The following article was contributed by John Hanley and Douglas Schneller of Rimon Law, P.C.
An issue that keeps some litigation funders up at night concerns the possibility of a claimant filing for bankruptcy after receiving funding and before their underlying case is resolved. Proceeds from the case may become property of the bankruptcy estate and made available to the transferor’s creditors. A carefully drafted litigation funding agreement (“LFA”) can increase the likelihood that the right to receive a portion of litigation proceeds is legally isolated (like the island in the picture above) and beyond the reach of the transferor’s creditors or a bankruptcy trustee.[1]
