Future Settlement Funding Is Not a Loan

Future settlement funding is the business of litigation financing companies, which buy an interest in a lawsuit they believe will win in court. Attorneys are barred from loaning money to their clients by the American Bar Association for any reason other than to cover the expenses of the lawsuit. If any third party were to loan money to a plaintiff, with repayment mandatory regardless of the outcome of the case, the common law rule against "champerty" would be an issue (see page 2).

This funding is not a loan because repayment of the purchased interest in the case is dependent on the outcome of the case. The lawsuit advance entitles the company to a part of a future settlement or favorable judgment. If the case loses, and there is no monetary gain, the company's money is also lost, with no repayment needed.

Non-Recourse Advances

So, future settlement funding is not a loan, but "non-recourse" advances. This simply means that the company is risking its funds by supporting a particular lawsuit. If the plaintiff wins, the company receives the fees laid out in the financial terms of the agreement among the parties. Since these terms are individualized for each case, there are no set arrangements prescribed for all lawsuits accepted for funding.

A lawsuit funding company has many non-recourse approaches and methods for achieving its goal of financial support for worthy cases. Because the advanced money is not repaid if the client loses, the company carefully reviews the case material before approving it for future settlement funding. Obviously, the expertise of the attorneys in the group helps ascertain the merits of the claim, but there is no guarantee the plaintiff will win.