Debunking the Biggest Litigation Funding Myth in Four StepsSeptember 5, 2013
A lot of misconceptions surround litigation funding, and the biggest one is that it is a loan. However, settlement funding is not a loan. The settlement advance company actually purchases the anticipated proceeds of the case from the plaintiff, meaning the plaintiff is no longer at risk if the case is lost. Still this myth persists, and here are four reasons why settlement advances are in their own class:
1. Litigation funding doesn’t need to be repaid. Because the legal financing company buys the anticipated proceeds of the case from the plaintiff, they do not get repaid unless the plaintiff recovers in the lawsuit or if the plaintiff committed fraud with regard to the litigation. The legal financing company bears all the risk in advancing the money to the plaintiff, knowing that their portion of the proceeds could be months or even years away, if at all.
2. Litigation funding doesn’t tack on an interest charge. A settlement advance does not include interest fees. Rather, the settlement funding company charges a flat fee based on an assortment of factors, including the expected recovery and how long the case is expected to take to settle.
3. Litigation funding doesn’t require regular payments. A settlement advance is collected directly out of the settlement, which means the plaintiff does not need to worry about scraping together a monthly payment from money she may or may not have, nor does she need to worry about writing a check to the legal funding company at the conclusion of the litigation. Instead, her attorney’s office, or even the opposing counsel, cuts the check directly to the settlement advance provider.
4. Acquiring litigation funding has no effect on a plaintiff’s credit. Because a settlement advance is not a loan and does not rely on regular payments, there is no worry to the plaintiff about missing a payment and the resulting report to the credit bureau. The litigation funding company instead has purchased the anticipated proceeds of the case from a plaintiff embroiled in meritorious litigation that will likely settle favorably.
Because of these factors, litigation funding cannot be classified as a loan. Technically, it’s the sale of anticipated proceeds of what the plaintiff can expect to recover in her settlement, and it helps plaintiffs meet day-to-day expenses while letting their attorneys fight for a fair outcome in the case. Settlement funding purchases more than just peace of mind for injured plaintiffs; it purchases their attorneys time to properly litigate the case.
Additionally, the legal funding company is the one assuming the risk of collecting its portion of the proceeds, depending on the course of the litigation. Once the anticipated proceeds of the case has been purchased, the settlement funding company worries about financial recovery, not the plaintiff, easing the mind of assuredly stressed-out litigants. This makes a settlement advance a no-risk proposition that allows the plaintiff to bridge the gap between that last paycheck and the final settlement.