A Comprehensive Guide to Lawsuit Funding

Lawsuits can be difficult, not only in terms of sheer physical and mental stress, but also in terms of the investment on the part of the plaintiff. Several plaintiffs have considered short or long-term loans before, but loans are damaging to your credit score and also difficult to repay. A seemingly better solution is pre-settlement lawsuit funding.

Lawsuit funding is a process where an amount of cash is given in advance to any injured or accusing party in a lawsuit, under an understanding or a contract that a certain percentage of the settlement funds will be paid to the financer on success of the lawsuit.

This is a non-recourse cash advance, which implies that the lender or financing firm does not get any repayment if the plaintiff loses the lawsuit, or no settlement is agreed upon. This particular loophole allows pre-settlement funding to avoid categorization under loans, and financers to navigate around usury laws which limit large interest rates as well.

When Would You Need Lawsuit Funding?

Personal injury lawsuits can last for months or even years in extreme cases, and it costs a tremendous amount to carry on the suit. Litigation funding is sometimes the only option a plaintiff may have to prevent their case from termination. It is legal, and gives them access to funds even before the lawsuit is finished. This allows them to make ends meet while carrying on the natural flow of their lives.

Furthermore, personal injury may hinder the individual from high-intensity manual labor or any job in general, which cuts out the income flow for the plaintiff. In such cases, lawsuit funding is not only important, but imperative.

An Introduction to the World of Pre-Settlement Funding

Pre-settlement funding is being looked upon as a rather convenient and increasingly popular method of lawsuit funding. It is usually extended to plaintiffs involved in wrongful death and personal injury cases, when they face high medicals bills sometimes coupled with a partial or total loss of income. These funds allow a plaintiff to cover basic expenses throughout the course of the litigation period.

It is true that lawsuit funding is immensely helpful to plaintiffs. However, several attorneys feel that the funding mechanism is too hard on them, and may in time obstruct them from fulfilling their duties in fear of increased bills. Several attorneys are of the opinion that lawsuit funding is a very expensive process in itself, so much so that the plaintiff may have to give up a significant portion of the winnings in paying off the loan. Legal advisors are of the opinion that if one resorts to lawsuit funding, they should only ask for the smallest necessary amount so that it does not become a noose around their necks in the near future.

The Pre-Settlement Funding Mechanism

As mentioned before, the lawsuit loan firms hand over a predetermined sum to the plaintiff to support the lawsuit, and do not expect anything in return until and unless the lawsuit is won by the plaintiff, or if the plaintiff is awarded a substantial sum of money as a settlement. The amount of funding provided to a client is fixed after careful assessment of the case and the probability and prospects related to the plaintiff winning the case. Interest is applicable on the lent funds, but the rate is non-standardized and varies from firm to firm.

Lawsuit Funding Company: A Brief Estimate

A lawsuit funding company chiefly focuses on providing strategic cash advances only to the financially distressed plaintiffs, who are suddenly in the midst of physical as well as financial crisis as a result of an injury caused by an accident that happened because of the negligence of someone else. These lawsuit loans are actually collateralized solely by pending litigation; if the plaintiff loses the case, he does not require paying back the company any money. A lawsuit funding firm is definitely, not a constituent of a law firm.

Author: Steven Sedgwick is a paralegal and consultant working in a leading legal firm. He is also the owner and editor of a legal advice blog, which he has been updating with posts about best lawsuit loan firms, tips for personal injury plaintiffs and others, for the last two years.