“The Impact of Bankruptcy on Terminating Surety and Fidelity Bonds,” American Bankruptcy Institute Journal October 2008

“Sureties believe that their risk of exposure significantly increases when a principal becomes insolvent or files for bankruptcy protection,” writes Bruce W. Hoover, a partner in Goldberg Segalla’s Business and Commercial Practice Group.

“As a result, sureties often seek to terminate their surety or fidelity obligations upon the principal’s insolvency or bankruptcy. The disposition and implications of a surety’s bond(s) where the principal has filed bankruptcy can be difficult to assess, since the Bankruptcy Code was not necessarily drafted with specific consideration for surety bonds, but rather the general rights and benefits necessary for debtors and creditors in general.”

In this article, Bruce discusses the issues a surety or fidelity must analyze in connection with seeking to terminate its surety and fidelity obligations upon the insolvency or bankruptcy of its principal, including the interplay between the rights of a surety or fidelity under the terms of the applicable bond and rights of debtors under the Code.

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