Legal Funding

Written by Michael O'Brien
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All of us, at one stage or another, might find ourselves faced with the need to obtain legal funding. What exactly is legal funding? Let us suppose that you were in an automobile accident and were seriously injured. You have had to hire an attorney to sue the insurer in order to be fairly compensated. Although the attorney is not charging you until the case settles; you have not been able to work and are in a severe financial bind. Your attorney has advised you not to accept the insurance company's very low settlement offer because you will likely recover significantly more if you can wait. What do you do? This is where the need for legal funding comes in.

Legal Funding: Investing in Your Success

Think of legal funding as a type of advance against your future settlement. A company which provides legal funding will forward money in now to help you meet your current financial needs. This is funding that the individual may not be able to afford on his or her own. Best of all, the funding company only gets its money back when the case is settled in your favor. If you lose, you owe nothing.

Naturally, such a no risk (to you) program is not inexpensive - it can cost you 3-6% per month. So you should only explore this if you have no other source of funds - use your credit cards or borrow from relatives first if you can. But if you have no other source of funds and you risk being evicted or having to accept a $20,000 settlement now instead of $100,000 later, legal funding can be a lifesaver.

Because the legal funding is taking all the risk, it is important that a company providing cash advances for litigation investigate the merits of a case thoroughly. There has to be sufficient reason to believe that the person involved in the legal action has every chance of winning. If not, the company doing the lending is simply throwing money out the window. Remember, If you don't win or get a settlement, the funding company loses its investment.

Loan Criteria

On what criteria does a legal funding company decide if a case is worth the investment? First of all, the case itself is thoroughly looked at. Is this a legitimate or superfluous case? Does the person involved in the legal action have a history of getting into these types of situations? If so, chances are this person is a scam artist trying to take advantage of the system.

The other factor is the law firm or lawyer doing the representing. What kind of success rate does the company or person have? Even if the case is perfectly legitimate, only a competent attorney with experience will be able to prove this in a court of law. A company providing legal funding is not going to take a chance on an unproven law practitioner.

Making a Case

What types of cases do legal loan companies tend to lean towards? In general, personal injury (auto accidents are the largest category), medical malpractice, and wrongful death cases are easy types of cases for which to obtain funding in advance. This is due in large part to the nature of such cases. Proving fault is usually fairly cut and dry. It's easy to prove how real an injury is. A doctor can determine that. How and where the injury was obtained is also usually pretty clear.

Another reason why these types of cases are often viewed favorably by legal funding companies is because of the time factor. Such cases typically have a predictable time period by which they settle (over 95% of such cases settle rather than going to trial).

Although most law firms do promise not to charge anything until a case is settled, they are not ethically able to advance their clients funds - no matter how good the case is. However, their clients are sometimes in desperate financial shape and cash advances are often a real benefit.


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