Lawsuit Financing also known as litigation financing or legal funding, is a relatively new industry that has emerged in recent years. This type of financing provides cash advances to plaintiffs who are involved in lawsuits, with the aim of helping them cover their legal expenses and other costs associated with their case. In this article, we will explore the different types of lawsuit financing, the process involved in obtaining it, as well as the advantages and risks associated with this type of financing.
Types of Lawsuit Financing:
There are several types of lawsuit financing, including the following:
- Pre-Settlement Funding: This type of financing provides cash advances to plaintiffs before their case is settled. The amount of funding is usually a percentage of the expected settlement amount, and the funding company receives a portion of the settlement in return.
- Post-Settlement Funding: This type of financing provides cash advances to plaintiffs after their case has been settled. The funding company receives a portion of the settlement as repayment for the cash advance.
- Structured Settlement Financing: This type of financing involves the sale of future structured settlement payments to a funding company in exchange for a lump sum payment.
Process of Obtaining Lawsuit Financing:
The process of obtaining lawsuit financing typically involves the following steps:
- Application: The plaintiff fills out an application with a lawsuit funding company, providing information about their case and their financial situation.
- Evaluation: The lawsuit funding company evaluates the case to determine whether it is likely to result in a settlement or judgment in favor of the plaintiff.
- Offer: If the lawsuit funding company decides to offer to finance, they will provide the plaintiff with an offer, which includes the amount of funding they are willing to provide and the terms of the financing.
- Acceptance: If the plaintiff accepts the offer, they will sign a funding agreement, which outlines the terms of the financing.
Advantages of Lawsuit Financing:
There are several advantages to obtaining lawsuit financing, including the following:
- Access to Funds: Lawsuit financing provides plaintiffs with access to funds that can help them cover their legal expenses and other costs associated with their case.
- Non-Recourse: Lawsuit-financing is typically non-recourse, meaning that the plaintiff is not required to repay the funding company if their case is unsuccessful.
- No Monthly Payments: Unlike traditional loans, lawsuit-financing does not require monthly payments. Instead, the funding company receives a portion of the settlement or judgment as repayment for the cash advance.
- Reduced Financial Stress: Lawsuits can be expensive, and many plaintiffs may not have the financial means to cover their legal expenses. Lawsuit-financing can help to reduce financial stress by providing plaintiffs with access to funds they need to cover their costs.
- Faster Resolution: Lawsuits can take months or even years to resolve. By providing plaintiffs with the funds they need to cover their expenses, lawsuit-financing can help to speed up the process and bring about a faster resolution.
- More Control: By obtaining lawsuit financing, plaintiffs can have more control over the outcome of their case. They may be able to afford to continue fighting their case, rather than settling early for a lower amount because they cannot afford to continue the legal battle.
Risks of Lawsuit Financing:
There are also risks associated with obtaining lawsuit financing, including the following:
- High Fees: Lawsuit-financing companies typically charge high fees for their services, which can reduce the amount of the settlement or judgment that the plaintiff receives.
- Uncertainty: Lawsuit-financing is often provided on a non-recourse basis, meaning that the funding company bears the risk of loss if the plaintiff’s case is unsuccessful. This can make it difficult for funding companies to accurately assess the risks associated with a particular case.
- Lack of Regulation: Lawsuit-financing is a relatively new industry, and there is a lack of regulation in many states. This can make it difficult for plaintiffs to determine which funding companies are reputable and which are not.
- Potential for Conflicts of Interest: In some cases, lawsuit-financing companies may have a conflict of interest in the outcome of the case. For example, if the funding company stands to receive a larger percentage of the settlement if the case is settled quickly, they may not have the same incentive as the plaintiff to fight for a higher settlement amount.
- High-Interest Rates: Lawsuit-financing companies often charge high interest rates, which can result in the plaintiff owing more than they receive in the settlement or judgment. It is important for plaintiffs to carefully review the terms of any financing agreement to understand the interest rate and any other fees associated with the financing.
- Ethical Concerns: Some critics of lawsuit-financing argue that it can create ethical concerns, such as encouraging plaintiffs to pursue frivolous lawsuits or to settle for less than they may be entitled to, just to obtain the funding they need to cover their expenses.
- Overall, lawsuit-financing can be a valuable tool for plaintiffs who need funds to cover their legal expenses. However, it is important for plaintiffs to carefully review the terms of any financing agreement and to consider the potential risks before accepting an offer.
In conclusion, lawsuit financing can provide plaintiffs with access to funds that can help them cover their legal expenses and other costs associated with their cases. However, it is important for plaintiffs to carefully evaluate the terms of any financing agreement and to consider the risks associated with this type of financing before accepting an offer.
