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When a principal files for bankruptcy
Alert gives guidance to sureties

Cleveland, Ohio (July 7, 2014) – For a surety, the bankruptcy filing of a principal raises a number of issues and several challenges, but it does not necessarily mean a loss for the surety. With some preparatory steps, coupled with prompt and careful post-bankruptcy actions, the surety can protect its rights and minimize its loss. Manju Gupta, an attorney in McDonald Hopkins’ Business Restructuring and Bankruptcy Practice, outlines some important considerations for a surety to best position itself to recover in a recent alert A practical guide for a surety when a principal files for bankruptcy.

Upon learning that one of its principals has filed for bankruptcy, a surety should first file a notice of appearance and request for service of papers. At the beginning of a bankruptcy case, a debtor will file what are commonly referred to as “first day motions” to facilitate the continued business operations of the debtor and protect the debtor’s assets from immediate loss. These first day motions are important and will influence how a surety’s bonded contract funds are handled.

Some important considerations for a surety seeking bonded contract funds in reimbursement of amounts paid on behalf of its principal include:

  • Notifying the owner/obligee of the surety’s interest
  • Filing a motion for relief from the automatic stay inherent in a bankruptcy case
  • Filing a motion to approve the use of cash collateral
  • Assumption or rejection of a surety’s contract
  • Filing a proof of claim
  • Creditors meeting and a Bankruptcy Rule 2004 Examination

Click here to read the alert in its entirety.

About the Business Restructuring and Bankruptcy team at McDonald Hopkins
The twists and turns of business restructuring are complex and demanding. Our attorneys approach every case with creativity and insight to ensure the solutions are cost-effective and practical. At every turn, you can be confident that our attorneys will guide you through the process, always providing practical and informed advice. We are positioned to respond to the special demands of a variety of matters in a wide range of industries, including health care, automotive, retail/distribution, franchise distribution and technology, real estate/construction, telecommunications, and mining/exploration.

About McDonald Hopkins
McDonald Hopkins has offices in Chicago, Cleveland, Columbus, Detroit, Miami, and West Palm Beach, as well as a subsidiary, McDonald Hopkins Government Strategies LLC, which is based in Washington, D.C. and led by former Congressman Steven LaTourette.  McDonald Hopkins Government Strategies is not a law firm and does not provide legal services.

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