Search

Does Filing Bankruptcy Affect Your Eligibility For A Lawsuit Loan?

Reading Time: 3 minutes
Does Bankruptcy Affect Your Eligibility For A Lawsuit Loan?

If you’ve been discharged from a Chapter 7 or 13 bankruptcy, your application for a lawsuit loan, also known as pre-settlement funding, won’t be impacted. That’s because when someone files for bankruptcy and receives a discharge, they are no longer responsible for paying certain debts.

However, having an ongoing bankruptcy while your personal injury lawsuit is pending can have implications for obtaining a lawsuit loan. This issue becomes more critical if you have unpaid taxes, alimony, or child support debt, as these take priority in bankruptcy proceedings because they continue after the discharge.

Nonetheless, it is still possible to secure pre-settlement legal funding, depending on the anticipated value of your lawsuit and the amount of any outstanding liens that will be discharged during bankruptcy.

Understanding the Proportion of Liens in Your Lawsuit Loan

When unpaid taxes, alimony, and child support constitute a substantial percentage of your expected lawsuit recovery, legal funding companies will deny your pre-settlement funding request. Conversely, if those liens are a smaller portion of the loan amount you seek, lenders may still be willing to provide a lawsuit loan. In some cases, they might even choose to pay off some of these liens on your behalf to lower the repayment amount once your lawsuit concludes.

The Inner Workings of Bankruptcy and Debt Distribution

Filing for bankruptcy triggers an automatic stay on all lawsuits involving you. These include those filed against you by creditors. The bankruptcy court evaluates your assets to repay creditors, categorizing your debts with different levels of priority based on the types of debts incurred prior to bankruptcy. Unpaid taxes, alimony, and past-due child support are among the highest-priority debts under the federal bankruptcy code. In contrast, assets, such as retirement accounts, are exempt and not available for division among creditors to settle your incurred debts.

Guidelines Followed by Lawsuit Loan Companies for Bankrupt Borrowers

Lawsuit lenders do not immediately dismiss potential borrowers who have filed for bankruptcy and still owe alimony, child support, or taxes. If you have a lawsuit with high value, funding providers may be interested in assisting you, irrespective of your ongoing bankruptcies. However, borrowers who are currently waiting for their bankruptcy to be discharged with existing liens will face additional scrutiny compared to those without such liens. This scrutiny arises because these liens are superior to the repayment of any settlement loan obtained once you receive your lawsuit proceeds.

For instance, many lenders are unwilling to offer pre-settlement funding if your active bankruptcy debt and liens exceed 10% of the amount you seek to borrow. This cautious approach arises from the potential risk these liens pose to the lender’s repayment prospects.

The Takeaway

While having an open bankruptcy can affect your eligibility for a lawsuit loan, it is not an impossible obstacle. The significance of debt that is not discharged, as well as the expected value of your lawsuit, plays a crucial role in lenders’ decision-making processes. If your unpaid debt during bankruptcy does not represent a substantial portion of the loan amount, lenders may still offer pre-settlement funding. Your liens may even be addressed on your behalf in some cases.

Instead of going through the hassle of filing for bankruptcy, many personal injury victims often opt for lawsuit loans from Baker Street Funding. We provide you with cash within 24 hours of approval, so you can use them to cover your bills or whatever else you need. While we typically will not offer legal funding if you owe more than 10% of your settlement value, it’s still worth applying because the expected value of your case may exceed your debt.

See what Baker Street Funding has to offer and get qualified for evaluation in less than an hour.

At Baker Street Funding, we give you the inside scoop on pre-settlement funding by covering a variety of ... financing and legal topics to help you made the best financial decision for you and for your case. Our experts break down complex ideas in a way that's easy to understand so you can stay informed on current trends as well as tips and fact checked information by the CEO and founder, Daniel Digiaimo. Furthermore, Despite its name, consumer legal funding is not a loan. If you don't win your case, no payment needs to be made back. To avoid confusion and simplify matters on, we'll use the word "loan" throughout this article.

See some of our settlement funding products

Learn more about pre-settlement funding

Select a legal funding service to get started. 

Attorney Requests

Lawsuit Loans

Litigation Funding

Personal Injury Loans

Settled Case Loans

Surgery Funding

Or just call us at 888.711.3599 to apply.