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The Bankruptcy StrategistLJN NewslettersNewsSections

CT Bankruptcy Court Invalidates Lawsuit Funding Agreement

By John B. Spitzer
April 01, 2016

Lawsuit funding companies have routinely filed claims as creditors in tort plaintiffs' bankruptcy actions when the debtor has failed to repay litigation funding advances. Whether bankruptcy courts will enforce lawsuit funding agreements depends on the applicable state law.

Creditors should take note of recent cases invalidating or upholding state regulation of lawsuit funding agreements. For example, in Global Injury Funding, LLC v. Knight (In re Knight), 538 B.R. 191 (Bankr. Conn. 2015), a bankruptcy judge in Connecticut recently invalidated a lawsuit funding agreement. The court focused on the applicable state law in rejecting the lawsuit funding company's (Global) attempt to enforce the following provision of its agreement with Jesse K. Knight, a personal injury claimant, to whom it had advanced funds:

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