Legal finance, also known as legal or settlement funding, is a process by which litigants can pay for their legal, medical and living expenses by way of a funding company. In exchange for a percentage of the settlement, these companies will provide you with the necessary funds to cover for expenses.
Settlement funding companies usually don’t offer legal advice, provide a lawyer or refer you to one. For this reason, a plaintiff gets a funding company after an attorney has already been hired on a contingency fee basis. What this means is that the lawyer works for the plaintiff and is paid using the proceeds from the case. If the party loses the case, the lawyer isn’t paid.
Settlement funding companies have different requirements, with some stipulating that you suffer from a particular injury such as one incurred from a car accident or your civil rights have been violated in the workplace. Legal funding companies only accept cases with merit and only if the litigant is not the culprit. In addition, the defendant, the company / individual being sued, must be financially capable of paying, and furthermore the lawyer for the injured party has to agree with the legal funding and sign an agreement.
Legal finance companies may also have other qualifications depending on the case and the parties involved. For instance, the legal funding company may look for factors such as the amount of damages being asked, the accused’s liability, investment margin, state of residence and the plaintiff’s background. Usually the litigant has to fill up a form and provide specific documents.
Why Use Legal Funding?
The reason is lawsuits are costly and if it takes years can result in financial difficulties. Money is required not just for paying litigation but for personal expenses to prevent ruined credit, bankruptcy, eviction, foreclosure and so on. The third party funding may also be used to pay for college, child support, medical bills and other expenditures. According to the latest studies, 60% of legal finance assistance is used to prevent eviction, but it is applied in other cases as well.
Legal funding also provides people without access to loans or with bad credit means of financing, and they’re usually more flexible than banks. More importantly, legal funding services accept cases and situations that banks do not, which is why they’re more attractive to plaintiffs. In other words, legal funding provides anyone with access to much needed money while the case is ongoing.
Before legal funding became popular, the only option for litigants was to settle their case early just to prevent financial difficulties or bankruptcy. The situation was even more difficult when a private citizen would file a case against a giant corporation, only to agree to a settlement due to lack of funds.
However, that doesn’t have to be the case anymore as the legal finance industry continues to grow. What these services do is even up the playing field so plaintiffs can continue fighting their case without worrying about money running out, even when facing giant companies and firms.