Lawsuits are often prolonged, emotionally draining, and financially straining endeavors. While awaiting settlement, plaintiffs may struggle to cover daily living expenses, medical bills, or ongoing legal fees. This is where legal funding, also known as lawsuit funding or pre-settlement funding, can be a valuable financial bridge.
This article explores what legal funding is, how it works, the pros and cons, regulatory considerations, and how to determine whether it’s the right choice for your situation.
What Is Legal Funding?
Legal funding is a form of non-recourse cash advance offered to plaintiffs involved in lawsuits awaiting settlement or judgment. Unlike traditional loans, legal funding is repaid only if the plaintiff wins or settles the case. If the case is lost, the plaintiff owes nothing.
This financial option is especially beneficial for individuals involved in personal injury, employment discrimination, or wrongful termination cases, where settlements may take months or even years.
Types of Legal Funding
- Pre-settlement funding: Provided while the case is still in progress and before settlement negotiations have concluded.
- Post-settlement funding: Offered after a settlement has been reached but before the plaintiff receives the actual payout.
- Attorney funding: Available to law firms or attorneys to cover case expenses or overhead during lengthy litigation.
How Does Legal Funding Work?
The process generally involves the following steps:
- Application: The plaintiff applies for funding by providing case details.
- Case Evaluation: The funding company consults with the plaintiff’s attorney to assess the strength and potential value of the case.
- Offer and Agreement: Based on the evaluation, the company extends a cash advance offer, which the plaintiff can accept or decline.
- Repayment Upon Settlement: If the plaintiff wins or settles, the funding company is repaid from the settlement proceeds. If not, the company absorbs the loss.
Key Advantages of Legal Funding
Financial Stability During Litigation
Legal funding provides financial relief to plaintiffs who may be unable to work due to injuries or who face mounting bills during the litigation process.
No-Risk to Borrower
Since legal funding is non-recourse, plaintiffs are not liable to repay the advance if they lose their case. This offers peace of mind compared to traditional loans that require repayment regardless of the outcome.
Strengthening Legal Strategies
Having access to funds allows plaintiffs to afford better legal representation and avoid settling early for lower amounts due to financial desperation.
No Credit Checks or Employment Verification
Eligibility for legal funding is determined solely by the merits of the case, not the plaintiff’s credit history or employment status.
Considerations Before Choosing Legal Funding
While legal funding offers critical support, it’s essential to understand the associated costs and implications.
Costs and Fees
Legal funding companies typically charge high fees due to the risk involved. These fees are often expressed as a percentage of the funding amount, accumulating over time until the case settles. It’s important for plaintiffs to thoroughly review the contract and clarify all fees.
Impact on Settlement Amount
Because the funding must be repaid from the settlement, the plaintiff will receive a smaller net payout after covering legal fees, medical liens, and the funding repayment.
Ethical and Regulatory Landscape
Legal funding operates in a relatively unregulated space compared to other financial services. However, some states have implemented regulations to protect consumers, such as disclosure requirements and fee limitations. Plaintiffs should ensure they are working with a reputable, transparent funding provider.
How to Find a Trustworthy Legal Funding Provider
Not all legal funding companies are created equal. To ensure a fair and transparent experience, plaintiffs should consider the following factors when selecting a funding company:
Reputation and Reviews
Research the company’s reputation by reading client reviews and checking business profiles on reputable platforms such as Clutch. A strong online presence with positive testimonials is a good indicator of reliability.
Clear and Transparent Terms
Reputable companies will present clear contracts outlining all fees, repayment obligations, and terms. Plaintiffs should avoid companies that pressure them to sign without allowing time for attorney review.
No Hidden Fees
Transparency around interest rates, fees, and potential additional charges is essential. Hidden fees can dramatically reduce the plaintiff’s net settlement amount.
Attorney Collaboration
A trustworthy funding company will always involve the plaintiff’s attorney to ensure the case merits are strong and that the funding aligns with the case’s anticipated value.
When Is Legal Funding the Right Choice?
Legal funding is not a one-size-fits-all solution. It is most appropriate for plaintiffs who:
- Have a strong case likely to result in a settlement or judgment.
- Are facing immediate financial hardship.
- Have exhausted other, lower-cost financial resources.
- Have consulted with their attorney and understand the implications.
It’s crucial to use legal funding as a last resort rather than a primary financing method.
Alternative Financial Options
Before pursuing legal funding, plaintiffs should explore other financing avenues that may offer more favorable terms, such as:
- Personal loans from banks or credit unions.
- Support from family or friends.
- Community resources and charities for medical or living assistance.
- Hardship programs from creditors or service providers.
Exploring these options can help minimize the financial strain without the high costs associated with legal funding.
Expert Insights on Legal Funding
Legal funding remains a debated topic in the legal and financial industries. Some experts see it as a necessary cash flow solution that allows plaintiffs and attorneys to pursue justice without succumbing to financial pressures. This sentiment is echoed in a Forbes Finance Council article discussing how legal funding can empower plaintiffs and even the playing field in litigation.
However, experts also caution that plaintiffs must be fully informed of the terms and evaluate whether the financial burden is worth the potential reduction in settlement proceeds.
Conclusion: Legal Funding as a Strategic Financial Tool
Legal funding can be a lifeline for plaintiffs stuck in financial limbo during lengthy lawsuits. It allows individuals to maintain stability, avoid settling too early, and focus on recovery and case success. However, plaintiffs must approach legal funding with caution, ensuring they understand the costs, risks, and alternatives.
Before signing any agreement, it is vital to consult with your attorney, read the contract thoroughly, and select a reputable provider. Services like Silver Dollar pre-settlement funding can offer tailored funding solutions, but plaintiffs should still vet any company carefully and assess all aspects before committing.
Legal funding can be a powerful strategic tool when used appropriately, but due diligence is key to ensuring it supports, rather than hinders, the journey toward justice.
