The American Bar Association believes that lending money to clients has the potential to generate conflict-of-interest scenarios. State laws differ on the subject. In all states, attorneys can advance legal fees and court-related costs.
Yet, many states have exceptions for a lawyer lending money for living expenses. One workaround is when an attorney hires the client and advances money as an employee loan. This is a delicate issue, so make sure that you have all the facts before making a decision.
What Is Litigation Funding?
Many finance companies offer litigation funding. People awaiting settlement of their personal injury cases often face tough financial times. Besides the piling medical bills, victims are often unable to work. Lawsuit funding companies offer loans that can be used to pay legal fees and associated costs during a prolonged case. The loan can be either recourse or non-recourse.
Some companies also offer loans to people pursuing employment or civil rights discrimination lawsuits. While certain lenders even lend money based on awaiting the disposition of an estate where people stand to inherit substantial sums.
Recourse loans have lower interest rates because they must be repaid regardless of whether the client receives a settlement or court award. You also need good credit or collateral to obtain one of these loans.
Most litigation funding offers non-recourse loans that don’t have to be repaid if you don’t receive a settlement for your personal injury or medical malpractice case. These cases require contact with your attorney to determine the likelihood of you receiving a settlement.
Legal Funding Services
Most attorneys understand the challenges of getting approved for a loan and are ready to assist their clients. There are many prospects for funding a lawsuit. The services offered by legal funding companies are sometimes found under different names:
Lawsuit cash advances
Direct legal funding
Qualifying for a Lawsuit Loan
To qualify for a loan, your lawyer must estimate the likelihood of winning your case. The attorney must sign a legal funding contract when pursuing this path. That means the legal expert will provide an unbiased opinion. It is always best to have an honest conversation between client and attorney before starting the loan process.
Acquiring lawsuit loans is a sensitive issue, and it is crucial to follow the regulated path. Most plaintiffs seek funds from third-party lenders. If you decide to do this, you must reveal all the details of your case. These will no longer be known only to you and your attorney. Most legal experts cooperate when possible to ensure that you can survive a protracted legal battle.
Financing Referrals by Your Attorney
According to some voices, it’s perfectly legal for attorneys to refer clients to funding companies in which they have a financial interest. According to the ABA Standing Committee on Ethics and Professional Responsibility, this act doesn’t violate professional ethics.
The opinion is partly based on the fact that 75% of low- and middle-income plaintiffs can’t continue pursuing a lawsuit because of financial reasons. The loans offer plaintiffs a way to continue with their cases by paying lawyer fees and expenses or covering basic living costs.
As a result, lawyers often pay certain finance companies a fee to submit multiple loan applications on behalf of their clients. In this scenario, the lawyer receives the loan funds minus a 10% fee for their services.
The ultimate interest rate includes the initial fees and anywhere between 5% and 15% interest on the loan. Some attorneys simply provide tools that help their clients apply for loans directly. The financial obligations remain exclusively between the client and lender.
Full Disclosure Requirements
Your attorney is required to reveal a financial stake in any recommended lenders or brokers. The attorney must also recommend that the client seek independent legal counsel on the loan terms.
Some non-recourse loans, which aren’t regulated by state laws, carry usurious interest rates as high as 44%. However, these loans could be the deciding factor in whether you can afford to continue your case through an extended settlement process.
Going through a lawsuit can be a lengthy and costly process. However, there are ways to fund your legal battle. Legal funding companies can make a positive difference in your prospects of eventually receiving a fair settlement.
Author: With a law degree under his belt and years of experience, Mark Scott set off to make the law more accessible to all. He decided to help people lost in the maze of legal terminology to find their way. Mark writes clear and concise pieces and gives simple advice that is easy to follow. On account of positive feedback from readers, he decided to dedicate more of his time to this goal and became a legal columnist. In his writings, Mark covers a wide array of topics, like how to seek legal counsel, or how to deal with different procedures. Furthermore, he directs his readers toward other trustworthy resources for more in-depth information.
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