Should I Recommend Pre-Settlement Funding To My Client?

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Ethical Considerations For Plaintiff's Lawyers Recommending Lawsuit Financing

If you are a plaintiff’s attorney, you likely have received queries about what a client should do if they are having trouble making ends meet while that client’s lawsuit is pending. 

Litigation in our country’s overburdened courts often involves months or years’ worth of delays as your clients’ cases slowly wind their way through the courts and likely frustrate your clients. This is true mainly if the insurer or party on the other side is dragging its feet in on-again, off-again settlement discussions while, in reality, they are doing nothing more than stringing you and your client along. 

Additionally, when a client has no income or means of supporting their family during the pendency of the case, that client could be in serious financial trouble. Under this condition, your client may ask what you think they should do and whether they should apply for lawsuit funding, given the desperate circumstance in which they find themselves. 

Admittedly, one important factor to recognize for you as an attorney is that your client is more than just a lawsuit. Clients likely have a family to provide for, an obligation that does not end, no matter the strength of a lawsuit.

Whenever a client is in need of financial assistance, you are permitted to share information regarding the different types of financing available to them, such as pre-settlement funding. However, as an attorney, you need to be conscious of the ethics rules that govern your profession when fielding inquiries from clients like this and ensure you are always acting in their best interests. 

Let’s dive further into whether you should be recommending lawsuit settlement funding to a client.

What do the professional ethics rules say about attorneys recommending lawsuit funding to clients?

This raises the fundamental issue of what an attorney should do when a client asks for lawsuit financing. For instance, deflecting the question by telling a client you are only there to discuss their case and advise them to figure out how to meet those financial problems on their own may lead your client to end up in the worst financial situation possible. 

To give you an example, your client could turn to a payday lender or max out credit cards if not provided with some guidance on where to turn if they need funds while their lawsuit is pending. Payday loans carry with them ruinous interest rates and will also require your client to make payments during the case, which is exactly what your client is unable to do. 

The good news is that most states permit attorneys to provide their clients with information regarding settlement financing. They also allow law firms to give factual information regarding a client’s lawsuit to a settlement advance lender if the client consents. Under this scenario, it is not permissible for an attorney to steer the client towards a particular legal funding company if the attorney gets some cut or kickback from that firm for steering litigants to that company. However, an attorney can share information regarding what makes lawsuit financing a good choice in this type of situation. 

How pre-settlement funding can help your client

Pre-settlement financing from a legitimate lender that provides reasonable rates and caps may be what your client needs because it gives them a lifeline in order to be able to hold out for the true value of their lawsuit but does not put them on the hook if, for whatever reason, the case does not resolve in your client’s favor. 

Lawsuit financing is non-recourse funding, which means a lender provides your client with a settlement advance by taking an interest in their lawsuit, and they have no rights to look to anything other than any recovery your client may obtain from their case in order to receive repayment of that advance.

Further, if there is no recovery from the case, your client won’t be indebted to pay back the funds, and the lender will take the loss.

Litigation funding may be the right solution for your client if you follow ethical considerations carefully

Recommending lawsuit financing to a client so they are able to make ends meet is not prohibited to attorneys by the ethics rules in every jurisdiction. Furthermore, if you are an attorney with clients who need the means to afford everyday expenses that are a part of daily life, you can recommend lawsuit financing if you do so accurately and do not try to benefit yourself in the process.

Ultimately, an attorney cannot get in trouble unless they receive goods back from the lender in exchange for steering business to that lender, thus not acting in their client’s best interests. 

The takeaway

Many times, clients may need ways to afford the necessities to keep their family afloat while waiting for their day in court or resolving their claim. When a client is in a desperate financial position and approaches you as to whether they should look to lawsuit financing, you can absolutely share information as to why this might be a good choice since pre-settlement funding is different than a credit card or other types of loans. 

As long as you act with the client’s best interests in mind and do not act in a way that would benefit you only, such as quid-pro-quo (this could include sending all clients to a particular lender in exchange for a reward from the lender), your client can highly benefit from a lawsuit advance.

Ready to explore plaintiff funding for a client? See how Baker Street Funding might fit your client’s needs. Get capped rates and non-compounding interest rates.

At Baker Street Funding, we give you the inside scoop on pre-settlement funding by covering a variety of ... financing and legal topics to help you made the best financial decision for you and for your litigation. Our experts break down complex ideas in a way that's easy to understand so you can stay informed on current trends as well as tips and fact checked information by the CEO and founder, Daniel Digiaimo. Furthermore, Despite its name, consumer legal funding is not a loan. If you don't receive a recovery from your case, there won't be a repayment. To avoid confusion and simplify matters on, we'll use the word "loan" throughout this article.

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