In any part of the world, access to justice requires immense capital because litigation is costly. Many factors contribute to its costs, including expenses associated with consultants, court fees, investigations, witness preparation, trials, attorney fees, etc.
Due to the high costs associated with lawsuits, many economically challenged plaintiffs (people initiating a lawsuit before a court) seeking fair dispute resolution can’t pursue their claims. Thankfully, “legal funding” helps them solve this challenge.
Legal funding, also called litigation funding, is a legal practice allowing financial relief for a plaintiff whose case (usually a personal injury case) is still pending. Specifically, it allows a third party (usually called a “legal funding company) to provide plaintiffs funds (or capital) in exchange for a percentage of the future settlement.
With legal funding, plaintiffs have a better chance of getting a fair trial. In some cases, plaintiffs can obtain a much larger settlement while covering upfront costs. It generally made the legal system more accessible to plaintiffs, even with financial difficulties.
Legal funding has two categories: pre-settlement funding and cash advance settlement. Generally, pre-settlement funding is safer since it doesn’t require a credit check and employment history. However, for quick cash, cash advance settlement is a better option. Let’s learn more about them in the following.
Pre-settlement funding helps a plaintiff get better representation of their legal claim and negotiate better settlement awards without worrying about upfront costs. It has two categories: consumer and commercial litigation.
1. Consumer litigation - This only works for plaintiffs with personal injury cases (like discrimination, fraud, or medical malpractice) and without prior experience with the legal system (like no settlement or contractual agreements experience).
2. Commercial litigation - This only works for business entities with high-profile and more complex business-to-business disputes (usually requiring settlement payments for damages) and previous experience with contracts. Commercial litigation qualified for pre-settlement funding may include antitrust, breach of contract, business competition, intellectual property, international and domestic arbitrations, and trade secret theft.
In either litigation, the commercial legal funding company offers up-front cash to the individual and business to help cover expenses during their lawsuit cases. As stated, this is in return for a portion of their future compensation.
For consumer litigation, the funds usually cover the plaintiffs’ legal fees, medical expenses, bills, daily living expenses (including rent or mortgage), and other personal expenses. In contrast, pre-settlement funding usually only covers legal expenses for commercial litigation.
Cash advance settlement, as stated, is best for those who need quick cash. It gives financial relief to claimants waiting for their settlements, which usually take a long time. Like pre-settlement funding, they’re offered by legal funding companies in exchange for a portion of their compensation.
Note that cash advance settlement isn’t a loan but an alternative to it. Traditional loans usually take a long process to assess whether a borrower is creditworthy. That means they ask for employment verification and application fees. More importantly, although there are no-credit-check loans available, like a CreditNinja no credit loan, most traditional loans have to run credit checks.
Cash advance settlement, on the other hand, isn’t based on any prior history checks or credit scores. It’s solely based on a case’s strength and the likelihood of a future settlement. It’s also different from a pending settlement. In a cash advance settlement, legal funding companies can’t go after the applicants or plaintiffs for the funds they received if their cases weren’t favored.
A legal representative, whether pre-settlement or cash advance, is necessary when applying for legal funding. Although plaintiffs have the right to represent themselves pro se in legal matters, having no lawyer stands in the way of obtaining legal funding.
Lawyers must actively involve themselves throughout the legal financing process. Here’s how the funding process normally works:
As noticed, lawyers are responsible for the following:
1. Providing details about a case - The legal funding companies usually require access to the specifics of a legal claim, including a plaintiff’s medical records and legal documents. A lawyer must be responsive to these requests.
2. Dispersing the funds from the settlement - The lawyer receives the settlement money once turned over by the defendant in a case. The lawyer will then distribute the funds appropriately.
A plaintiff’s legal representative is ethically responsible for advocating the plaintiff’s best interests. While lawyers can provide the plaintiff with information and legal advice, decisions regarding the lawsuit are still ultimately up to the plaintiff.
If a legal representative insists against pre-settlement funding, it could be because it’s not in the plaintiff’s best interest. Possible reasons why legal funding may not be a good fit for a legal case may include:
On the contrary, if the lawyer refuses to cooperate despite the plaintiff’s belief that obtaining legal funding is the right thing to do, it’s best to find another legal representative. An ideal lawyer shouldn’t only be trustworthy but also someone who agrees with the plaintiff on what is best for the situation.
To qualify for legal funding, there are three criteria that applicants must meet. First, the plaintiff should have a strong case. Note that the legal funding company assumes risk by providing funds based on a pending settlement. In other words, they want to ensure the applicant’s case is in their favor.
Second, the plaintiff’s lawyer is on a contingency fee basis. In other words, the plaintiff already has a legal representative, who must only be paid if they settle or win the plaintiff’s case.
Third, the defendant should have insurance that can cover them in this case. The defendant liable for the plaintiff’s injuries must be insured or able to pay damages out-of-their-pocket. It's to avoid additional costs.
If the three above-mentioned criteria are met, likely, a legal funding company will also consider the following:
1. Plaintiff’s damages - Damages include physical, emotional, and financial losses resulting from the accident. The good news is that less severe trauma, such as strains, sprains, and other soft tissue injuries, can now qualify for legal funding, unlike in the past when severe injuries are considered.
2. The sufficient margin for investment - The plaintiff should disclose all potential expenses that can be deducted from a settlement to the legal funding company. In addition to the lawyer’s fees, these costs may include jury awards or liens against a settlement.
Most legal funding companies will also require the plaintiff’s lawyer’s cooperation. The plaintiff should ensure that his or her lawyer knows and agrees to the legal funding. As mentioned earlier, the lawyer has to provide information and documentation related to the plaintiff’s case to the legal funding company. Hence, the lawyer must acknowledge the legal funding and its agreement.
The mechanism of legal funding is relatively new, but it’s gaining popularity among plaintiffs and their legal representatives. The process for securing it is far simpler compared to other standard credit products. Instead of credit scores, it’s based on pending settlements and positive recoveries. More importantly, it makes the legal system more accessible despite financial difficulties.
