Lawsuit Funding: Some Common Misconceptions

date: 05/15/2012

There are numerous misconceptions people have about lawsuit funding. As it becomes a more mainstream practice, it is important to debunk some of these false impressions, as there is going to be a lot of investment and job creation in this sector. Below are some of these myths, along with an explanation as to why they are false.

One major misconception is that lawsuit funding has the potential to affect the outcome of a trial since it is provided by a third party. There is concern that the funding company will pressure the attorney to settle the case prematurely so they can collect their fee. In reality, legal financing companies make a profit through funding lawsuits, not through legal strategy. Additionally, the funding company makes money while funds are outstanding, so they make more money the longer a case takes to settle.

A second common misconception is that lawsuit funding is a loan. A loan is something you have to pay back, usually in monthly payments. Plus there are usually penalties for late payments and damage to your personal credit if there is a default. Lawsuit funding is a non-recourse advance, meaning the plaintiff is under no obligation to pay back the advance if they lose their lawsuit.

If a plaintiff were to take out a loan to pay for medical bills and living expenses, they are obligated to pay back the loan with interest, even if they lose the case. This could really lead to a downhill financial spiral. The fact that lawsuit funding is a non-recourse transaction makes it a potentially better option for a plaintiff in need of financial assistance.

A third major misconception about lawsuit funding is that it takes advantage of plaintiffs. Pursuing legal action can be a major burden. In many instances, the plaintiff is out of work and is not generating any income. If they are in a dire situation where they cannot borrow from credit unions or banks, and have maxed out their credit cards, then lawsuit funding may be their only option. Also, because lawsuit funding is generally a non-recourse transaction, they don’t have to worry about paying back the advance, even if their case results in an unfavorable outcome.

About the Author:

Lulaine Compere is a writer and research analyst at RD Legal Funding, LLC, a specialty lawsuit funding company based out of Northern New Jersey.

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