Litigation Funding Options


How Personal Injury Litigation is Financed

Litigation is an expensive process. Most people with personal injury claims hire their lawyer is hired on a contingent fee basis, meaning that there is no attorney fee unless the case is successful. The 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.

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, may need to look for additional sources of funding.

Payment of a Plaintiff's Personal Expenses

For ethical reasons, lawyers cannot lend money to their clients. 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, must try to find other funding options.

Among the available options:

Pre-Settlement Lawsuit Loans

A significant number of litigation funding companies have formed, and they 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. However, this type of funding is normally the most expensive litigation financing option.

Lawsuit loans are normally offered as non-recourse financing, meaning that you will never have to repay more than your share of the amount recovered in a settlement or verdict. 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 very high. 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 lawsuit financing company.

Personal Loans

If an injured person has a good credit history, it may be possible for them 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.

If you are able to obtain a personal loan, 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 even 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.

Additional Funding Options

People who have accumulated assets may be able to obtain affordable financing based upon the value of their assets. For example, an injured plaintiff may consider obtaining a home equity loan, or similar financing based upon a significant asset that can serve as collateral.

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. Even with family, it is wise to reduce any loan agreements to writing. You can reassure your family by promising that they will be repaid out of your share of any lawsuit proceeds, and your lawyer can probably help with the paperwork.

Other Sources of Financial Help

When considering your need for litigation funding, you should consider whether you are getting all the benefits to which you may be entitled from other sources. 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 be eligible for disability insurance benefits, including Social Security 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.

Copyright © 2005 Aaron Larson, All rights reserved. No portion of this article may be reproduced without the express written permission of the copyright holder. If you use a quotation, excerpt or paraphrase of this article, except as otherwise authorized in writing by the author of the article you must cite this article as a source for your work and include a link back to the original article from any online materials that incorporate or are derived from the content of this article.

This article was last reviewed or amended on Dec 14, 2016.