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Debunking Lawsuit Funding Misconceptions

Given the economy, many people involved in a personal injury lawsuit can easily face a financial downward spiral. Although legal fees are handled on contingency basis, paying the mortgage, car payment, even basic living expenses can present a significant challenge to many plaintiffs.

In the past, plaintiffs would often turn to credit cards and personal loans while they waited for their case to settle. Unfortunately, this did not alleviate the financial pressures because monthly payments were still required. Additionally, whether the lawsuit was successful or not, the plaintiff was required to repay the debt. If the plaintiff lost, the financial picture was worse than when the started. Enter lawsuit funding as a viable solution.

Lawsuit funding can alleviate the financial stress, which is often a burdensome distraction during any lawsuit. It can also buy extra time to fight for a plaintiff’s attorney to fight for a fair and often larger settlement. Unfortunately, despite more and more plaintiffs turning to lawsuit funding, there are still many misconceptions about the legal funding industry. These misconceptions can push plaintiffs away from the only financial assistance that can really help them. In order to understand lawsuit funding and if it is right for you, or your client, it is important to know the difference between misconceptions and reality.

Misconception #1: Lawsuit funding is a loan.
Reality #1: Lawsuit funding is not a loan. The main difference is that loans always need to be paid back and require monthly payments. When you apply for a lawsuit cash advance, you pay absolutely no upfront fees and make no monthly payments. The cash advance is repaid once the case successfully settles. There is no risk to the plaintiff because if the case is lost, nothing is owed. The legal financing company bears all the risk knowing that their portion of the proceeds could be months or even years away, if at all.

Misconception #2: Lawsuit funding exploits plaintiffs when they are the most vulnerable.
Reality #2: Lawsuit funding provides relief for people who have been backed into a financial corner and can’t withstand a prolonged litigation on their own. It is a cash advance to help plaintiffs pay the bills without needing to wait for a settlement to be reached.

Misconception #3: Legal funding companies interfere with the legal process.
Reality #3: Funding companies never get involved with the case. They only require enough case documentation to determine the strength of the case.

Misconception #4: Lawsuit funding affects plaintiffs negatively.
Reality #4: The cash advance is approved based on the merits of the lawsuit. Credit score and credit history is irrelevant. Additionally, because lawsuit funding is not debt it does not impact credit rating. A lawsuit cash advance also helps a plaintiff reject a low settlement offer and pursue justice and compensation deserved. In other words, lawsuit funding can have a positive impact on a case.

Misconception # 5: Lawsuit funding rates are high.
Reality # 5: It is true that rates charged by funding company can be higher than a bank loan, but they are not higher in order to take advantage of the plaintiffs. The rates are higher because lawsuit funding companies are taking a substantial risk because they may not ever be paid back. A reputable company will fully disclose this information and urge plaintiffs to seek alternative methods of funding first.

Misconception # 6: It is easy to be approved for a lawsuit cash advance which leads to frivolous lawsuits.
Reality # 6: Funding companies do not offer advances generously. Due to the high risk assumed by funding company, it is in their best interest to be discretionary and fund clients with successful cases.

While lawsuit funding is not for everyone, it can be an important form of emergency cash for plaintiffs with nowhere else to turn. If you want to know specifically whether you qualify for lawsuit funding, contact a legal funding expert who can review your case and help you understand your options. Hopefully, these facts have also helped attorneys better understand how lawsuit funding can better serve their clients.