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What is Litigation Funding?

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  • Originally Written By: Garry Crystal
  • Revised By: A. Joseph
  • Edited By: Niki Foster
  • Last Modified Date: 08 September 2016
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The term "litigation" refers to all of the legal proceedings of a lawsuit. It can be a very expensive process. Litigation funding is the acquisition or use of the money necessary to pay for the legal proceedings, such as the cost of any lawyers who are involved in the case. This funding is often contingent upon the result of the case, which means that the fees could be higher if the case is won or lower — or waived entirely — if the case is lost. Various types of loans can be used to fund litigation, and they also might be contingent upon the result of the case.

Contingency Fees

In some cases, such as personal injury claims, a person might be able to hire a lawyer on a contingency fee basis. This means that the lawyer's fees are a percentage of the amount awarded, which would mean that there is no fee if no money is awarded in the case. The law firm pays for all of the costs of the litigation until the case has been decided. Some clients are not able to find a lawyer who is willing to do this, or they might have a lawyer who charges for extra expenses. In this case, litigation funding must be found from another source.

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Lawsuit Loans

There are many companies that offer litigation funding options. One type of litigation funding is commonly known as a lawsuit loan. With this type of loan, a person is able to borrow enough money to pay for a case until its conclusion, when the verdict is announced or a settlement is reached.

This type of loan might offer non-recourse financing. This means that if the jury decides in the borrower's favor or the case is dismissed, he or she is not liable for any fees. The fees associated with this type of litigation funding are high. A person should consult with his or her lawyer and make sure that the full extent of the fees is understood before a contract is signed.

Personal Loans

Another option for litigation funding is a personal loan. Someone who has a good credit history might be able to find a low-interest unsecured loan. This can be a good option if the interest rates are not higher than those of lawsuit loans or other types of funding, such as credit card advances. Other forms of litigation funding might include using the equity on a home or borrowing from family members.

Other Funding

Anyone who needs litigation funding should research all of the ways to receive any funding to which he or she is entitled. For example, for a work-related injury claim, a person might qualify for workers' compensation benefits, including funding for any litigation involved. Funding also might be available from insurance plans or certain types of retirement plans or other investments.

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Discuss this Article

anon2380
Post 1

Actually, the non-recourse funding you describe is not a loan at all, due to its non-recourse status. The funding company gives you an advance of cash. If your litigation is successful, you pay the investment back and also pay the investment fee. If, as the article states, your litigation is not successful, then you pay nothing. Calling it a loan is misleading and also brings in issues such as usury that should not apply to non-recourse advances, considering the risk undertaken by the finance company.

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