A consumer loan allows access to legal recovery before the case is settled.
When Angie’s car was hit by a fast-moving delivery truck on a wet street, her world was turned upside down. Her injuries kept her from work for months. She filed a lawsuit through a lawyer specializing in personal injury, but he crept through the court system. Her lawyer told her that in a case like hers, it could take two years to reach an agreement. When her doctor told her that she would have to undergo expensive surgery to correct the injury she had suffered in the accident, Angie was desperate. No job meant no insurance, and the single mother was struggling to pay the rent and support her children. Finally, she called her lawyer to ask if she could resolve her case immediately so that she could raise money to save her family from eviction.
Your lawyer had a different idea. Yes, he said she could reach an agreement, but it could cost her tens of thousands of dollars before the case was fully worked out. He suggested a way she could keep her case going while getting access to money to support her family while the parties worked towards an agreement. He gave her the numbers of several litigation funding companies, and within a week Angie had money in the bank and a sense of peace – all without settling the case.
How could Angie get access to funds and add some stability to her family without solving her case? She took the opportunity to claim her expected severance payment from a company specializing in preferential financing. The litigation finance company was able to provide her with a down payment on the money she was expecting from a possible settlement or judgment in her car accident proceeding.
What is litigation funding?
Litigation funding is known by many names. Pre-financing, litigation loan, car crash loan. For consumers, they all pile on the same thing. Instead of waiting for the case to be settled or brought to justice, which in a complicated case with potentially high dollar payouts can take months or years, a pre-financing company will pass some of the expected proceeds on to the plaintiff or plaintiff, who in turn assigns some of the proceeds Reclaim the financing company. In Angie’s case, she received a lump sum payment that she could use to settle bills, get medical treatment, and provide a cushion while she got ready to go back to work. In return, your lender will receive part of your repayment when the case is finally resolved.
Who is entitled to a pre-settlement advance?
The financing contract is not based on the plaintiff’s creditworthiness. Instead, funding agreements primarily take into account the strength of the plaintiff’s reasoning. For the litigation finance company, this transaction is an investment. Like all investors, the company wants to make sure that there is a reasonable probability that its investment will produce a profit. For this investigation, the company employs a team of underwriters to review the case to assess the potential return.
In assessing whether a case is a good candidate for a pre-financing loan, the underwriter considers a number of factors.
The active status of the dispute. For most transactions, the lender requires that the plaintiff have an attorney and an active legal process. If a case has already been filed, the funder can rely in part on the law firm’s review and assessment of the potential of the case. In a case that is already in court, the lender also has the assurance that the case is being led by professional staff whose interests coincide with those of the lender.
The nature of the case. The most likely cases for litigation loans are personal injury or cases where the plaintiff can expect cash compensation or judgment. This can include car accidents, slip and fall accidents, property destruction, negligence, and much more. Some litigation lenders provide funding for other types of cases, such as: B. for whistleblowers, unsafe medical devices or cases in labor law.
In certain circumstances, an active case may not be required. For example, some litigation funding companies have made advances to individuals who have filed claims in Boy Scouts of America Chapter 11 bankruptcy proceedings, the PG&E California Wildfire Settlements, and various product liability class actions.
Settlement potential. Underwriters look at the case from all angles. They evaluate the expected settlement amount and carefully consider the timing of the case. You want to make sure that the case is sufficiently realized to serve the litigation financier’s interests, the costs of the litigation including legal fees, the litigation costs such as travel and court reporters, and incidental expenses such as letters of protection issued to doctors who have been deployed to the medical care for the claimant after the accident.
Commitment by the plaintiff. Depending on the prospect’s personal circumstances, a settlement advance can make it easier for a plaintiff to go through the frustrating hassle and time it takes to resolve a personal injury case. Plaintiffs like Angie are more likely to allow the pre-trial and investigative phase to fully develop before insisting on a settlement when they have fewer financial distractions. Litigation loans can help them hold on to the case long enough to realize the full potential of the case.
The level of experience of the plaintiff’s attorney. In the case of personal injuries submitted to the court, the litigation financing company will usually not enter into a financing agreement if the plaintiff’s lawyer does not agree or does not cooperate. Most lenders prefer to work with experienced lawyers who have a proven track record in personal injury litigation, who understand how pre-financing financing works, and who appreciate the benefits they can offer their clients.
In fact, many seasoned personal injury attorneys also take advances on their contingency fees so they can run their law firms and pay litigation costs while they too wait for the case to be settled.
Where the plaintiff is. Litigation finance is a new and emerging industry. The regulatory framework in many jurisdictions has not caught up. Currently, the federal government does not regulate litigation funding, as it does with many consumer credit products. Therefore, regulation is left to the states and the jurisdiction. Legislators and judges largely recognize that litigation funding is not a loan. Even in these jurisdictions, the legislature has added some of the specifics of consumer regulation such as licenses, fee caps and disclosure requirements. Where the law is less regulated, fewer litigation funding firms are likely to appear.
Is the pre-financing a loan?
Although many people call it a litigation loan, the transaction is not a loan at all. It is a vehicle for investors who are essentially acquiring an interest in the litigation. This is a non-recourse agreement. The applicant is not personally liable for the repayment of the advances. The litigation lender, or more precisely the litigation finance company, is paid out of the proceeds of the settlement or verdict when the case goes to court. If the case is not resolved or less than the amount required to cover the costs is resolved, the company may not get its investment back, but will never require the plaintiff to repay the amount they advanced.
What is the disadvantage for the plaintiff?
While plaintiffs consider gaining access to the proceeds of an unsolved case, they should also carefully weigh the consequences. By choosing to work with a lender, the plaintiff is trading the opportunity to earn higher compensation later for an immediate infusion of cash to meet current needs such as income replacement or medical care. The plaintiff must also ensure that the company is experienced and reputable. Plaintiffs can increase their chances of finding a lender for ethical lawsuits by ensuring that the company is licensed, if required by their state, or that the company is affiliated with industry associations such as the American Legal Finance Association (ALFA) or the Association for Responsible belongs to Consumer Law Financing (ARC). Every organization requires its members to adhere to a list of best practices. By choosing a member company, a financing customer can be assured that the company is meeting the highest standards in the industry.
How do structured settlements differ from pre-settlement advances?
Someone who settles a case or wins a lawsuit doesn’t necessarily get paid in a lump sum. A structured settlement allows the defendant to pay the settlement or judgment over time. It works like an annuity that allows the plaintiff to receive the money in installments on a negotiated schedule and sometimes allows the plaintiff to request payment as needed. The money comes either directly from the defendant in the case or as a pension that the defendant buys from an insurance company. The terms of a structured settlement are negotiated as part of the overall settlement or after a judgment has been issued.
In contrast, claimants often receive advances well in advance of the case. The litigation finance company takes on much of the risk of the case not being resolved or losing money if the case is resolved for less than the cost of the litigation. If, on the other hand, the settlement proceeds or the amount of the judgment exceeds the costs of the legal dispute, including the return on investment of the litigation financing company, the parties can decide that the remaining payment to the plaintiff is made in the form of a structured settlement.
In the 20 years since the first finance companies were founded, lending has grown exponentially. As more investors discover the potential financial benefits of acquiring a stake in personal injury litigation, plaintiffs like Angie will find that more cash is available for upfront loans. There is no doubt that litigation and litigation funding will become more attractive to both the plaintiff and the investor.
© 2021 Copyright Tribeca Lawsuit LoansNational Law Review, Volume XI, Number 194
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