Why Not to Take Litigation Financing
Many people who have a personal injury lawsuit or are expecting some type of settlement will turn to a third party to obtain financing for their case. It does not mean that they are taking out a loan to get money for their case. Instead, it means that they are selling part or all of the settlement or jury award to a third party in exchange for money now. Whether this makes sense for plaintiffs in a case is a hotly debated topic. Here are the reasons why you should not accept litigation financing for your civil action.
Not Everyone Can Get This Type of Financing
In order to understand the uncertainty behind whether you can qualify for litigation financing, it is vital to understand exactly what this funding is. Essentially, a third party who has money is providing you with financing based on what they expect that you will recover from your lawsuit. If you do not receive a settlement, the financier does not receive any money back. In other words, you are selling a stake in your claim to get money now. It follows that the financier will give a very close vet to your case, knowing the stakes that they have. They will only give money to plaintiffs who they are reasonably sure will recover money in their lawsuits. If nobody thinks that you have a strong case, you will likely not be able to receive a penny in financing.
You Are Selling Your Claim Short
There is a very plausible reason why a financier would give you money ahead of time for your case. Chances are that they have reviewed your file and are very familiar with how damages are awarded or what the insurance company would give in a settlement. Litigation finance companies are in business for a reason. That is because what they do is very profitable. They are paying you money because they want to achieve a rate of return on their investment. When you consider exactly what is a rate of return, it may make you hesitant to accept the financing. This means that you have sold the case to them for less than it is worth for upfront financing. Essentially, this means that you have left money on the table.
Your Case Will Likely Settle Anyway
It is a fact that an overwhelming amount of personal injury cases will settle out of court without a trial. Of course, different cases will take varying amounts of time to settle. However, when you file a personal injury claim, it is more likely than not that will see some money eventually. Thus, when you take litigation financing, you are giving up some money that you will likely receive in the future. In other words, you are giving up a piece of what is likely a winning ticket to get your money a bit earlier.
You Lose Some Control Over Your Litigation
If you have sold part or all of your case, you will not be the only person at the table who has some power to make the decisions. The financier will assume some degree of control over the litigation strategy. In other words, they may be calling the shots since they have skin in the game too. This could prolong the time until your settlement because the financier may want to hold out for more money. They may also want you to do certain things in the litigation that you otherwise would not have. The terms of your agreement with the financier will likely dictate how much control they have. Be forewarned that you are ceding most or all control over your case. Since you have gotten your money, you still must continue participating until the end, no matter how long it takes.
You may have valid reasons for wanting or needing to finance your lawsuit. Personal injury cases could involve high medical bills. In fact, one of the reasons why your settlement may be high is because you have missed significant time from work. You may simply not have the financial resources to hold out until your settlement comes. If you are at all able to see your case through to the end without financing, you are likely in a better financial position. However, know that the financing option is at least there for you if you need it. Nonetheless, you will be paying a price for it.
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