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With the current economic situation many people are dealing with legal matters and possible bankruptcies. Bankruptcy can have some negative effects on your case. The decision is really a matter of timing. The most notable effect is that bankruptcy puts a stay on pending litigation. The “stay” is a “time out”. It is a period of time where everything is held in place and cannot change until the bankruptcy is over. For example, if you file for divorce, and them file for bankruptcy (or file a bankruptcy before your divorce is over) the divorce case is put in a time out. The normal sixty day wait from the filing of the divorce till you can have a final hearing is extended until the divorce is final.

There are ways to lift the stay and allow your case to go forward. Lifting a stay requires approval from the bankruptcy court and trustee. Lifting the stay may not resolve all your issues though. If the litigation will change your financial circumstances (money coming in or assets leaving) there could be liens placed on the assets by the bankruptcy trustee.

If the other side in your case files a bankruptcy, these same effects come into play. I have had several injury cases delayed for very long periods of time by bankruptcies filed by defendants.

If you have a legal matter to resolve, and there is a possibility of a bankruptcy as well, you should discuss the timing and strategy of both matters with your lawyer before you take any action. It may be best to start and finish one before the other. It is all a matter of timing, what is at risk and statutes of limitation.

In seventeen years I have never had to resort to a third party lawsuit funding group to complete a case. Personally I think these programs are a bad deal for plaintiffs and that clients and lawyers should avoid them. I have had a case or two where a client, against my strong advice otherwise, has gotten a cash advance on their case. Why do I think this is a bad idea? Because, it is a terrible interest rate, it ties up the closing of your case, and spends assets that should ultimately go to the client.

These services all essentially work the same. You are getting a loan, and your case is the collateral. The loan has a price tag in the form of a lien on the case that must be paid back before any money goes to the client. The companies rarely give a loan that is equal to any real value of the case, because they are not going to jeopardize their ability to recover. The structures vary from group to group, but they all expect to get more than the amount they give you up front.

When your case resolves your attorney must try to pay off all the medical bills, case expenses and attorneys fees, as well as the lien from your cash advance before the lawyer can give you any money. The problem is that the client usually wants more than is left over at that point. The client suffered the injury and the pain. The client feels like everyone is making money of the client’s pain, and that the client is getting nothing. It doesn’t matter to a client if they got a loan months or years ago, that money no longer exists in their mind. There is money from their case being parted out, and the client wants to be sure they got most of it. I don’t blame them. But the lien’s interest is in the accounting, messing up the final recovery to the client.

The problem only gets worse if the case hasn’t gone as hoped. Too often a fact comes up that nobody could foresee that changes a case’s expected outcome. The loan company isn’t going to care that your case went badly. If there was money paid on the case, the lender will want their contracted fee back.

You would avoid risky loans on your house, your car or anything else, avoid them on your case as well.