Bonds

Trustees, Receivers, or Institutions can be required to post a bond that guarantees faithful performance and obligations of the related duties in each of the following situations:

Chapter 7 Bankruptcy – Typically individuals, but in some cases, businesses file Chapter 7 bankruptcy.  The purpose of chapter 7 is primarily to liquidate assets into cash to pay off their debt to creditors.

Chapter 11 Bankruptcy – Businesses usually file Chapter 11 bankruptcy so that they are able to continue operating while reorganizing to reemerge as a profitable entity.  In rare cases individuals are allowed to file Chapter 11 bankruptcy as well.

Chapter 12 Bankruptcy – This bankruptcy filing is available to family farms and fisheries that are unable to pay their debt.  This provides protection from creditors taking action against their livelihood while they are in the process of satisfying their obligations.

Chapter 13 Bankruptcy – This bankruptcy filing allows for individuals to reorganize their debt enabling them to pay creditors some or all of what they owe.  A Chapter 13 Trustee will be appointed to develop and administer a repayment plan.  Some of the fiduciary responsibilities of the trustee include reviewing and verifying the financial information that the debtor provides, conducting meetings of the creditors and distributing funds to creditors. 

Subchapter V Surety Bond – The legislative purpose of the SBRA was to provide a fast track for small businesses to confirm a consensual plan with the assistance of a private subchapter V trustee.  Before beginning official duties, a person selected to serve as a trustee must file with the Court a bond within six days after selection. The initial amount and sufficiency of the bond is determined by the UST. 11 U.S.C. § 322.  In general, among the most important subchapter V trustee duties are assessing the financial viability of the small business debtor, facilitating a consensual plan of reorganization, and helping ensure that the debtor files or submits complete and accurate financial reports.

Depository Surety Bond – Financial institutions generally request depository surety bonds.  This bond protects account holder funds that exceed the limit of FDIC insurance.  In lieu of the financial institution pledging Treasury issued securities as collateral for their exposure, they can post a Depository bond.  This allows the financial institution to free up capital for other business purposes.

Receiver Surety Bond – A Receiver is an officer appointed by the Court who is given custody of specified assets with direction to liquidate them and distribute the proceeds. A Court order is typically required to appoint a Receiver, and the terms of the order describe the Receiver’s duties and powers.  Receiverships can be broadly divided into two types:

• Those related to insolvencyor enforcement of a security interest.
• A person is incapable of managing their affairs and so the court appoints a receiver to manage the property on their behalf—for example a receiver appointed by a Court of Protection under mental health legislation(in some jurisdictions, called conservatorship).

Assignee Surety Bond – An Assignment for the benefit of creditors is a process initiated by a distressed entity (assignor) entering an agreement with the party which will be responsible for conducting the wind-down and/or liquidation or going concern sale (assignee) in a fiduciary capacity for the benefit of the assignor’s creditors. The assignment agreement is a contract under which the assignor transfers all of its right, title, interest in, and custody and control of its property to the third-party assignee in trust. The assignee liquidates the property and distributes the proceeds to the assignor’s creditors.

Examiner Bond – In some Chapter 11 bankruptcy cases an Examiner is appointed by the court for the benefit of creditors and equity security holders.  An Examiner generally does not take control of the operations of the entity, but acts as an investigator of the pre-petition events of the debtor. Typically an Examiner is not appointed unless there is an issue with fraud or mismanagement. The Examiner will review the conduct of the business in order to assist in determining if reorganization is viable. The duties of an Examiner are dictated by the court with a wide range of possibilities. The court adapts the duties of the Examiner to accommodate each individual case and will issue an order outlining the specifics. The Examiner will then carry out these duties and report back to the court. 

Post Confirmation Surety Bond – Once a Chapter 11 plan is confirmed, a standard trustee bond is usually no longer required.  If the judge approves the reorganization plan and the creditors all agree, then the plan can be confirmed. Upon confirmation, the plan becomes binding and identifies the treatment of debts and operations of the business for the duration of the plan. There are numerous titles for post – confirmation fiduciaries.   Below are some examples of fiduciaries in post confirmation cases:

Liquidating Trustee Bond – After confirmation and appointment, the liquidation trustee then serves as the liquidation trust’s representative and is responsible for complying with the trust agreement (and confirmation order), liquidating the assets and making distributions to trust beneficiaries.

Disbursing Agent Bond – A Disbursing Agent may be appointed to serve under the Trust Agreement, may perform the obligations of the Trust under the Plan, the Confirmation Order, and the Trust Agreement with respect to all Distributions to Trust Beneficiaries, which include, without limitation, the Distribution of Trust Beneficial Interests and Distributions of Cash payments, and the creation and funding of the Reserve for Disputed Claims.

Plan Agent Surety Bond – When a Plan agent is appointed, they are responsible for the obligations outlined by the confirmed plan.

Appeal Bond / Supersedeas Bond

When a judgment has been rendered against a defendant, and the defendant wishes to appeal, to stay execution of the judgment the defendant must post a bond to guarantee satisfaction of the judgment, with interest and costs, if it be affirmed by the appellate court.

Attachment bonds act as security to protect a defendant from damages if his property is wrongfully attached by the plaintiff.

Condemnation bonds guarantee fair payment to a private property owner for the condemning of their property.  The amount of the bond is settled upon in a Court hearing with the property owner and company who is condemning the land.  A condemnation bond almost always is accompanied by a cost bond securing costs of the Court.

Cost bonds guarantee payment of court costs to the court.

Garageman’s Lien bonds guarantee payment of a tower’s invoice for services in exchange for return of the tractor-trailer while the invoice is disputed or litigated.

Jury cost bonds guarantee to the court that all costs related to a trial by jury will be paid by the bond principal, which is the party requesting the jury trial.

Preliminary Injunction Bond

TRO Bond (Temporary Restraining Order)

The two bonds are the same with the name varying by state.  Bond is often required when the court issues a restraining order or injunction restraining a party from doing a particular thing.  The security amount is set by the judge and protects the restrained party from damages if it is finally decided that the injunction was wrongfully issued.

Interpleader actions are normally filed by the party holding funds to which two or more other parties make claims.  The purpose of the Interpleader bond is to relieve the party that owes the money from further action while the other parties litigate their claims to the money.

Lost Instrument bonds can be given in certain cases in which a duplicate of an instrument can be issued if the original has been lost, stolen or destroyed.  Only those that are made payable to order of a named payee and are transferable only by the endorsement of or an assignment by the payee can obtain duplicates.  The bond guarantees that the original, if found, will not be turned in for payment.  Typical instruments that apply are certified checks, cashiers or treasurers checks, certificates of deposit, stock certificates, savings bank books and life insurance policies.

Mechanic’s Lien bonds release a lien on property.  Liens typically arise over payment disputes between contractors and homeowners.  With the lien will prevent the owner from selling the property, and releasing the lien through posting bond returns that right to the homeowner.

Medical Malpractice Cost bonds secure payment of the cost of a medical review panel in medical malpractice litigation.  These are most often found in Louisiana.

A PACA (Employment) bond is obtained by a licensed firm who would like to hire an individual who is currently under employment restrictions.  The bond provides assurance that business will be conducted in accordance with the PACA, and is held by PACA for 4 year plus 9 months.

A PACA (License) bond is needed when a company or principals of a company have been involved in a bankruptcy within the last three years.  The bond provides assurance that business will be conducted in accordance with the PACA. These bonds are held by PACA for 3 years plus 9 months.

A PACA (Reparation) bond is needed when a foreign company files a formal complaint against a PACA licensed firm.  The amount of the bond is double the amount of the complaint.

Receiver bonds are given upon the appointment of the Receiver to protect the defendant party from damages that may result from the appointment and acts of the receiver in case it be finally decided that a receiver should not have been appointed.

Release of attachment bonds run counter to an attachment bond.  In exchange for receiving the attached property, the defendant can post the bond to act as security in an equal amount to the value of the property and guarantees the defendant’s debt will still be paid.

Replevin or Sequestration bonds are given to protect a defendant from damages suffered as a result of loss of use of repossessed property if it is later determined that the replevin or sequestration action was wrongfully issued.

Sheriff’s Indemnity bonds secure the sheriff or marshal charged with the duty of executing the seizure of property in the event that damages are suffered by the party whose property has been seized as a result of wrongful seizure.  The amount of bond is typically twice the value of the property, but can vary from state to state.

Utility bonds are often required of utility customers to ensure they will pay all bills due for utility services.  If a principal on a bond fails to pay on time and in full, the utility company can file a claim against the bond.

Vessel Release bonds are given to the Court typically for in kind value as to the amount of the arresting party’s claim against the vessel or the vessel’s value itself in exchange for release of the vessel.

FIDUCIARY BONDS

• A fiduciary bond is sometimes required by the court from a person acting in a fiduciary capacity. The bond acts as security to ensure the fiduciary performs their duties in an honest and faithful manor.

• Administrator bond – guarantees the administrator of a deceased person’s estate will distribute the remaining assets of the estate appropriately and not misuse for personal gain.

• Conservator bond – fiduciary guarantee required by the court of the person appointed to administer the estate of one who has been declared incompetent.

• Executor bond – guarantees to the heirs that the executor will administer the decedent’s estate according to the will.

• Guardian bond – ensures that the affairs of a minor or incapacitated person are handled properly by the guardian.

• A curator bond is sometimes required by the court to guarantee the curator performs their duties according to the law.

• The tutor bond ensures the minor’s assets remains properly managed until the minor reaches majority age or the appropriate age required in the case.

Appraisal Management Company bonds are required by some states to ensure the AMCs follow the laws and regulations pertaining to the appraisal industry.

An auctioneer bond is a bond required by some states that ensure the auctioneer will comply with state regulations before obtaining their business license.

An Auctioneer Bankruptcy bond is required by the United States Bankruptcy Court to ensure the auctioneer faithfully performs their duties and provides accurate accounts to the court in a timely manner.  Single case bonds or annual bonds can be issued.

An Auctioneer Contract bond is a bond required in a contract between an auctioneer and a client.

Auto Title Company (ATC) bonds are required by the State of Louisiana, Office of Motor Vehicles of a condition of licensure to guarantee payment of all loss, damages and expenses due if the principal fails to obey the law.  The reporting of sales taxes is included as a guarantee of the bond.

Bullion Coin Dealer bonds are required in Minnesota to guarantee order fulfillment to its residents.  The bond amount is based on the dealer’s and its representative’s transactions during the previous 12 month period.

Car Wash bonds in the amount of $150,000 are required in New York City and the State of California to guarantee employees are paid fair wages and ensure they are provided ample break times, bathrooms, and other workplace basics.  In California, the bond guarantees compliance with Section 2055(b)(1) of the California Labor Code, and in New York City the bond ensures performance with NYC Administrative Code Section 20-542.

Certified Professional Employer Organization bonds (CPEO or PEO bonds) are required as a condition of becoming an IRS Certified Professional Employer Organization, and bond amounts range from $50,000.00 to $1,000,000.00.  CPEO bonds guarantee payment of FUTA/SUTA, and other co-employment related tax obligations.

A collection agency bond is a bond required by most states to ensure the collection agency will follow the industry rules and regulations before receiving their license.

Credit Services Organization bonds are required by some states prior to obtaining their business license. The bond protects consumers from damages that may occur from the actions of the CSO that they hire.

Debt Management Service Provider bonds are required by some states in order to obtain their license. The bond is to ensure the payments made by the debtors are appropriately handles by the provider to the creditor.

DMEPOS stands for Durable Medical Equipment, Prosthetics, Orthotics and Suppliers.  DMEPOS Bonds are required by the Centers for Medicare and Medicaid Services (CMS), and guarantee supply order fulfillment.

Health Club/Spa bonds guarantee compliance with state regulations by health clubs and also that pre-paid membership fees will be returned to members in the event the business closes.  Bonds are not required in all states, and businesses that might be required to post these bonds include fitness centers/gyms, recreational centers, martial arts studios/academies, swim and tennis clubs, etc.

Manufactured Housing bonds are required by some states to ensure that manufacturers, dealers, retailers, and installers follow the laws and regulations of the manufactured housing industry prior to obtaining their license. If they fail to complete a job and follow the industry laws, the bond protects consumers from the loss and damages caused by the Manufactured Housing licensee.

Money Transmitter bonds are required from Money Service Businesses (MSB) as a condition of obtaining and maintaining state Money Transmitter licenses.  The Money Transmitter bond protects the general public and government against bad actors that knowingly ignore regulations and skirt the laws, as well as companies that inadvertently break a law, statute, or rule.  MSB bond requirements vary widely by state, often depend on volume, and can range from $10,000 to $10,000,000.

Motor Vehicle Dealer, MVD, Auto Dealer, or DMV bonds guarantee that licensees will abide by statutory laws designed to protect the consumer from unscrupulous, fraudulent or certain illegal actions.  Most states require Dealer Bonds that range from $10,000 to $100,000.

Mortgage bonds are required in most states as a licensing requirement to guarantee the principal dutifully performs mortgage commitments, satisfies obligations, and accounts for any funds received in its capacity as a mortgage broker.  The bonds run in favor of the state for the benefit of any person injured by wrongful acts, default, fraud, or misrepresentation of the Principal.  The required amounts vary by state and range from $10,000 to $500,000.

Notary bonds guarantee that notaries will complete tasks and duties ethically and in accordance with state laws.

Private Investigator bonds/Detective bonds are required as a condition of obtaining and maintaining state licenses.  Private Investigator bonds guarantee compliance with applicable statutes, laws and regulations.

Professional Fundraiser bonds are required in most, but not all, states to guarantee that a charitable solicitor, professional fundraiser, paid solicitor, commercial fundraiser, PFR, or professional solicitor complies with local laws and ordinances that apply to charitable solicitation.  These bonds also guarantee proper accounting and remittance of a predetermined percentage of funds collected.

Professional Employer Organization (PEO) bonds are required as a condition of becoming an IRS Certified Professional Employer Organization, and bond amounts range from $50,000.00 to $1,000,000.00.  CPEO bonds guarantee payment of FUTA/SUTA, and other co-employment related tax obligations.

Public Tag Agent (PTA) bonds are required by the State of Louisiana, Office of Motor Vehicles as a condition of licensure.  Public Tag Agents act as a privatized arm of the DMV.

Real Estate Broker bonds are required by some states to ensure that any funds/property are handled properly when turned over to the real estate broker in a transaction.

SAG-AFTRA bonds ensure that franchised talent agencies associated with the Screen Actors Guild (SAG) and the American Federation of Television and Radio Artists (AFTRA) adhere to rules and regulations set forth by the organization.  The bond amount is $20,000, but is less if your state already has statutory Talent Agency bond requirement.

Talent Agency bonds are required in select states to ensure a talent agency conducts its operations in accordance with state laws and regulations. 

Tax bonds are required from retails applying for sales tax licenses and guarantee to the state the collection and remittance of sales taxes, along with ensuring compliance with applicable statutes, laws, and regulations.

Telemarketing bonds protect the general public and government to ensure compliance with laws and regulations that apply to telemarketing companies.

Third Party Administrator bonds are state requirements for obtaining and maintaining TPA licenses.  These bonds guarantee faithful compliance with state licensing laws and statutes.

Title Agency bonds ensure faithful performance of operations in accordance with state rules and regulations.

Utility bonds guarantee the payment of utilities by a Principal, and are typically used in lieu of a deposit to secure electrical or water service, some companies will accept a Utility Bond.

Airlines Reporting Corporation (ARC) bonds ensure travel agents will comply with their Agent Reporting Agreement (ARA) and that all payments collected by the travel agent will be sent to the proper airline company.  The bond is required in order to distribute airline tickets.

Customs bonds guarantee payment of fines, duties, penalties, etc. as may be due to US Customs and Border Protection under certain circumstances in connection with the importation of dutiable merchandise. 

Freight Forwarder bonds run in favor of the Federal Maritime Commission to protect consumers and those doing business with the FF from damages suffered as a result of the FF’s shipping-related activities and compliance with the Shipping Act.

Freight Broker bonds, Motor Carrier bonds, FMCSA bonds, BMC-84 bonds run in favor of the Federal Motor Carrier Safety Administration

GSA performance bonds are given to the U.S. General Services Administration by government contractors as part of financial security requirements in government contracts.  Should the contractor faithfully perform the terms of the government contract, then the bond is void, otherwise it will remain in effect.

NVOCC bonds run in favor of the Federal Maritime Commission to protect consumers and those doing business with the NVOCC from damages suffered as a result of the NVOCC’s shipping-related activities and compliance with the Shipping Act.

The PrePass/HELP Inc. bond guarantees that the principal will pay all tolls and fees associated with the service and comply with all terms and conditions of the service agreement.

Seller of Travel bonds ensure funds collected by travel agents are transferred to the correct individual or company.  They are common in Florida, California, and Washington.

Stevedore bonds guarantee compliance by contracting stevedores with applicable local ordinances in certain Counties/Ports.

United States Army Military Surface Deployment & Distribution Command (SDDC) bonds are required to ensure performance of US military contracts by companies that participate in the Domestic Freight Carrier Program with the SDDC and are registered as a Transportation Service Provider to transport Department of Defense Freight.

Florida Agricultural Products Dealer bonds ensure that the Principal will faithfully and truly account for and make payment to producers, their agents or representatives, and/or other licensed agricultural dealers, for all agricultural products bought, handled or sold.

A PACA (Employment) bond is obtained by a licensed firm who would like to hire an individual who is currently under employment restrictions.  The bond provides assurance that business will be conducted in accordance with the PACA, and is held by PACA for 4 year plus 9 months.

A PACA (License) bond is needed when a company or principals of a company have been involved in a bankruptcy within the last three years.  The bond provides assurance that business will be conducted in accordance with the PACA. These bonds are held by PACA for 3 years plus 9 months.

A PACA (Reparation) bond is needed when a foreign company files a formal complaint against a PACA licensed firm.  The amount of the bond is double the amount of the complaint.

Packers & Stockyards bonds are required by the USDA from every dealer, packer, market agency buying on commission, and clearing agency to guarantee their obligations to livestock sellers.

The Pennsylvania Milk Dealer and Sub-Dealer bond is a state licensing requirement and guarantees faithful compliance under the laws and regulations of the Commonwealth of Pennsylvania Milk Marketing Board.

Utility bonds are often required of utility customers to ensure they will pay all bills due for utility services.  If a principal on a bond fails to pay on time and in full, the utility company can file a claim against the bond.