What is Litigation Funding?

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.

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.

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.

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.

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.