Bankruptcy Trustee Bonds

Bankruptcy trustee bonds are a type of court fiduciary bond guaranteeing that court-appointed bankruptcy trustees will faithfully perform their assigned duties in bankruptcy proceedings.

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What is a Bankruptcy Trustee?

A bankruptcy trustee fulfills the purposes and procedures set by the U.S. Bankruptcy Code, and their duties vary based on the type of bankruptcy case.

In a Chapter 7 bankruptcy case, the bankruptcy trustee may be charged with liquidating and distributing such assets as real estate, stocks, and commodities, prosecuting customer claims against third parties, and administering bankrupt properties.

In a Chapter 11 bankruptcy case, the bankruptcy trustee may be authorized by the court to operate a business in order to reorganize it. They may file financial statements and tax returns, refinance debt, examine the debtor’s business premises and records, or perform other actions to re-establish the financial well-being of the debtor.

In a Chapter 12 or Chapter 13 bankruptcy case, bankruptcy trustees often adjust debts for the debtor by applying a payment schedule and dividing up monthly cash payments for distribution to creditors.

Why do you need a bankruptcy trustee bond?

The courts require a bankruptcy trustee bond to guarantee that the bankruptcy trustee will perform in good faith their stipulated duties as prescribed by the U.S. Bankruptcy Code. The bankruptcy trustee bond may be a blanket bond, meaning it will cover several cases assigned to a single trustee.

How does a bankruptcy trustee bond work?

A bankruptcy trustee bond works by covering claims for fiduciary duty violations committed by the trustee. Such violations may include theft, misappropriation of funds or property, misrepresentation, etc. A trustee who embezzles or otherwise violates their duties will forfeit the bond premium, which the surety company that issued the bond will use to address the claims made against the bond.

How much does a bankruptcy trustee bond cost?

Bankruptcy trustee bond cost is a percentage of the bond amount required from the trustee. That percentage will vary based on several factors, like personal capacity, financial strength, and the trustee’s character. See below for how to get a quote.

What is required to get a bankruptcy trustee bond?

The surety company underwriter will require the following:

  • Completed and signed bond application form
  • Financial statements (ex., bank statements, income, irrevocable line of credit, etc.)
  • Copy of the court order appointing the trustee and indicating the bond amount required
  • Copy of the court-specific bond form

Once the underwriter has everything they need, they will review all the documents and issue a decision. If approved, they will issue the bond to the trustee immediately.

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