specifically indicates the appointment of a trustee. The statute, written in favor of the United States, authorizes the bond requirement which is conditioned on the faithful performance of the trustee's fiduciary duties.

The bond required for a trustee may be a "blanket bond" meaning that is often used to cover several cases in which a single bankruptcy trustee is appointed.

 

How does a Bankruptcy Trustee bond work?

In issuing a Bankruptcy Trustee Bond, the Surety is considered to have submitted to the jurisdiction of the bankruptcy court, under the Rule 9025 of the Federal Rules of Bankruptcy Procedure.

The Bankruptcy Trustee Bond works by covering a claim for fiduciary duty violations by the bankruptcy trustee. These violations may include theft, misappropriation of funds or property, misrepresentation, and so on.

The Surety would be responsible for the bankrupt real estate property and assets of third parties that are mismanaged by the trustee. The trustee, together with the bond, may be held liable for the improper administration of funds from the bankruptcy or for the trustee's payment of applicable fees without the court order.

A bankruptcy trustee who embezzles or violates his or her trust will forfeit the fee. From this, The Surety may also be impelled to reimburse the bankruptcy estate for fees previously paid to the trustee, even though approved by the court.

 

How much does a Bankruptcy Trustee Bond cost?

A Bankruptcy Trustee Bond cost covers the percentage of the bond amount required from the trustee. The percentage will vary based on some factors, such as personal capacity, financial strength, and the applicant's character.

If you are ready to find out how much a Bankruptcy Trustee Bond costs, get a free quote now!

 

How do I obtain a Bankruptcy Trustee Bond?

If you've found your way to this page, no doubt you want to know more about the Bankruptcy Trustee Bond, and now you need one.

Your first move is to contact a reputable and experienced surety bond provider who will be able to guide you through the process, and, most importantly, set expectations.

The Surety will provide you an application form to fill out and submit. Be as detailed as possible, complete every section, and leave nothing blank.

Requirements to submit to the Surety:

  • Completed application form
  • Financial statements (bank statements, income, other sources of funds, irrevocable line of credit, etc.)
  • Court Appointment of Bankruptcy Trustee – a copy of the court order appointing the trustee and indicating the required bond amount
  • Specific Trustee Bond Forms – the Surety will need a copy of a court-specific bond form

The surety underwriter will review your documents. Once qualified, you will be issued the bond immediately!

For more information about Bankruptcy Trustee Bonds, contact us today!

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Bankruptcy Trustee Bond Infographic
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