The Basics Of Lawsuit Funding

Posted on: 30 December 2019

Lawsuit funding loans are financial vehicles designed to assist people, organizations, and law firms that are involved in cases where settlements are either expected or pending. These are commercial loans that functions similarly to cash advance loans, providing lawsuit funding at times when plaintiffs have to wait out events. Let's take a look at some of the basics of lawsuit funding for plaintiff cases.

How They're Paid

Generally, lawsuit funding loans are paid off using the proceeds of a settlement. These payments are made only after other expenses come off the top. That means your attorney gets paid first, along with any medical organizations or practitioners who placed liens against your settlement. Also, court costs will come out. Only then do the lender's fees for lawsuit funding come out.

Unless otherwise stipulated in the contract for the loan, you should not have to make any payments before a settlement being reached. It's wise to clarify these conditions before signing off on anything.

What Happens if Things Go Badly?

The lender is making several bets when they provide lawsuit funding. They cannot collect more than the remainder of the settlement after everyone else's expenses are paid. If the settlement ends up being smaller than expected, for example, they're out the difference and they essentially overpaid. A similar, but worse for them, scenario plays out if a settlement or judgment never comes through, such as a case being dismissed.

What Sorts of Cases Can Be Funded This Way?

As you might imagine, the bulk of the industry is focused on lawsuits involving personal injury, medical negligence, auto accident, and wrongful death claims. Practically speaking, the lender can fund whatever type of lawsuit they feel like funding, but the expectation of a payment of some kind is the dominant driver of their interest. Some lenders may consider working with plaintiffs involved in discrimination, civil rights, and employment law cases. There are also a few that will consider funding estate and probate cases that have good prospects. Some forms of commercial litigation may be considered, too.

The lender will need to verify a couple things before approving the loan. Foremost, they will need to confirm that the state where the suit is taking place allows this type of arrangement.  They'll also want to have a look at the details of your case to determine whether your side stands a good chance of settling the case or reaching a judgment.