Misconceptions and the Truth About Legal Funding
By 2016, the New Yorker valued the lawsuit funding industry at $3 billion. It’s becoming more common to find companies who will back a case with a high monetary settlement potential. The industry is growing at an exponential rate, yet there are still myths about legal funding.
1. Legal Funding Is a Loan
The plaintiff receives a cash payout, but that’s where the similarities to a loan end. A loan must always be paid back, typically on a monthly basis. Credit history and employment status affect eligibility, and monthly payments and fees put additional burden on an already financially strained plaintiff.
Truth: Lawsuit funding doesn’t add to one’s personal debt. It is paid back only if the case wins; if the plaintiff loses, there’s no obligation to pay the advance back. To start the process, they apply with a company that specializes solely in lawsuit cash advances.
2. Lawsuit Advances Interfere with Legal Cases
Funding companies do not get involved with legal cases. Gathering the facts, formulating a legal strategy, and making settlement decisions are handled by the lawyer and their client. Funding organizations are forbidden to interfere, which is enforced by the American Legal Finance Association (ALFA). A legislative framework is also being created to regulate lawsuit funding companies.
Truth: Attorneys benefit because clients can afford to continue their cases until a proper settlement is reached. Without a lawsuit advance, the client may be pressured to end the lawsuit early. The cash advance is more beneficial to the case because the client is more likely to follow through until the end.
3. Legal Funding Is Illegal
A fallacy, because there is no legality factor to consider. Critics of litigation funding probably started a rumor to dissuade people from seeking legal funding. In fact, it is regulated at the state level while the ALFA oversees that funding companies execute fair practices. As an attorney, the organization requires you to provide written agreements and adhere to a variety of guidelines.
There’s no law against anyone seeking a financial solution that lets them proceed with a lawsuit. Funding also can’t give one party an advantage. This would be abuse of funding, which is forbidden.
4. It Is Hard to Obtain Funding
Obtaining legal funding in Los Angeles is not difficult at all. At Fund Capital America, there is no application fee, no hidden costs, and no credit or employment check. Approval is based on the facts of the case, provided by the plaintiff’s attorney. All the plaintiff must do is provide basic information and we do the rest.
Most of the time, the plaintiff can receive funding within 24 hours of us contacting their attorney. No out-of-pocket payment is required. It’s also a completely paperless process, so approved applicants can get same-day funding that does not delay their case.
In addition to fast approval and funding, Fund Capital America offers services such as cash advance refinancing, which works similar to refinancing a home mortgage loan. This pays off the original advance and creates a new one with more affordable terms. We also offer pre-settlement advances that apply the reverse mortgage principle, with cash pulled from a future settlement. If the case wins, the plaintiff sells back part of it to repay us.