There are chances that a person might never be involved in a lawsuit, but in case they do there are some things one should be aware of. This article will talk about the basics of a lawsuit funding. It will cover the fundamentals of funding a plaintiff’s case. More detailed information on all the queries one would need to answer is covered in the section ‘why ask all them questions.’
We recommend that after exhaustively reading this part one should go to www.nolo.com/ in case there are any unanswered questions left.
First, we tackle the meaning of legal funding. Legal funding is an alternative way to get a cash flow to pay your attorney. In this particular case, we are talking about finding a way to finance the plaintiff. Therefore the correct terms to use are:
For a plaintiff involved in litigation, lawsuit funding is a method by which they can pay their lawyer on a contingency fee basis. Why would someone give funding to the plaintiff or attorney? The logic is that the cash advance is received in anticipation of the award the plaintiff will get on winning the litigation. The financial advance to the attorney is based on the contingency fee. This fee can vary from 30% to 40% of the award the plaintiff might win.
Now we move on to understand some terms. One of the most common things one will hear in legal funding is “third party funding company.” This term refers to the firm that advances the money to the plaintiff. They are generally legal finance companies.
The advantage of lawsuit funding to the plaintiff is that if they lose the case, they are not required to repay the money that was advanced to them by the firm. The term for such a cash advance is called non-recourse transaction. This term is particularly vital because it is the one differentiating factor between a conventional loan and a lawsuit funding for plaintiff. A loan is taken from a traditional bank and needs to be returned no matter the outcome of the lawsuit. While a loan might sound like the better option, they are not. A bank loan requires payments every month, an upfront fee, a credit check and huge interest rate.
While a lawsuit funding is a cash advance that needs to be repaid only if the plaintiff wins. There are no monthly repayments, there are minor fees involved but they too need to be paid only if the case is won. Another advantage over a loan is that in pre-settlement funding if the award won by plaintiff is less than what he owes to the funding company he is not responsible to pay the entire amount.
A lawsuit funding is more expensive than any other cash flow option. It is for this reason they should be used as the last resort. They are expensive because the legal finance company takes on a huge risk of losing money if the plaintiff loses the litigation.