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In Law, What Are the Different Types of Bonds?

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  • Written By: Staci A. Terry
  • Edited By: Allegra J. Lingo
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  • Last Modified Date: 06 December 2016
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There are many different types of bonds used in the legal arena. Some of the most common types of bonds include municipal bonds, bail bonds, and appeal bonds. The purpose of each of these types of bond is to secure the obligation of another person, whether that obligation is to support a project, pay a judgment, or appear in court. In most cases, national or local jurisdiction laws govern the different types of bonds, so their nature and requirements may differ from one area to the next.

A municipal government bond is a government issued debt used to finance some sort of public improvement project, such as the restoration or establishment of roads, bridges, or sewer systems. Government entities eligible to issue municipal bonds include cities, towns, school districts, utility districts, or any type local government body. Many municipal bonds are general obligation bonds, which are issued when the government entity uses its credit to back the bond, as derived from its power of taxation. Unlike most bonds, there is no collateral pledged in support of the bond. General obligation bonds are not dependent on any revenue from any improvement project for repayment.

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An insurance company issues a bail bond through a bail bondsman, which permits the release of a defendant or a person accused of a crime prior to his or her court trial. A bail bond secures the appearance of the defendant at subsequent court hearings and trials. If the defendant subsequently fails to appear, the bail bondsmen must locate and produce the defendant, or the court will order the bond forfeited. In order to obtain a bail bond, a defendant typically must pay the bondsman no less than ten percent of the face value of the bond, and sometimes requires the posting of additional collateral to secure the bond, such as real estate. Some jurisdictions refer to bail bonds as surety bonds.

A party who is appealing a court judgment to a higher court often must post an appeal bond with the court. An appeal bond secures or guarantees the execution of the fiduciary’s duties in the event that the appeal is unsuccessful. The theory behind an appeal bond is to ensure that the plaintiff still can recover payment on the judgment, despite failure of the appeal, even if the party who owes the judgment becomes insolvent or the judgment otherwise becomes uncollectible. Like a bail bond, the amount of an appeal bond is set by a court. These types of bonds may differ from one jurisdiction to the next, and are dependent on local law.

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