Most law firms understand the costly fees that are attached to litigation. For this reason, seeking a third-party to financially back cases is becoming more popular.
Litigation can be a lengthy process that can sometimes take years to resolve before a settlement is reached. It can be stressful and overwhelming for an injured victim to wait for the settlement money they desperately need after an accident. Third-party legal funding can help victims cover upfront fees, such as medical treatment, while they wait to receive compensation.
The Corpus Christi personal injury lawyers at Bandas Law Firm understand the financial hardships an accident can place on your life. We can review your case and determine your legal options to fight for the compensation you need.
WHAT IS LITIGATION FINANCING?
Litigation financing, also known as legal funding, third-party legal financing, or lawsuit loans, is becoming a common practice among some law firms. A firm can seek a third-party investor to help finance litigation in a personal injury case.
In these cases, a financing company will invest the money necessary in exchange for a certain percentage of the settlement the plaintiff receives for their case.
WHAT CAN THIRD-PARTY FINANCING COVER?
Receiving third-party financing can help cover a wide range of expenses, including:
- Fees for additional paralegals
- Administrators to handle material for the case
- Plaintiff’s medical expenses
- Other ongoing expenses
Litigation expenses in a personal injury case can rack up quickly. An investment company can help cover those expenses until a settlement is reached.
LEGAL FINANCING NOT CONSIDERED LOANS
The cash advances provided by companies offering litigation financing are not considered loans because the plaintiff is not indebted to the company itself. Instead, it’s an investment that is intended to bring a profit after the case is settled in court.
If a plaintiff does not win their case after receiving a cash advance, they are not required to pay back the money. However, a portion of their settlement will go to the lender if the case is won.
QUALIFICATIONS NECESSARY FOR LEGAL FUNDING
A legal funding company is fully aware of the risk they take by investing in a personal injury case. In order to determine if the risk is worth the investment, they will conduct extensive research before committing financially. Some factors they consider can include:
- The experience the plaintiff’s lawyer has in handling injury cases and their overall success rate in previous cases
- The settlement amount the plaintiff is expected to receive
- The laws within the particular state and how those laws might affect the overall outcome of the case
Litigation funding companies are seeking to make a profit, so they will review the case in detail to be certain they’re investing their money wisely.
Since lending companies take a major risk in fronting money for legal purposes, they want to be certain they will profit. If a case seems inadequate and the return may not supersede the investment, a law firm may not be granted financial assistance.
Factors such as medical treatment and the severity of the injuries a victim suffered are taken into consideration when determining if a case is worth the financial investment.
OVERALL BENEFITS OF LITIGATION FINANCING
Due to the increasing demand for third-party financing, hedge funds have begun to see it as a profitable investment opportunity. Hedge funds are known to invest in opportunities they expect to have a highly profitable return, no matter the industry.
More and more hedge funds are starting to see the profit opportunity in backing personal injury cases. Some benefits behind this trend include:
- Legal financing can give a victim breathing room, especially if they are unable to cover their medical bills and living expenses or are unable to return to work due to their injuries.
- The overall goal of an injury case is to ensure the plaintiff receives the compensation they deserve. Funding can grant a victim more time to negotiate a fair settlement amount.
Our firm in Corpus Christi, Texas, has spent years helping injured victims navigate the legal system, and we continue to serve our community by assisting injured individuals with their claims.
WHAT CRITICS ARE SAYING ABOUT LEGAL FINANCING
Despite the benefits of seeking third-party funding, critics have shared some of the negative effects they have seen with this type of financial assistance. For example:
- Decreases the settlement amount- Settlements in personal injury cases are intended for the injured victim to cover their injuries and any damages. If a victim’s case is funded by a third-party, it can cause a major reduction in the settlement awarded to the victim.
- High-interest rates and hidden fees- When a legal funding company invests money, they ultimately want a return on their investment. To make this happen, they may choose to add additional interest rates.
- Cluttering the legal system- With more lawsuits being funded by third-parties, the legal system can become cluttered with frivolous lawsuits that don’t always have a strong chance of holding up in court.
The New York Times reported, “In New York, state lawmakers are trying to crack down on finance firms that offer cash advances to litigants, introducing legislation that would cap the interest rates. Critics say that the fine print of these deals is often incomprehensible and that the loans can leave plaintiffs with only a small fraction of the settlement money they thought they would receive.”
Legal financing can be beneficial for a law firm who needs financial assistance to support a case, but it can cause the plaintiff to end up with less compensation due to the high-interest rates lending companies apply in order to gain profit.
It’s important that an injured victim is aware that their settlement may be reduced if their injury attorney used a third-party to fund their case.
HIGH-INTEREST RATES DECREASE A PLAINTIFF’S PROFIT
The way legal financing companies make their profit is by applying high-interest rates to their cash advances.
The same New York Times article stated, “Plaintiffs’ lawyers and investment firms argue that the money the firms provide makes it possible to pursue costly-litigation against large companies. But some hedge funds impose higher interest rates if a case drags on too long.”
HOW FINANCING IS IMPACTING PERSONAL INJURY LAW
Since there is an increasing amount of companies beginning to enter the litigation funding space for personal injury cases, the number of lawsuits funded by a third-party will naturally rise.
Although there are upfront benefits to receiving financial assistance for an injury lawsuit, it can leave a negative impact on the plaintiff after the case is said and done.
It’s important to seek a law firm that will fight for the plaintiff’s best interests and the compensation they deserve.
SEEKING LEGAL GUIDANCE
Whether a law firm needs third-party legal financing or not, injured residents of Corpus Christi, Texas, can trust the legal guidance of our attorneys. Our firm knows how expensive a personal injury case can become, but if you or a loved one has been injured in an accident that resulted from the negligent actions of another person, we can help.
Our team of personal injury attorneys has the experience and knowledge to handle injury cases. We believe in protecting the “little guys” and want to make sure they receive top legal guidance. Call our law office in Corpus Christi, Texas, today at (361) 238-2789 or fill out our free consultation form. We look forward to helping those that have fallen victim to an accident.