Attorney Resource Guide for Plaintiff Funding
Plaintiff Funding
Legal funding is an option available to plaintiffs that have hired an attorney on a contingency basis. It allows those plaintiffs to unlock a portion of the expected settlement of their claim before the case has come to a close. Hopefully you do not find yourself in a lawsuit and in need of cash but if you do, you will find information below to help you make the most informed decision on legal funding.
After reading this resource guide you will understand the following:
Non-recourse funding
The most important part of legal funding is that it is a non-recourse financing agreement. This means that it is solely based on the merits of the case and not the plaintiff’s credit history, job or education background. If the case does not settle in favor of the plaintiff, they are under no obligation to repay the funds to the funding company. Information shared with third party funding companies is protected under attorney client privilege. Because a funding company is considered an interested party, the information they receive can not be shared.
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What is legal funding for plaintiffs?
Legal Funding Definition
Legal funding, also commonly referred to as lawsuit loans or lawsuit advances, is a process in where plaintiffs involved in current or future litigation, who have already hired an attorney on a contingency basis, receive financing in the form of immediate cash against their future anticipated settlement award.
This advance is solely based on the outcome of the case and paid back upon receipt of the settlement award.
How legal funding compares to other financing options
Other Financing Options
Legal funding is not the only available options to plaintiffs. Before applying for legal funding, many plaintiffs approach more traditional banking institutions looking for a liquidity solution. The main difference between legal funding and other traditional banking solutions is recourse and payment schedule. With most traditional options, there is no option for non-recourse funding. Meaning that any approval is based on credit history and income profile. Many plaintiffs who find themselves out of work due to an accident do not qualify for a loan because their credit and income has been impacted by the accident. Also, with traditional bank loans, there is a repayment period that could start as quickly as 30 days from taking out financing. This means that the plaintiff will have to make monthly payments until the debt it satisfied.
This is why most plaintiffs find legal funding as their preferred financial solution. There are no monthly payments and no risk of having to pay back the funds if their case does not settle favorably.
The difference between legal funding and a traditional loan
Lawsuit Funding is not a Traditional Loan
As mentioned above, lawsuit funding is a non-recourse transaction. This means that unlike a traditional loan, there is no monthly payments and no obligation to repay if the case does not settle favorably. There may be fees associated with an advance but all fees are paid upon successful settlement of the claim.
The cost plaintiff funding
Is Plaintiff Funding Expensive?
The short answer is yes, plaintiff funding is expensive. Because of the risk associated with losing their investment, legal funding companies charge a high rate of return on their advances. While some people are under the impression that you will have to pay back double or triple the amount you take out, the truth is that most funding companies charge an annual interest rate of 30-40%. One thing to consider is that these funds are not payable if the case does not settle.
Is settlement funding right for your client
Who Should Use Settlement Funding?
Plaintiffs that can not access traditional financing and are in dire need of cash while their case settles should strongly consider settlement funding. While it is expensive, the risk of having your case settle unfavorably and you still owing money is eliminated. Legal funding should be a lifeline to help plaintiffs pay daily living expenses and case cost expenses. It should be a plaintiffs last resort not the first place they look.
The 2 main types of legal funding
Pre and Post Settlement Funding
The two main types of legal funding are Pre and Post Settlement funding. In pre-settlement funding your case is still being litigated and there have been no accepted offers of settlement. In pre-settlement cases, funding companies normally release up to 10% of the gross estimated settlement value of the case. That means they will advance $10,000 for every $100,000 they think the case is worth. In post-settlement funding there has been an offer for settlement and the plaintiff has accepted it. Funding companies normally release up to 70% of the net value to the plaintiff or $70,000 on a case in which the plaintiff will receive $100,000 after all attorneys fees and liens.
Settlement Funding Positives And Negatives
Costs and benefits
There are both costs and benefits when taking out a settlement advance on your case. The interest in a settlement advance can be high which leaves less money for you to receive when your case settles, but if that money is needed now to pay bills or for living expenses, the costs greatly justify the means.
Deciding if legal funding is the right choice for you
Deciding if Settlement Funding is Right for You
If your client has looked at traditional financing options and they are unable or unwilling to use them and are in need of cash now to fund basic living expenses, then settlement funding is something you should greatly consider for your client. At the end of the day it is their decision whether to pursue a settlement advance or wait for the settlement check to arrive. Hopefully now you know enough after reading the information above to make an informed decision on whether settlement funding is a good fit for your own unique situation.
