By now, the concept of litigation funding has become fairly familiar in the US and a few other countries as well. However, there are still a lot of dark and grey areas regarding litigation funding (also variously known as pre- or post-settlement loans, lawsuit advance, third-party litigation financing, structured settlement loans and more) and which often make consumers a little unsure as to whether or not to apply for this type of funding in order to pursue their case in court.

As such, in this article, we aim to discuss some of the key elements relating to pre-settlement loans or advance—in a manner that you can make, depending upon your particular situation, the very best use of the practice of litigation funding.

Litigation Funding: How It Works and What Companies To Work With

Litigation funding or lawsuit advances are provided by third-party litigation funding companies to plaintiffs pursuing damages in court after they have fallen victim to personal injury accidents caused by anther’s negligence. The personal injury cases commonly include automobile accidents, premise liability, slips and falls, construction accidents, medical malpractice and more.

Most litigation funders, as of now, consider pre-settlement loans (it is a bit different when it comes to post-settlement advances, but we’ll concentrate solely on pre-settlement advances in this article) for the types of cases mentioned above. However, the biggest of these companies will commonly consider settlement advance applications for pretty much any case that involve damages, liability and insurance. So, we’re talking cases of sexual abuse or harassment, discrimination, wrongful termination and more.

Now, it is always a difficult task for an individual to file a lawsuit and pursue litigation. It is an expensive affair to begin with and it is also a time-consuming one. And while you’re fighting your case in the court, you’ll still have to go on meeting all your everyday financial obligations (insurance, rent, car payment, mortgage, all kinds of bills and utilities, medical expenses, school or college tuition…and the list goes on).

Now, unless you’re someone with enough disposable income (and we understand that most individuals are not), it may prove to be difficult to stay on top of your finances given all the different kinds of expenses involved in pursuing a court case. We also need to factor in the mental drain a lawsuit can cause in an individual (worrying over all the details, frequent consultations with one’s attorney, and so on). In such a scenario, if you find that you’re having a hard time (or may do in immediate future) meeting your financial obligations, the stress may become altogether too much to handle.

And the sad but bitter truth of it is that the defendants, often represented by large, cash-heavy insurance companies, prey on just such vulnerabilities of the common individuals. This is why a large majority of these cases get settled out of court. Of course, there is nothing wrong with an out-of-court settlement as long as the plaintiff receives a fair compensation. However, this is rarely the case and plaintiffs will often actually settle for an amount that is way less than what they truly deserve.

Finding the right company to help is of the utmost importance. It’s best to get multiple quotes and work with their underwriters and finance team. Some of the biggest names in the litigation finance industry are:

1. Oasis Financial
2. JG Wentworth
3. 500 Cash Out
4. Peachtree Settlement
5. Law Cash
6. US Claims
7. Shield Legal
8. Cash 4 Cases
9. Golden Pear
10. Capital Now Funding
11. National Lawsuit Funding
12. Ally Lawsuit Funding
13. Flash Cash Funding
14. Sunrise Lawsuit Funding
15. Law Capital
16. Rockpoint Legal Funding
17. Fast Funds

This is why a monetary influx by way of a lawsuit advance can be a big help to plaintiffs, so that they can continue with their case, and continue making it stronger, and eventually receive a compensation that can be deemed ‘fair.’

When Should I Seek Recourse to Litigation Funding?

Not until it is absolutely necessary. After all, litigation funding, although often referred to as loans, is in many ways different from a traditional loan. To begin with, it is ‘non-recourse’, meaning the plaintiff is under no obligation to pay off the money he borrowed in case he doesn’t receive a verdict in his favor. This is why many like to describe a lawsuit advance as an investment of risk on the part of the litigation funder. This also means that the regular usury laws do not apply to this type of cash advances (precisely because they cannot be defined as a loan).

What all this means is that settlement funding or advances are expensive and will cut into your eventual payout at the end of the trial. And we’re not even talking about companies that engage in various unethical and usurious practices. Lawsuit advances are still expensive even when you borrow from reputable litigation funders. And this is understandable in the light of the fact that the funders are assuming a significant amount of risk by lending money that is non-recourse.

As such, one must never take out more than what is required at the present moment. It is always recommended that you carry out an intensive consultation with your attorney before you apply for litigation funding. Your attorney can help you with a rough calculation of how much money you’ll need to see the case to its conclusion. And you can then decide, using this estimate in conjunction with your current financial situation, how much money to borrow from a litigation funder.

Of course, things can change and can sometime take unexpected turns as you go ahead: the case may drag longer than was initially expected; you may experience changes in your financial situation; etc. In such scenarios, you can of course always reapply for more cash. The bottom line is, however, that you should never borrow too much too early.

We may also mention in this connection that many people commit the mistake of borrowing too much money early in their case. This should be avoided at all costs, since the amount of your eventual payout will go up the longer the case takes to reach a conclusion.

Knowing When to Accept (or Reject) a Settlement Offer

As we have mentioned before, if the defendant is a large corporation or is insured, the plaintiff is often forced to settle for a below-par compensation. And that litigation funding comes off as a great opportunity to remedy this situation.

However, this does not mean that you must continue with your case by all means with the help of litigation funding. Of course, once an out of court settlement is offered, your attorney will be your best advisor regarding whether or not to accept the offer. If the offer seems reasonable, you accept it. If not, you carry on with the case.

Things, however, are not always as clear cut as that and you may at occasion find that even your attorney leaves it up to you whether or not to accept an offer.

For our benefit, let’s imagine a scenario where an injury claim is worth $100K and you, as the plaintiff, has about 50% chance of winning the case. If, at this point, you are offered a $50K settlement, should you accept it or should you continue with the case? Of course, you may opt for the latter with the help of litigation funding. (It is a different matter that you’ll have a hard time finding a funder willing to lend money on a 50/50 case; for our argument’s sake however, let’s suppose you do.)

If, then, you still go on to lose the case, even with the help of non-recourse loan, it may come to you as a major blow (financially; in terms of time consumed; and the overall mental stress involved during the whole process).

However, if you do manage to win (the best case scenario for you), chances are still that the best part of that additional $50K will go towards paying out your litigation advance (interests will be understandably quite high in a 50/50 lawsuit). On the other hand, that additional $50K will mean but little to a big corporation or insurance company.

This is why most lawyers in this case will deem the initial settlement offer as reasonable and appropriate and as a plaintiff, you ought not to reject such an offer with plans to continue with the case by taking out a lawsuit advance. In fact, these are precisely the type of situations that make critics of litigation funding claim that the latter is often responsible for unnecessarily prolonging the litigation.

In the end, however, the responsibility is on the plaintiff and while litigation funding does offer a great opportunity to pursue personal injury and other types of lawsuits claiming damages, one must also make sure to make use of this opportunity in a wise and judicious manner.