Legal funding is a mechanism used to provide financial relief for a plaintiff (usually in a personal injury case) whose case is pending. Rather than a traditional loan, this is a source of funding based on a pending settlement or positive recovery. Although it’s relatively new, legal funding is gaining popularity among not only plaintiffs, but also the lawyers who represent them.
One of the reasons it’s such an attractive option is that the process for securing legal funding is relatively simple. As a plaintiff in need of cash, your first step is to contact a legal funding company and fill out an application. If you’re qualified, the company will contact your attorney for additional information regarding your case. Next, an underwriter will review your application. If approved, you, your attorney and the legal funding company can enter into and sign a formal agreement. Finally, the money will be sent to you, and you can use it to cover day-to-day expenses, or other bills like those related to medical expenses.
How to Qualify for Legal Funding
To receive legal funding, you must meet some basic criteria:
- You must have a strong case. Because the legal funding company is assuming risk by providing cash based on a pending settlement, it will want to have confidence that your case will be resolved in your favor.
- You must have an attorney who is representing you on a contingency fee basis. This means that you already have an attorney and he or she is only being paid if he or she wins and/or settles your case.
- The Defendant that is liable for your injuries must be able to pay damages themselves, or through their insurance company.
If you meet the criteria listed above, then the legal funding company will also consider:
- Your Damages: These are all of the physical, emotional and financial losses stemming from your accident. In the past, one would have to suffer severe injuries to qualify for legal funding. Today, legal funding companies may consider less severe trauma, including soft tissue injures (sprains, strains, etc).
- Sufficient Margin for Investment: The legal funding company will need to know what expenses will be deducted from a settlement in addition to attorney’s fees. For example, any liens against a settlement or jury award should be disclosed.
- An attorney’s cooperation: Finally, your attorney must also be informed about and agree to legal funding. He or she will be responsible for providing documentation and information about your case to the legal funding company. Also, it is generally required that the attorney acknowledge the agreement.
The Benefits of Legal Funding for a Plaintiff
Before legal funding became available, plaintiffs in personal injury cases had few options to relieve financial hardships resulting from their injuries. Many turned to credit cards, or traditional personal loans to make ends meet while their cases were pending. Legal funding mitigates the downside associated with tapping into personal credit lines and actually provides numerous benefits, including:
- Your credit score is not used in qualifying for legal funding. Additionally, legal funding doesn’t show up on your credit report.To qualify for a personal loan through a traditional bank or lending institution, your credit score is a factor and the loan will show up as a liability on your credit report.
- You don’t owe anything if you lose your case. While legal funding companies do charge you on the money they provide to you, if your lawsuit is not successful you have no obligation to repay monies received. Any obligation you had to repay the legal funding company vanishes.
- Legal funding gives you time. If you are feeling stressed and pressured because you can’t meet your financial obligations, legal funding may be the answer. By pursuing this option, you will have the time needed for successful negotiations. You won’t be forced to perhaps accept a settlement offer that may be less than you deserve because of your financial situation.
- You can use the money you receive from the legal funding company for any personal expense. This may include, paying your rent or mortgage, basic living expenses, food, car payments, or medical bills.
- Legal funding is regulated in Nebraska, Oklahoma, Indiana, Ohio, Tennessee, Vermont, and Maine. These regulations are designed to work in your favor and help prevent unscrupulous legal funding companies from taking advantage of the vulnerable.
The Benefits of Legal Funding for Attorney
Legal funding also has substantial benefits for attorneys as well. The most common benefits are that it:
- Relieves Pressure: In some cases, attorneys may feel torn between resolving a client’s immediate financial difficulties and obtaining the best long-term settlement. When a client applies for and receives legal funding, it relieves a lot of that pressure. In the event that your case takes months, or even years to settle, you can focus on building the strongest case possible, and not feel pressured to take an early settlement.
- No Interference in Your Case: The legal funding company your client chooses will not interfere in any way with your case. This means you are free to strategize, gather information and documentation, and settle the case as you normally would. You may also be able to take the case to trial to obtain a larger settlement for your clients because you aren’t worried about their financial situation.
- More Time to Practice Law: You have the ability to invest your resources in building a case to achieve the best outcome, without having the distraction of dealing with a client in immediate financial distress.
The Takeaway
Legal funding is a relatively new financial resource available to plaintiffs in certain circumstances. As long as they meet certain criteria, plaintiffs in personal injury lawsuits can apply for legal funding while their cases are pending. Plaintiffs are most likely to pursue this option if they need quick cash to help cover daily costs or expenses associated with their injuries. Unlike a traditional loan, in which credit checks are required, legal funding is a source of cash you can seek based on a pending settlement. By securing legal funding, plaintiffs can reduce financial stress and give their attorneys more time to come to the best settlement in their cases.
Oasis provides pre-settlement funding, also known as consumer litigation funding, to its customers through different products depending on their state of residence or cause of action. Many consumers will be provided pre-settlement funding in the form of a purchase agreement, which assigns a portion of the pending proceeds from their legal claim. Other consumers, such as those in SC and CO will be offered a funding in the form of a pre-settlement loan, sometimes referred to as a lawsuit loan. These transactions have important differences, therefore, consumers should carefully review and be aware of the type of transaction that is offered to them by any funding company.