A cost bond is a financial guarantee a party in a lawsuit posts to assure the court that, if they lose, the other side’s taxable litigation costs will be paid. Courts most often require one from non-resident plaintiffs, civil appellants, and parties seeking injunctions. The amount is usually modest compared with the stakes of the case, and most litigants obtain the bond through a surety company for a one-time premium of roughly one to two percent of the bond’s face value.
What the Bond Actually Covers
“Costs” is a narrower word than it sounds. It doesn’t mean attorney fees, damages, or the full judgment. Under federal law, taxable costs include clerk and marshal fees, transcript fees, witness fees, copying costs for documents used in the case, docket fees, and compensation for court-appointed experts or interpreters.1Office of the Law Revision Counsel. 28 U.S. Code 1920 – Taxation of Costs State courts use similar lists with their own caps and variations.
Because the scope is limited, cost bond amounts tend to be relatively small. That makes them easier to obtain than bonds that secure a full judgment, but it also means a cost bond is not protection against the real financial exposure of losing a case.
When a Court Requires a Cost Bond
A cost bond doesn’t appear on its own. Either a statute triggers it, the opposing party asks for one, or the judge orders it as a condition of some other relief.
Non-Resident Plaintiffs
Many states let a defendant demand security for costs when the plaintiff lives out of state. If an out-of-state plaintiff loses, chasing them across jurisdictions to collect taxed costs is expensive and uncertain, so a bond puts the money within the court’s reach from the start. The defendant typically has to file a motion or serve a formal demand before the court will order it.
Civil Appeals
Federal Rule of Appellate Procedure 7 gives a district court power to require a civil appellant to post a bond or other security “in any form and amount necessary to ensure payment of costs on appeal.”2Legal Information Institute. Federal Rules of Appellate Procedure Rule 7 – Bond for Costs on Appeal in a Civil Case It’s not automatic. The appellee usually has to request it, and the court weighs factors like the appellant’s ability to pay and the likely cost of the appeal. The bond amount reflects estimated appellate costs, not the underlying judgment.
Preliminary Injunctions and TROs
When a party asks the court to freeze things through an injunction or temporary restraining order, Federal Rule of Civil Procedure 65(c) requires the movant to post security first. The security covers costs and damages the restrained party might suffer if the order turns out to have been wrongful.3Legal Information Institute. Federal Rules of Civil Procedure Rule 65 – Injunctions and Restraining Orders The judge sets the amount. The only automatic exemption is for the United States government and its agencies.
Shareholder Derivative Suits
Several states require shareholders bringing derivative suits on behalf of a corporation to post security for the corporation’s expenses unless they own enough stock to have real skin in the game. New York, for example, exempts plaintiffs who hold at least five percent of any class of shares or whose holdings exceed $50,000 in fair value. Shareholders below those thresholds can be ordered to post security covering reasonable expenses, including attorney fees, at any point before final judgment.4New York State Senate. New York Business Corporation Law 627 – Security for Expenses in Shareholders Derivative Action The purpose is to discourage strike suits.
Judicial Discretion
Even without a specific statute, a judge can order a cost bond when the circumstances justify it. A pattern of filed-and-abandoned cases, unusually high projected costs, or other reasons to doubt a party’s willingness or ability to pay can all support an order.
How to Obtain a Cost Bond
Most people get one through a surety company. The surety guarantees the court that it will pay valid claims against the bond if you don’t. You pay a premium and sign an indemnity agreement that makes you personally responsible for reimbursing the surety for anything it ends up paying out, including the surety’s legal fees in handling a claim.
The Application
Applications are straightforward. You provide the case name, the court, the required bond amount (from the court’s order), and basic identification. Smaller bonds can be approved in a day or two on a credit check alone. Larger bonds involve more scrutiny: the surety may review your income, assets, and liabilities before issuing the bond and setting a premium rate.
What It Costs
For a standard cost bond, the premium typically runs about one to two percent of the face amount. A $10,000 cost bond might cost $100 to $200. Injunction bonds and other higher-risk judicial bonds carry higher rates. Credit history, case complexity, and bond size all affect the price. The premium is non-refundable regardless of how the case turns out. For high-value bonds or weaker credit, the surety may also require collateral, such as a cash deposit or an irrevocable letter of credit, which is returned when the bond is released.
Alternatives to a Surety Bond
A surety bond isn’t the only way to satisfy the requirement.
Cash or Government Securities
Federal law lets anyone required to post a surety bond instead deposit an “eligible obligation,” meaning cash or qualifying government securities, equal to or greater than the bond amount. The deposit goes to the official who would have approved a surety bond, and it has the same legal effect.5Office of the Law Revision Counsel. 31 U.S. Code Chapter 93 – Sureties and Surety Bonds You skip the non-refundable premium, but your money is tied up for the life of the case, and recovering it after the case ends usually requires a formal motion.
In Forma Pauperis Status
If you genuinely cannot afford the bond, federal courts can waive the requirement under the in forma pauperis statute. You file an affidavit detailing your assets and explaining that you cannot pay the required fees or give security.6Office of the Law Revision Counsel. 28 U.S. Code 1915 – Proceedings in Forma Pauperis Approval isn’t automatic, and the court can revoke the status if your finances improve, but it’s a real option for litigants who would otherwise lose their case solely because they can’t afford to post security.
What Happens If You Don’t Post the Bond
Ignoring a cost bond order is one of the quickest ways to lose a case on procedural grounds. Courts treat failure to post a required bond as grounds for dismissal. A Federal Judicial Center study documented multiple appeals dismissed solely because the appellant failed to pay the ordered FRAP 7 bond.7United States Courts. Federal Judicial Center Exploratory Study of the Appellate Cost Bond The same principle applies at the trial level: if a non-resident plaintiff is ordered to post security and misses the deadline, the typical result is dismissal or nonsuit.
Deadlines are specific and extensions aren’t guaranteed. If you’ve been ordered to post a bond and are struggling to obtain one, raise the problem with the court before the deadline, not after.
Cost Bond vs. Other Judicial Bonds
Cost bonds belong to a larger family of judicial bonds, and the labels get mixed up often enough to cause real problems with courts and sureties.
- Cost bond: secures the opposing party’s taxable litigation costs only. Amount is relatively small.
- Supersedeas bond: stays enforcement of a trial court judgment during an appeal. Amount usually equals or exceeds the full judgment plus interest, making these far more expensive.
- Appeal bond: sometimes means a cost bond on appeal under FRAP 7, sometimes means a supersedeas bond. If a court orders an “appeal bond,” confirm whether it covers only appellate costs or the full judgment.
- Injunction bond: secures damages if a preliminary injunction or TRO is later found to have been wrongfully issued. Amount is set by the judge based on potential harm to the restrained party.
Confusing a cost bond with a supersedeas bond can mean either posting inadequate security or paying for a much larger bond than the court actually required.
After the Case Ends
If no costs are awarded against you, the bond needs to be formally released. That usually means filing a motion to exonerate the bond, after which the court signs an order releasing the surety. Depending on the court’s workload, release can take 60 to 120 days. Cash deposits take a separate motion and additional processing time to recover.
If costs are awarded and you pay them directly, the bond is released the same way. If you don’t pay, the opposing party files a claim against the bond. The surety pays the valid claim and then enforces its indemnity agreement against you for the full amount plus its own legal fees and expenses. That recovery right is broad, and sureties enforce it aggressively, which is why the real cost of a bond can far exceed the premium if a claim ever gets filed.