Perhaps the fastest growing trend in the legal community is legal funding. Legal funding became extremely popular in the past decade. As a result of the current recession, more and more people are turning to legal funding. Still, many people have misconceptions about legal funding.
What is legal funding? Legal funding is just that: funding advances provided to those using the legal process to pursue legal claims. Legal funding is provided to both lawsuit plaintiffs and to attorneys representing lawsuit plaintiffs. This funding takes the form of a cash advance, and is also known as “lawsuit cash advance”, among other terms.
Legal funding is known by various other names, including: litigation finance, litigation funding, lawsuit funding, and lawsuit finance, to name a few. Regardless of what it is called, the concept remains the same. Legal funding companies advance plaintiffs and attorneys cash before settlement occurs, or after settlement is reached and before settlement funds are paid out by the defendant. It can take a long time after settlement occurs before plaintiffs and attorneys receive their settlements.
When lawsuit funding is received before settlement of the case occurs, that is called “pre-settlement funding”. When lawsuit funding is received after settlement occurs, that is called post-settlement funding or settled case funding.
Attorneys and plaintiffs who receive pre-settlement lawsuit funding or post-settlement lawsuit funding can do anything they want with the money. Usually, plaintiffs use the money to pay bills and to keep their households going while waiting for the resolution of their cases. Attorneys will generally use the money to pay case expenses, such as expert witness fees.
In essence, lawsuit funding companies assume the risk that the lawsuit will be successful. Lawsuit funding advances are not loans. If the case is not successful and no settlement or award results, then the attorney or plaintiff who received the advance does not have to repay the legal funding company for its advance. So when people refer to “lawsuit loans”, they are mistaken.
The need for litigation funding advances is obvious; having cash in hand enables plaintiffs and attorneys to properly pursue their claims. This is especially important because frequently defendants are insurance companies, hospitals, and large corporations with “deep pockets”. Because defendants often have the financial resources to withstand a lengthy litigation process, in the past they were able to force plaintiffs to accept low settlements. Lawsuit funding helps level the playing field so that regular people can receive the money they need to deal with whatever wrongs or injuries were done to them. For all these reasons, pre-settlement lawsuit funding, post-settlement lawsuit funding, and legal funding in general are here to stay.