Galindo Law Firm Bankruptcy: Judge Approves $7.5M Deal to Pay Explosion Victims

A federal bankruptcy judge in Houston on October 1, 2026 approved a $7.5 million settlement between Galindo Law Firm and the trust that oversees claims from victims of a chemical plant explosion, clearing money to flow to explosion victims while the firm itself sits in chapter 11. The deal is the first major payout approved in the Galindo Law Firm bankruptcy, a case that has become a live test of whether a litigation funder's lien can reach a plaintiffs' firm's contingency fees and client trust money.

The approval, reported by Law360 the same day, came roughly five weeks after Cristóbal M. Galindo, P.C., which does business as Galindo Law Firm, filed a voluntary chapter 11 petition on August 24, 2026 in the US Bankruptcy Court for the Southern District of Texas, Houston Division (No. 26-90764), before Judge Alfredo R. Perez. The firm says it represents more than 20,000 clients nationwide across first-party insurance, personal injury and mass tort matters, and it reported $10 million to $50 million in assets against $50 million to $100 million in liabilities. Its path into court ran through two fights that every leveraged mass tort practice should study: a $45 million funding line that stopped advancing, and a fee dispute with the marketing operation that delivered thousands of Camp Lejeune clients.

What the bankruptcy court approved on October 1

The order approves a $7.5 million settlement between the debtor firm and the trust that administers claims arising from a chemical plant explosion, according to Law360's report headlined as a deal "to pay explosion victims." Public reporting available at publication does not identify which explosion or which trust is involved, how the $7.5 million will be divided, or how many of the firm's clients are covered, and this article does not guess. Those details sit in the settlement motion and order on the Stretto case docket.

Two features of the approval matter more than the headline number:

• It needed a bankruptcy judge. Once a firm is a chapter 11 debtor, its interest in a settlement, including the fee portion it expects to earn, becomes part of the bankruptcy estate. A compromise that moves estate value requires court approval after notice to creditors, and secured creditors such as the funder can object. The approval therefore shows that a client-facing mass tort recovery can move forward inside the case despite the lien fight.
• It separates client money from firm money in practice. The firm's central position in the case is that client funds are not estate property and are not subject to any lender's lien. A court-approved channel for paying explosion victims is consistent with that position, although the approval order itself is not reported to resolve the lien dispute.

Why did Galindo Law Firm file for bankruptcy?

Galindo Law Firm filed for bankruptcy because its litigation funder stopped advancing money and a marketing creditor began collecting on a multimillion-dollar judgment at the same time. According to the firm's first-day papers as summarized by Elevenflo and Bondoro, the lender stopped advancing further funds on or about February 13, 2026 unless the firm accepted new conditions and funding requirements, which cut off the credit line the firm had used for case-acquisition costs and general overhead.

That credit line traced to a February 26, 2025 refinancing, in which the firm and its affiliates moved their litigation-finance debt into a $45 million credit agreement with CMG Funding 2025 LLC. The facility worked as a revolving line keyed to a "borrowing base" calculated from the estimated value of the firm's mass tort case inventory, with the lender holding final approval over that valuation and any adjustment to it. In practical terms, the lender controlled how much the firm could draw by controlling what its docket was deemed to be worth.

The second pressure point was the firm's marketing and case-management provider, Decibel Legal Services, LLC. Bondoro reports that Decibel obtained a judgment of $10,277,103.10 against the firm and exercised an alleged right to garnish funds owed to it. Law360 separately reported that the filing followed a suit by a mass tort litigation marketing company seeking more than $9 million in fees for finding potential Camp Lejeune water contamination claimants. With the funding line frozen and a creditor reaching for receivables, chapter 11's automatic stay was the firm's way to stop collection and force every claimant into one forum.

Timeline of the Galindo Law Firm bankruptcy

Date	Event	Source
Feb. 26, 2025	Firm refinances into a $45 million credit agreement with CMG Funding 2025 LLC	First-day papers (Elevenflo)
~Feb. 13, 2026	Lender stops advancing further funds absent new conditions	First-day declaration (Elevenflo, Bondoro)
Before petition	Arbitrator finds Camp Lejeune marketer owed about $37.6 million and underpaid about $9.5 million; Decibel holds a $10,277,103.10 judgment	Law360; Bondoro
Aug. 18, 2026	Restructuring support agreement term sheet signed with Sergio P. De La Canal	Elevenflo, Bondoro
Aug. 24, 2026	Voluntary chapter 11 petition, No. 26-90764 (S.D. Tex.)	Stretto; Law360
Aug. 26, 2026	CMG Funding files adversary No. 4:26-ap-03633 and objects to cash use	PacerMonitor; Elevenflo
Late Aug. 2026	Interim first-day relief, including cash use, after lender objection resolved	Law360
Oct. 1, 2026	Court approves $7.5 million settlement with explosion victims' trust	Law360
Oct. 19, 2026	Pretrial conference set in the CMG adversary proceeding	PacerMonitor

What does CMG Funding claim in the Galindo Law Firm bankruptcy?

CMG Funding 2025 LLC claims a perfected blanket lien on the firm's assets, including attorney-fee receivables, securing a claim it puts at about $50 million. Within two days of the petition the lender filed an adversary proceeding disputing how the firm characterized the lender's security interest, and it objected to the firm's request to use cash collateral. Law360 reported that the funder says it advanced $45 million and claims first priority over the same money the marketing creditor is trying to collect.

The lender's objection also attacks the restructuring itself. As Elevenflo summarizes it, CMG frames the dispute as an effort by the debtor and its insiders to reorder secured claims for their own benefit, pointing to the overlap between the firm's proposed restructuring partner and its existing vendors. The interim cash-use fight was resolved consensually: Law360 reported that Judge Perez gave interim approval to the first-day package, including use of cash on hand to fund operations, after the firm resolved the lender's objection. The lien-validity dispute itself remains live in the adversary proceeding.

Can a litigation funder's lien reach a law firm's contingency fees or client trust money?

On client trust money, the firm's answer is no, and the general rule supports it: funds a lawyer holds in an IOLTA or other client trust account belong to clients or third parties, not to the firm, so a lender to the firm has nothing to attach. Galindo Law Firm says client funds in its IOLTA accounts are not commingled with operating funds and that its proposed cash-collateral budget does not contemplate using any client trust funds.

On fees, the argument is narrower and more consequential. The firm contends that a lawyer's interest in a contingency fee contract does not vest until settlement or judgment, so a security interest cannot attach to fees not yet earned without becoming improper fee-sharing with a nonlawyer under the Texas Disciplinary Rules of Professional Conduct. If that position prevails, a funder secured by a firm's "case inventory" would hold a lien that attaches only as each case resolves, not a present claim on the whole docket.

That distinction drives the economics of the case. A lien on earned fees lets the lender sweep cash as matters settle. A lien that cannot reach unearned fees leaves the bulk of a mass tort inventory, where most cases are years from resolution, outside the lender's collateral until each fee is actually earned, which strengthens the debtor's hand in negotiating a plan. The issue has not been decided in this case, and the outcome will turn on the credit agreement's terms, Texas ethics rules and how Article 9 treats an interest in a contingent fee.

The Camp Lejeune marketing fee fight

The marketing dispute shows how mass tort client acquisition is priced. According to Law360, the marketing company said it delivered nearly 9,000 prescreened Camp Lejeune clients at $4,200 apiece, and an arbitrator found it was owed about $37.6 million in total and had been underpaid by roughly $9.5 million. That arbitral award, and the judgment Bondoro attributes to Decibel, turned an acquisition cost into a collectible debt at the moment the firm's credit line had stopped.

The figures illustrate why Camp Lejeune inventories were capital-intensive. Claims under the Camp Lejeune Justice Act must first be presented administratively to the Navy, and the Justice Department has said it treats fees above 20% on administrative settlements and 25% on litigated claims as excessive, so a firm paying four figures per signed claimant up front was carrying a long, fee-limited receivable. Practitioners following claimant solicitation economics will recognize the pattern: per-lead pricing is fixed and paid early, while fees arrive late and in amounts the firm does not control.

Who is Sergio De La Canal and what is the restructuring support agreement?

Sergio P. De La Canal is the owner of Decibel Legal Services, the firm's marketing, case-tracking and data-management vendor, and he is the counterparty to the restructuring support agreement that anchors the chapter 11 plan. The term sheet was signed on August 18, 2026, six days before the petition.

His ties to the firm run deep. Per the first-day papers summarized by Elevenflo:

• Decibel Legal Services, LLC provides marketing, case-tracking and data-management services.
• Damage Resources, LLC acts as the firm's professional employer organization, handling payroll for roughly 15 staff members.
• Alpha Seven LLC is the landlord under the firm's office lease.

Under the plan the firm intends to pursue, creditors would be paid from a segregated Plan Payment Account funded by 55% of litigation recoveries, while the firm continues to challenge the lender's asserted liens on IOLTA funds, unearned fees and future recoveries. That structure is why CMG's objection focuses on insider control. A plan sponsor who is also the debtor's largest vendor, payroll provider, landlord and (through Decibel) a judgment creditor will draw scrutiny on good faith, plan classification and whether any insider claim should be subordinated.

What happens to Galindo Law Firm clients' cases during the bankruptcy?

Galindo Law Firm clients' cases continue during the bankruptcy, because a chapter 11 filing by a law firm does not end the attorney-client relationship or dismiss clients' claims. The automatic stay protects the debtor firm from its creditors; it does not stay a client's lawsuit against a third-party defendant. The firm remains in possession and keeps operating, and the October 1 approval shows that settlements can be paid through the case.

What changes is process. Settlements in which the firm's fee is part of estate value may need bankruptcy court approval, settlement payors may ask for comfort orders before releasing funds, and any fee the firm earns becomes subject to whatever lien the court ultimately recognizes. Clients keep their usual rights under their retainer agreement and the ethics rules, including the right to discharge counsel, although a discharged firm may still assert a fee claim against any later recovery.

Galindo Law Firm bankruptcy in context

Galindo is not the first funded mass tort practice to land in bankruptcy court. In 2025, Truett Bryan Akin IV, co-founder of Houston's AkinMears LLP, filed a personal chapter 11 citing more than $202 million in litigation funding liabilities, with funders including Virage SPV 1 LLC, Rocade Capital and Burford Capital listed as creditors; he later agreed to convert the case to a chapter 7 liquidation.

Feature	Galindo Law Firm (2026)	Truett Akin (2025)
Debtor	The firm (professional corporation)	The individual lawyer
Chapter	11, with plan support agreement	11, later converted to 7
Funding exposure	$45M facility; lender asserts ~$50M secured claim	More than $202M in funder liabilities
Key legal fight	Whether lien reaches unearned fees and IOLTA funds	Personal guarantees and funder claims
Client-facing outcome to date	$7.5M explosion-trust settlement approved Oct. 1, 2026	Not applicable to a firm plan

The common thread is the third-party litigation funding model in which firms borrow against inventories whose value and timing depend on bellwethers, global settlements and claims-administration schedules they do not control. When a large settlement slips or a fee cap bites, interest keeps running and borrowing-base tests tighten.

What it means for funders, referring counsel, payors and claimants

• Funders. The Galindo Law Firm bankruptcy puts the "unearned fee" defense squarely before a federal court. Lenders secured by case inventory should expect debtors to argue that their collateral is narrower than the credit agreement says, and should expect IOLTA balances to be off-limits.
• Referring and co-counsel. Fee-split agreements with a debtor firm are claims against an estate. Co-counsel on shared matters should confirm whether their share is held in trust or owed by the firm, because the difference decides whether they are paid in full or as creditors.
• Settlement payors and defense counsel. Expect requests for bankruptcy court approval or comfort orders before releasing funds to a debtor firm, and confirm the payee instructions in light of any lien notices.
• Claimants. Clients of a firm in chapter 11 are not creditors merely because the firm is insolvent; their recoveries belong to them. Explosion-trust claimants represented by the firm should watch the Stretto docket for the approved settlement's distribution terms.
• Lead-generation vendors. The arbitrator enforced the per-client acquisition contract here, but a vendor collecting from a leveraged firm competes with a secured lender for the same receivables.

What happens next in the Galindo Law Firm chapter 11?

The next scheduled marker is an October 19, 2026 pretrial conference in CMG Funding's adversary proceeding, according to the PacerMonitor docket listing. The firm must also file and seek confirmation of a plan built on the restructuring support agreement and the 55% Plan Payment Account, and CMG is positioned to contest it. Any ruling on whether the lien reaches unearned contingency fees would be the decision with the widest reach beyond this case.

FAQ

What is the $7.5 million Galindo Law settlement?

It is a $7.5 million settlement between Galindo Law Firm and the trust overseeing claims from victims of a chemical plant explosion, approved by the US Bankruptcy Court for the Southern District of Texas on October 1, 2026 so that explosion victims can be paid while the firm is in chapter 11.

Why did Galindo Law Firm file for bankruptcy?

It filed on August 24, 2026 after its lender stopped advancing funds under a $45 million litigation-finance facility around February 13, 2026 and its marketing vendor pursued collection on a $10.28 million judgment tied to client-acquisition fees.

Who is the lender in the Galindo Law bankruptcy?

CMG Funding 2025 LLC, which asserts a roughly $50 million secured claim and a blanket lien including attorney-fee receivables, and which sued the firm in adversary No. 4:26-ap-03633.

Can a litigation funder take client trust money in a law firm bankruptcy?

Client funds held in an IOLTA trust account belong to clients, not the firm, and Galindo Law Firm says its cash budget does not use them; whether the lender's lien reaches unearned contingency fees is still being litigated.

Are Galindo Law Firm clients' cases still going forward?

Yes. The chapter 11 filing does not dismiss clients' claims or end representation, and the October 1 approval shows client settlements can be paid through the bankruptcy case.