Guide
When you’re in the middle of a lawsuit, hearing that the defendant has filed for bankruptcy can be alarming. Plaintiffs often worry that bankruptcy will derail their case—or worse, jeopardize their pre-settlement funding.
The reality is more nuanced. A defendant’s bankruptcy does not automatically cancel your lawsuit or your pre-settlement funding, and in many cases, plaintiffs can still pursue compensation. This article explains what bankruptcy means for your case, how funding is affected, and why having financial stability during this period is more important than ever.
Understanding Defendant Bankruptcy in Personal Injury Cases
When a defendant files for bankruptcy, they are seeking court protection from creditors. Depending on the type of bankruptcy, this may temporarily pause—or “stay”—certain legal actions.
Common bankruptcy types include:
Chapter 7: Liquidation of assets
Chapter 11: Business reorganization
Chapter 13: Personal repayment plan
However, personal injury claims are treated differently than standard debts, and many are allowed to proceed despite bankruptcy filings.
Does Bankruptcy Automatically Stop Your Lawsuit?
No—not always.
In many personal injury cases:
Claims may proceed if insurance coverage applies
Lawsuits can continue against insurance policies
Courts may lift the automatic stay for injury claims
Bankruptcy courts often allow injury victims to pursue compensation
If the defendant has liability insurance, the insurer—not the bankrupt defendant—is usually the source of settlement funds.
Your attorney will determine whether the case can continue, be paused temporarily, or proceed through bankruptcy court.
What Happens to Pre-Settlement Funding During Bankruptcy?
Pre-settlement funding is tied to your case, not the defendant’s financial health. That means:
Your funding agreement remains valid
You do not owe repayment unless your case results in compensation
You are not required to make payments during the bankruptcy process
Funding does not convert into personal debt
If the case is delayed due to bankruptcy proceedings, funding can be especially helpful in maintaining financial stability.
Can You Still Receive Funding If Bankruptcy Occurs?
In many cases, yes—especially if:
The defendant has insurance coverage
The claim is allowed to proceed in bankruptcy court
Liability remains strong
Your attorney confirms the path forward
Instabridge works closely with your attorney to reassess the case and determine whether existing or additional funding remains appropriate.
Why Bankruptcy Often Delays—but Doesn’t Destroy—Cases
Bankruptcy can slow cases down because:
Courts must determine claim priority
Insurance coverage must be clarified
Additional approvals may be required
Proceedings may be temporarily stayed
But delay does not mean denial. Many injury claims resolve successfully after bankruptcy-related issues are addressed.
Why Financial Stability Matters During Bankruptcy Delays
When bankruptcy adds months—or even years—to a case timeline, plaintiffs still need to:
Pay rent or mortgage
Cover utilities and groceries
Continue medical treatment
Avoid credit card debt or collections
Support family members
Pre-settlement funding helps bridge this uncertainty without forcing plaintiffs into rushed or unfair decisions.
How Instabridge Handles Bankruptcy-Related Cases
Instabridge understands that bankruptcy adds complexity—and stress—to an already difficult situation. We offer:
Case re-evaluation when bankruptcy is filed
Attorney coordination to assess insurance and claim viability
Transparent guidance on funding status
Non-recourse protection—you owe nothing if the case fails
Flat-rate pricing with no compounding interest
Our goal is to support plaintiffs responsibly through unexpected legal developments.
Conclusion: Bankruptcy Doesn’t Mean the End of Your Case—or Your Support
A defendant’s bankruptcy can be unsettling, but it does not automatically end your lawsuit or eliminate your chance of compensation. In many cases, claims proceed through insurance or bankruptcy court—and pre-settlement funding remains a valuable tool for financial stability during the delay.
If you’re concerned about how a bankruptcy filing affects your case or your funding, contact Instabridge today. We’ll work with your attorney to explain your options clearly and help you stay supported while the legal process continues.
