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Legal financing (also known as litigation financing, professional funding, settlement funding, third party funding, legal funding, and, in England and Wales, litigation funding) is the mechanism or process through which litigants (and even law firms) can finance their litigation or other legal costs through a third party funding company. These third party funding companies provide cash advance to litigants in exchange for a percentage share of the judgment or settlement. However, if the case proceeds to trial and the litigant loses, the third party funding company receives nothing and loses the money they have invested in the case.In other words, if the litigant loses, he does not have to repay the money. Accordingly, to qualify for funding with a legal financing company, a litigant's case must have sufficient merits.
Litigation funding is available in most common law jurisdictions in the United States. The process is most commonly used in personal injury cases, but may also apply to commercial disputes, civil rights cases, workers' compensation, and structured settlement. Commercial litigation funding has become more mature in the United States with hedge funds and marketplaces funding larger commercial legal claims. The amount of money that plaintiffs receive through legal financing varies widely, but often is around 10 to 15 percent of the expected value of judgment or settlement of their personal injury lawsuit. Some companies allow individuals to request more or less money (as needed) and have varying payout rates depending on the characteristics of the case at hand.
Similar to legal defense funds, legal financing companies provide money for lawsuits but is more often used by those without strong financial resources. Legal financing companies also provide the cash advance in a lump sum fashion and generally no specific "account" is provided for the litigant. Furthermore, legal financing is more likely to be used by plaintiffs, whereas legal defense funds are more likely to be used by defendants. Money obtained from legal financing companies can be used for any purpose, whether for litigation or for personal matters. On the other hand, money obtained through legal defense funds are solely used to fund litigation and legal costs.
People often confuse legal funding with loans. On the surface, legal funding appears to possess the same characteristics as an unsecured loan with a traditional lender. In actuality, litigation funding is generally not considered a loan, but rather as a form of an asset purchase. The funding does not have to be repaid if the plaintiff's lawsuit is unsuccessful. In addition, litigants generally do not have to pay monthly fees in obtaining legal financing. Instead, there are no payments of any kind until the case settles or judgment is obtained, which could be months or years away. Because such legal funding advances are not debt and not reported to the credit bureaus, the litigant's credit ratings cannot be adversely affected if a litigant obtains a legal funding advance.
Litigation funding is available in most common law jurisdictions in the United States. The process is most commonly used in personal injury cases, but may also apply to commercial disputes, civil rights cases, workers' compensation, and structured settlement. Commercial litigation funding has become more mature in the United States with hedge funds and marketplaces funding larger commercial legal claims. The amount of money that plaintiffs receive through legal financing varies widely, but often is around 10 to 15 percent of the expected value of judgment or settlement of their personal injury lawsuit. Some companies allow individuals to request more or less money (as needed) and have varying payout rates depending on the characteristics of the case at hand.
Similar to legal defense funds, legal financing companies provide money for lawsuits but is more often used by those without strong financial resources. Legal financing companies also provide the cash advance in a lump sum fashion and generally no specific "account" is provided for the litigant. Furthermore, legal financing is more likely to be used by plaintiffs, whereas legal defense funds are more likely to be used by defendants. Money obtained from legal financing companies can be used for any purpose, whether for litigation or for personal matters. On the other hand, money obtained through legal defense funds are solely used to fund litigation and legal costs.
People often confuse legal funding with loans. On the surface, legal funding appears to possess the same characteristics as an unsecured loan with a traditional lender. In actuality, litigation funding is generally not considered a loan, but rather as a form of an asset purchase. The funding does not have to be repaid if the plaintiff's lawsuit is unsuccessful. In addition, litigants generally do not have to pay monthly fees in obtaining legal financing. Instead, there are no payments of any kind until the case settles or judgment is obtained, which could be months or years away. Because such legal funding advances are not debt and not reported to the credit bureaus, the litigant's credit ratings cannot be adversely affected if a litigant obtains a legal funding advance.
