Legal funding, also called litigation financing, is the practice of a third party advancing money to personal injury plaintiffs in return for some financial recovery from the lawsuit. Opponents to legal funding argue that it encourages frivolous litigation. Critics also think legal funding takes advantage of financially vulnerable plaintiffs, and that it drags out the time to resolve cases.
What about personal injury victims who can’t work due to injuries and have no financial resources to take on deep pocketed insurance companies who have no urgency to settle cases? Or when plaintiffs are forced to live off credit cards and run up debt to pay their bills when the average case takes 9 months to settle? Proponents of legal funding say this happens to thousands of personal injury victims every day. And, that legal funding through cash advances offer plaintiffs the ability to take back control by giving them the financial breathing room to wait for a fair, reasonable settlement.
To get an informed view, it’s important to know all the facts and myths surrounding legal funding.
The 3 Myths of Legal Funding
Myth no.1: Legal funding encourages frivolous litigation.
Rebuttal:
This myth is based on the assumption that legal funding companies are on board with filing lawsuits that have little-to-no chance of being won – not only would this not be a sustainable business model, it is not the business legal funding companies are in.
This myth also assumes that plaintiffs – attorneys are comfortable with putting their reputations on the line and do not mind wasting their time working on frivolous lawsuits. Given that personal injury attorneys work on a contingency basis and do not get paid if they do not win, this is obviously not a position they would knowingly want to put their practices in.
Myth no.2: Legal funding exploits vulnerable plaintiffs.
Rebuttal:
This notion relies on the assumption that all plaintiffs are financially unstable, or that they are unsophisticated. And if that is true, then all plaintiffs, no matter the case, are equally vulnerable to being exploited by insurance adjusters and defense counsels to accept a less-than-fair settlement because they need funds to pay bills.
The myth also assumes that plaintiffs have no choice. Legal funding is a relatively new industry, but there are more companies and options than ever before. Plaintiffs get to pick who to trust their funding with, and more importantly, who will take the risk on their behalf. Plus, consumers of litigation financing have more resources available to them to research and review potential funders.
It is also important to note that many people simply do not want to burden relatives with the financial risk of pre-settlement funding, or risk bankrupting themselves while waiting for the legal system to work for them.
Myth no.3: Legal funding reduces the likelihood of settlement.
Rebuttal:
Legal funding allows plaintiffs time to wait for a fair settlement, this is true. Plaintiffs do not have to rush into unfavorable settlements because they have financial support to wait for a more favorable outcome. This does not mean, however, that settlements are somehow drawn out longer. It simply means that financially disadvantaged plaintiffs are not forced to take unfair settlements due to a lack of financial means.
A court case decision is almost never certain, and it behooves everyone involved from the plaintiff, to the defendant, to the legal funding company – when decisions are made swiftly. The plaintiff who receives a cash advance from a legal funding company, like Cherokee Funding for example, may not receive a favorable outcome in court. And, like the plaintiff in any case, the legal funding company wants decisions quickly.
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