No one knows better than a personal injury attorney how long the road can be between accident and settlement or judgment for your clients. If one of your clients is dealing with financial difficulties resulting from their injuries, they may seek your help in obtaining a lawsuit loan – a loan based on the settlement or judgement that they're likely to receive when the case is over, instead of on their credit record and personal financial history. As their attorney, you're in a position to help your client make smart financial decisions and guide them through the process. Here are some things for you to consider when faced with a client who is seeking a lawsuit loan.
Is Your Client A Good Candidate For A Lawsuit Loan?
Plaintiffs have to meet certain criteria to be considered for a loan by a lawsuit financing company. They have to be represented by counsel, they need to have a strong case with a high likelihood of winning, and you, the attorney, will need to be available to provide details to the financing company. Before agreeing to help your client obtain a lawsuit loan, you should look at another type of criteria: why do they need the money?
If your client needs money to pay past-due rent, prevent a foreclosure, pay utility bills or buy food, or if they need money to repair damage or pay for ongoing medical treatment, they are probably good candidates for a lawsuit loan, especially if there are no other sources of funding available to them. If they are not in serious need of funding, or if they have lower cost funding options, you should advise against a lawsuit loan.
Will A Lawsuit Loan Strengthen Your Client's Case?
As an attorney, you will have to weigh certain ethical issues before advising your client to go ahead with a lawsuit loan. One concern is that alternative litigation funding might constitute a breach of attorney and client privilege because of the case details that you'll need to provide the loan company. This is admittedly a sticky issue. However, for many personal injury cases, you will only need to provide information that would be discoverable by the defense in any case, like accident reports and medical records.
At the same time, you have to consider that a lawsuit loan may strengthen your clients bargaining power. A client who is strapped for cash and becoming desperate might be persuaded to accept a lower settlement offer than the case deserves, and as an attorney, you can't prevent your client from accepting such a settlement if they choose to do so. Cooperating with a finance company to help your client obtain a lawsuit loan can eliminate that sense of desperation, which means that you'll have a stronger position to negotiate from.
You should carefully weigh the factors in each individual case before deciding for or against cooperating with your client's lawsuit loan. If you have to disclose privileged information, you may weaken your client's case. If you only have to disclose discoverable information, and you can help your client avoid financial hardship, you may strengthen your client's case. In the latter scenario, cooperating with a lawsuit loan is an act in your client's best interests.
Will The Loan Be Granted On A Non-Recourse Basis?
It's important to find out whether or not your client will be responsible for the repayment of the loan in the event that their case fails to settle, or in the event that a jury fails to find in your client's favor. Usually, it's best to advise your client to seek funding that is granted on a non-recourse basis.
What this means is that repayment depends entirely on the outcome of the case, much like your own contingency fees. If the client does not receive any money from the case, they're not obligated to repay the loan. However, if the case succeeds, you'll be responsible for ensuring that the loan is repaid before dispersing the remaining funds to your client.
Every client and every case is different, so it's not advisable to have a blanket policy for or against lawsuit loans. Take a close look at the facts of each case so that you can help your client make the smart choice for their case and their finances.