What is legal funding? learn about legal funding and what makes it different from a loan.
The time I have spent working in the consumer legal funding industry has been an opportunity for constant learn. One daily constant along the same line is the importance of empowering the consumer to have the information they need to answer “What is legal funding?” for themself and their family.
With that in mind I will start us off below with a definition that incorporates some of the industry terminology one typically sees less frequently on consumer legal funding websites. Later on in the article we will discuss some what some of the most common, as well as commonly misused terms.
Legal funding: is a risk-free cash advance that can be provided to injured plaintiffs throughout the litigation process who expect financial recovery. Unlike a loan, there is no risk of plaintiffs going into debt as the monetary lien is on their case and not the plaintiff.
How can I qualify for legal funding?
Qualifying for legal funding is not a difficult process as you only need to have a couple of things in place before you can qualify to receive lawsuit cash help from a legal funding company.
- Have a lawsuit or legal claim for injuries or damages. Meaning you seek money for a wrong that was made against you by a person or company. At a minimum, there needs to be potentially a liable party for whom you have a financial claim. The greater and more valuable the claim, the larger the amount of legal funding you can get.
- Have an attorney represent you on a contingency fee basis. Lawyers hired on contingency only get paid for their work after they win or settle a case. Their payment comes from the settlement or court award money, not the plaintiff’s own pocket.
If you do not yet have an attorney representing you, you can ask the legal funder to help you find one. You should never feel obliged to hire the referred law firm. More importantly, litigation finance companies should never require you to hire one lawyer and not another to qualify to get legal funding.
Once these two basic conditions are met, the legal funding company can proceed with the funding process.
Can I qualify for legal funding with bad credit?
Yes! What makes legal funding a good option for people with bad credit is that legal funding is not a loan, and you don’t have to push through the obstacles you would have when filling out credit card applications.
- Unlike credit lenders, legal funding companies are not obligated to check credit scores.
- With pre-settlement funding, the interest rate you pay is not based on your credit history. This means having bad credit or collection agencies coming after you will not cause your funding rate to increase.
Do I have to be employed to qualify for legal funding?
No! Litigation funding companies do not require you to provide proof of employment or any of your work history to qualify. That is one of the many reasons why legal funding can be so good for the client when funded fairly and sensibly.
What if I get denied legal funding?
It’s often temporary. The litigation funding company informs you they can’t fund you yet, which is not “never.”
Legal funding companies have to look at your case’s real-time status, which, if too early, you may not yet qualify for legal funding.
Unfortunately, you typically have to wait a couple of weeks after first hiring a law firm for the attorney to gather and read through the early case documents. This allows for the lawyer to get a better handle on the case they are dealing with.
You might be denied funding temporarily because, at this point, the requested funded amount would be too large compared to the money estimated to come from your case’s settlement or trial award.
Risky cases slow the funding process.
At times, especially with riskier cases, it can be too early to make an honest and precise estimate for how much legal funding you should receive.
Legal funding is both an art and a science. The best legal funding companies recognize this and will adjust accordingly. Even if every so often, that means holding off a week or two before funding you.
What is legal funding?
Legal funding is a type of cash advance tied to a funded plaintiff’s legal claim. The legal funding business, known as a litigation funding company, gives money to the plaintiff in exchange for a piece of the legal claim’s settlement or trial award monies.
So the funded client can gain access to cash now when they need it, and the legal funding company then hopes to see a return on investment if and when the case comes to a successful end.
It’s risk-free for the client getting funded but not the lawsuit funding companies.
By the lawsuit funder purchasing a stake in the future settlement or court award, they buy a part of the case proceeds and are not loaning the plaintiff money. They are taking on the risk of never recovering the legal funding money.
How is legal funding risk-free?
Legal funding is risk-free because it is non-recourse funding in most states. Meaning the consumer litigation funder is giving you money in exchange for a piece of your future settlement or trial award.
With legal funding, you don’t have to be worried about being held liable for repayment like you would a loan if you lost your case.
Is legal funding the same as a lawsuit loan?
No! Legal funding is not the same type of financing as a lawsuit loan and should not be used interchangeably. Same with pre-settlement funding and pre-settlement loans, which are different in the eyes of the law.
It goes way past semantics, and what each term tells the consumer and the consumer has a right to be provided accurate info when seeking financial help from a legal funder. Some important differences between what is legal funding and a lawsuit loan:
Because lawsuit loans are loans and not just “like a loan,” you, the borrower, legally have an obligation to repay the money lent to you on your claim.
A lawsuit loan is a loan and not risk-free.
In fact, companies licensed to give lawsuit loans in states where it is required to be given to you as loans can only require repayment from clients who lost their case in good faith. Meaning they can’t legally promise it like they would in a non-recourse legal funding contract.
However, given how the consumer legal finance industry is supposed to work and best serve its clients, it makes sense licensed lenders opt to give their clients who borrow from them “unofficial non-recourse benefits.”
To put it simply, legal funding is risk-free, and lawsuit loans are not.
Legal funding agreements ensure there is no risk of debt collectors. But with lawsuit loans, there is always that possibility like all types of loans, whether it be student loans or a 15-year mortgage on a home.
What can I spend my legal funding on?
You can use the money advanced to you on your case for any legal purpose you see fit except for legal fees or case-related expenses for the case you got funding.
All this means is that you can’t use the pre-settlement funding given to you to pay your attorney on this case. This includes other costs of your case like having mediations or hiring transportation to get to court or have a deposition.
By the money being yours with the only lien being against your case, it’s ultimately your choice how you use it. Many recipients of legal funding use it to cover their month-to-month personal expenses and other general living expenses.
How much legal funding can I get?
A good lawsuit funding company should be wise and not fund more than 10% of a case’s total value in legal funding, as too large an amount of funding can put the case in jeopardy by making it more difficult for the lawyer to settle the case.
Often this means not giving too much legal funding too soon, which is the best and most helpful option for the client in many ways.
If a legal funding company charges interest fairly and does not profit off fees, this should save the clients money in the long run.
For example, a plaintiff in a personal injury lawsuit that could reach a $10,000 settlement offer today should not get funded more than $1,000. This is especially true at the start of accident and personal injury cases when parties have not yet accepted liability.
Just because this case is only estimated to be worth $10,000 today does not mean it will not be worth $50,000 in a week. This is not just wishful thinking.
The value of most lawsuits and the amount of legal funding that can be funded on them increase as time goes on. Fair or not important things like these take time, which can force clients to be extra patient when they urgently need funding.