diff --git a/surfsense_backend/app/tasks/chat/streaming/flows/shared/terminal_error.py b/surfsense_backend/app/tasks/chat/streaming/flows/shared/terminal_error.py
new file mode 100644
index 000000000..c9db2caf2
--- /dev/null
+++ b/surfsense_backend/app/tasks/chat/streaming/flows/shared/terminal_error.py
@@ -0,0 +1,120 @@
+"""Handle the ``except Exception`` branch of a streaming flow.
+
+Classifies the exception, records OpenTelemetry attributes, emits one terminal
+error SSE frame and the trailing ``turn-status: idle`` + finish/done frames.
+
+Used by both ``stream_new_chat`` and ``stream_resume_chat``; flow-specific bits
+(label, span, BusyError tracking) are passed by the caller.
+"""
+
+from __future__ import annotations
+
+import logging
+import traceback
+from collections.abc import Iterator
+from typing import Any, Literal
+
+from app.agents.new_chat.errors import BusyError
+from app.observability import metrics as ot_metrics
+from app.observability import otel as ot
+from app.services.new_streaming_service import VercelStreamingService
+from app.tasks.chat.streaming.errors.classifier import classify_stream_exception
+from app.tasks.chat.streaming.errors.emitter import emit_stream_terminal_error
+from app.tasks.chat.streaming.flows.shared.first_frames import iter_final_frames
+from app.tasks.chat.streaming.flows.shared.span import record_outcome_attrs
+
+logger = logging.getLogger(__name__)
+
+
+def handle_terminal_exception(
+    exc: Exception,
+    *,
+    flow: Literal["new", "regenerate", "resume"],
+    flow_label: str,
+    log_prefix: str,
+    streaming_service: VercelStreamingService,
+    request_id: str | None,
+    chat_id: int,
+    search_space_id: int,
+    user_id: str | None,
+    chat_span: Any,
+) -> tuple[Iterator[str], dict[str, Any]]:
+    """Classify, log, and produce the SSE frames for a terminal exception.
+
+    Returns ``(frame_iterator, summary)``. ``summary`` carries::
+
+      - ``busy_error_raised``: bool — caller must skip the lock-release path
+        when True (caller never acquired the busy mutex).
+      - ``chat_outcome``: str  — span outcome attribute.
+      - ``chat_error_category``: str — categorized error label for metrics.
+    """
+    busy_error_raised = isinstance(exc, BusyError)
+
+    (
+        error_kind,
+        error_code,
+        severity,
+        is_expected,
+        user_message,
+        error_extra,
+    ) = classify_stream_exception(exc, flow_label=flow_label)
+    chat_outcome = error_code or error_kind or "error"
+    chat_error_category = ot_metrics.categorize_exception(exc)
+    record_outcome_attrs(
+        chat_span,
+        chat_outcome=chat_outcome,
+        chat_error_category=chat_error_category,
+    )
+    with __suppress():
+        ot.record_error(chat_span, exc)
+    error_message = f"Error during {flow_label}: {exc!s}"
+    # Match the original behavior: log full traceback via ``print`` so it lands
+    # in stderr regardless of the logger config.
+    print(f"[{log_prefix}] {error_message}")
+    print(f"[{log_prefix}] Exception type: {type(exc).__name__}")
+    print(f"[{log_prefix}] Traceback:\n{traceback.format_exc()}")
+
+    def _iter_frames() -> Iterator[str]:
+        if error_code == "TURN_CANCELLING":
+            status_payload: dict[str, Any] = {"status": "cancelling"}
+            if error_extra:
+                status_payload.update(error_extra)
+            yield streaming_service.format_data("turn-status", status_payload)
+        else:
+            yield streaming_service.format_data("turn-status", {"status": "busy"})
+
+        yield emit_stream_terminal_error(
+            streaming_service=streaming_service,
+            flow=flow,
+            request_id=request_id,
+            thread_id=chat_id,
+            search_space_id=search_space_id,
+            user_id=user_id,
+            message=user_message,
+            error_kind=error_kind,
+            error_code=error_code,
+            severity=severity,
+            is_expected=is_expected,
+            extra=error_extra,
+        )
+        yield from iter_final_frames(streaming_service)
+
+    return (
+        _iter_frames(),
+        {
+            "busy_error_raised": busy_error_raised,
+            "chat_outcome": chat_outcome,
+            "chat_error_category": chat_error_category,
+        },
+    )
+
+
+def __suppress():
+    """Local single-use ``contextlib.suppress(Exception)`` factory.
+
+    Inlined here so callers don't import ``contextlib`` just for the
+    ``record_error`` call site.
+    """
+    import contextlib
+
+    return contextlib.suppress(Exception)