What is Legal Funding?
Consumer legal funding is a fast-growing business that has evolved from a niche industry into an integral part of the personal injury field. Legal funding dates back to the early 1990s. The industry has exploded in recognition and use since 2005.
The growth of the industry developed as both the plaintiffs and attorneys have benefitted from the service. Plaintiffs use the money to overcome immediate financial obstacles. Attorneys benefit by obtaining higher settlements, as the plaintiffs are not forced to settle their cases for below fair value. Legal funding levels the playing field between the plaintiffs and the insurance companies.
What is Plaintiff Funding?
Clients routinely request money from their attorneys, who are barred by state ethics rules from providing loans to their clients. So, Plaintiff Funding provides cash advances for clients waiting for settlements.
Plaintiffs use the money for necessary living expenses such as rent, mortgage payments, food, car payments, school supplies, etc. The money is not used to pay the attorney or to pay legal expenses. The plaintiff retains the attorney on a contingency fee basis, and the attorney pays the funding company from the proceeds of the plaintiff's settlement.
How is it Different from a Loan?
Unlike traditional secured and unsecured loans, Legal funding is non-recourse. Funding companies provide non-recourse financing for plaintiffs with pending personal injury or workers’ compensation cases. In return for providing funding to a plaintiff, the company purchases an interest in the potential proceeds of the plaintiff’s claim. If the case does not settle, the advance does not get paid back.
How Does it Work?
The plaintiff must have a pending legal case and an attorney to confirm the legitimacy of the case. If the plaintiff does not have an attorney, the finance company may be able to refer one. The attorney will speak with the Legal Funding company to ascertain the merit and value of the plaintiff's case. The funding company's underwriters will review the case and approve or disapprove the advance. Funding is limited to 10-15% of the expected reasonable value of the settlement. This ensures the funding does not impede settlement and the plaintiff receives a meaningful recovery.