When is it appropriate to seek lawsuit funding?

Mar 17, 2010

Lawsuit or pre-settlement funding is a method of obtaining a nonrecourse cash advance typically used to pay personal expenses during the course of a lawsuit where successful outcome for the plaintiff is considered likely. The risk of using this type of “loan” is relatively low to the client but the cost(s) can be high. So when then, is it appropriate and what type of case is considered a good match for this type of funding?
When one has suffered an accident or personal injury, the road to recovery can be long. Perhaps the injury in question is permanent and quality of life significantly diminished. When an accident victim is unable to provide for themselves, for their families and must adopt a modified version of normal life, things can go downhill very quickly. Bills pile up and if the victim cannot work, personal and retirement savings can be depleted very quickly. When the accident or injury is due to the negligence of someone other than the victim the result is typically a lawsuit. The above scenario is not uncommon and precisely the reason many personal injury cases go to court. Of course litigation takes time and money; both of which are commodities in which the victim and their families don’t have.
Lawsuit funding can be the perfect solution. If the case must endure a long court battle, lawsuit funding can provide the monetary backing to make it to the finish line; not to mention cash which may be needed to cover the victim’s personal expenses and protect assets which may otherwise be depleted. True, the costs associated with this type of funding can be high, but in circumstances where the lack of funding can either adversely affect the quality of life of the victim or the simple lack of funding makes it altogether impossible to stay afloat or continue fighting a case in court, pre-settlement funding makes sense and may be the only option.

It is best to consult with one’s attorney prior to engaging in any lawsuit funding contract and in some cases attorneys can refer clients to a preferred and reputable lender. Lawsuit funding most often is negotiated through a finance company or broker and is technically not considered a loan, although the pre-settlement agreement operates very similar to that of a purchase agreement. A common misconception is that one’s attorney can provide lawsuit funding services, but this is not the case. An attorney must represent his clients in an unbiased manner without any conflict of interest. If a lawyer were to become a creditor of his clients, this would not be the case; as such state bar associations do not allow it.

Despite the inability of an attorney to loan money to clients, it is paramount that their expertise be utilized to make sure that the agreement entered into between the client and the lawsuit funding company is in the best interest of the case and client involved. Lawsuit funding is not a monetary solution for every case, but can be used to gain an advantage for those who would not otherwise have any other recourse.