Lawsuit Funding

August 12, 2023

If you are not in small claims court, it costs a lot of money to sue an entity (a person or company). If you need a lawyer it can get very expensive. And if the defendant has the funds to hire lawyer(s) to oppose and delay your lawsuit, it is even more expensive. The legal system generally puts the plaintiff at an inherent disadvantage while attempting to litigate for damages.

Sometimes you want to, or have been advised to, sue an entity – but you just cannot afford to. If the entity is poor, perhaps you should not sue them. If the entity is wealthy, you might find help to fund your lawsuit.

There are a few ways to fund a lawsuit. You can deplete your savings or borrow the money. Neither of these are very attractive because it is often a long, expensive, and unpredictable road to getting repaid after starting a lawsuit. And sometimes you don’t ever get paid. This can be a big risk.

In certain cases, this risk can be minimized for creditors. A lawsuit funding company (LFC) might pay for both your expenses and your lawyer. Anyone who is a plaintiff in a lawsuit, and is represented by an attorney, may qualify for lawsuit funding.

If the other side knows you are well funded by a LFC; they are more likely to settle with you, or perhaps pay you quickly after you get your judgment.

Government agencies, insurance companies, and large corporations named as defendants have greater resources at their disposal to delay, thwart, and prolong settlement of lawsuits against them. They count on the desperation of the plaintiff to either drop their lawsuit or settle for a fraction of their lawsuit amount, to pay mounting expenses. LFCs can level the playing field so the plaintiff can pursue the case to maximize the settlement amount.

When you are suing because you suffered injury or loss, and are filing a lawsuit to recoup damages, LFCs can help you fund your legal or settlement proceedings. The kind of cases LFCs can fund include personal injury, contract disputes, negligence, copyright infringement, and insurance claims.

After the LFC does their due diligence (and makes sure the defendant has assets), they can provide a sum of money (usually a percentage of the total amount of the lawsuit) to be used to cover your personal or commercial expenses, while your case settles in court.

The best part is, a quality LFC can provide you a non-recourse advance. The amount you get is determined by the amount of money you expect to receive from your lawsuit, and the ability of the entity you are suing to make payment on a settlement.

Non-recourse means that this is not a conventional loan. If you win your case and get paid, you must repay the LFC what they lent you, and also pay them extra for their “risk premium”. However, if your case loses, you owe the LFC nothing.

Because of the inherent risks of lawsuit funding, underwriting of cases is especially important. A LFC will look at the merits of your case, the amount for which it is likely to settle, and the ability of the defendant to actually make payment. There are no credit checks, monthly payments, or upfront fees with a LFC.

LFCs work with your attorney to obtain and evaluate all pertinent information relating to your case. Then they quote you how much money they are willing to advance. If everyone agrees, everyone signs, and it is a done deal. After the LFC secures its claim to recover their costs on any payments the debtor makes, you get the money.

If the LFC agrees to invest in your judgment, and pays you, they can pay you some money upfront, and the rest as it is needed for your lawsuit. The first money they pay you can be used in any reasonable way. You can pay rent, mortgages, legal expenses, credit cards etc., or as a business owner, to pay wages, business insurance or other capital expenditures.

Lawsuit funding companies fill a vital role, and while they cannot help everyone, maybe they can help you. LFCs can work in almost every state, except where local laws prohibit them.

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