Litigation Funding Options
By Aaron Larson
Law Offices of Aaron Larson
March, 2005
Contents
How Is Litigation Financed?
Litigation is an expensive process. For most people with personal injury claims, a lawyer is hired on a contingent fee basis, meaning that there is no attorney fee unless the case is successful, and any attorney fee is a percentage of the money recovered. The law firm advances money for the cost of litigation, until such time as the case is resolved. However, for plaintiffs who cannot find a lawyer who will work on a contingent fee, or who have significant personal expenses during the pendency of their case, additional funding may be required.
What About Personal Expenses?
For ethical reasons, lawyers cannot lend money to their clients. For clients who require funds during the litigation process, whether to meet their personal expenses, to pay their attorneys, or to pay for medical care and treatment, it is necessary to find other funding options. Among the available options:
Pre-Settlement Lawsuit Loans
A significant number of litigation funding companies have arisen, which offer funding packages commonly described as a "lawsuit loan". Ideally, this form of litigation funding will provide you with sufficient money to get to the conclusion of your case, when you finally receive your share of the ultimate verdict or settlement. These advances are typically offered as "non-recourse" financing, meaning that you will never have to repay more than your share of the recovery, and if your case is dismissed or a jury finds for the defendant you don't have to repay anything. However, the fees associated with litigation funding of this type are high, so you should take great care in selecting a litigation funding company, and should both consult your own lawyer and ask appropriate questions before signing a contract with any company.
Personal Loans
If the injured person has a good credit history, it may be possible to obtain a personal loan at a reasonable rate of interest. A personal loan is an unsecured loan or line of credit, offered on account of the applicant's good credit history and possibly their relationship with the lending institution. However, you should take care that the cost of any such loan does not exceed that available through other unsecured credit options, such as advances on a credit card or a lawsuit loan. (Despite the high costs and interest rates associated with credit card debt or lawsuit loans, sometimes that debt remains comparable or cheaper than an unsecured personal loan, particularly if you find yourself unable to make payments.)
Other Funding Options
Sometimes the best source of funds during a financial crisis is your family - your family may surprise you with its generosity during your times of need. It is wise, even with family, to reduce any loan agreements to writing. You can reassure your family with the cooperation of your lawyer, by promising that they will be repaid out of your share of any lawsuit proceeds. Some people will also wish to consider a home equity loan, or similar financing based upon a significant asset which can serve as collateral.
Get The Help You Need
When considering your need for litigation funding, you should consider whether you are getting all the benefits to which you are entitled. For example, if you were injured at work you may be entitled to workers' compensation benefits. If you are disabled as a result of your injury you may wish to apply for Social Security disability benefits. You may also be able to avail yourself of subsidized health care coverage plans or Medicaid. Speak with your lawyer about your options - because you will be best off if you can resolve your financial situation without going into debt.
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