Bankruptcy and the Surety – Now What?

“We received notice that a bankruptcy was filed related to XYZ Project.” These words can cause fear and confusion for sureties and other parties involved. Bankruptcy on a construction project affects the rights and obligations of all parties, including sureties. Many of the typical ways in which a surety handles a construction project or indemnity event are influenced by the Bankruptcy Code, and the parties’ contractual rights will be affected by bankruptcy law in ways that may not reflect the parties’ original intent. Bankruptcy Court is not always a friendly forum for insurers, and immediate action is required to make sure the surety complies with a complicated set of bankruptcy rules while fulfilling its obligations under the surety agreement. Without a good understanding of the bankruptcy process, it can be costly and intimidating for the surety.

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