Did you know that the modern form of litigation funding originated in the 1990s in Australia? Although it is relatively new in the United States it allows for everyone to have equal access to the legal system even if funds are tight. We have put together this guide to define litigation funding and share a few insights into navigating the process.
Keep reading to learn the ins and outs of litigation funding.
What Is Litigation Funding?
Litigation funding (sometimes called litigation finance) is when a funder finances either all or some of a claimant’s legal fees in exchange for a cut of any proceeds or recovery in a lawsuit. The recovery can come from either a judgment at trial or from a settlement.
In lamest terms, a person or company has the ability to finance their legal issues through a third party no matter what their current finances are.
Keep in mind that sometimes litigation funding can be set up like a crowdfund where hundreds or even thousands of people come together to pay for a legal dispute. The individuals might just donate to support a legal right they believe in or they invest in return for part of a contingent fee.
How Do You Get Funded?
The process of getting funding starts with first applying to an independent litigation financier or a litigation funding firm. Once the financier reviews your application they will request any additional documentation or materials needed to approve to finance your case.
After the company checks all of the risks associated with your case they will send you a litigation agreement. The next step is for you to sign it and then they will pay for all the legal costs.
Why Apply for Litigation Funding?
One of the main reasons that people or companies apply for litigation funding is due to a lack of financial resources to defend a litigation or to prosecute. Having the ability to use litigation financing allows a person to retain the best legal talent out there. For example, after having an orthopedic injury you might be out of work and really tight on money but your attorney knows that you have a strong case.
Another reason that companies use litigation is that they want to have off-balance-sheet financing. Litigation funding also allows a company to hedge risk.
If a company has been damaged because of another party’s wrongdoing, and capital sources are not willing to invest at a proper valuation until the dispute is solved then litigation funding can help. This will give a company the capital to fight for their rights even under financial stress.
Feeling Like a Litigation Funding Pro?
We hope that now that we answered the question “what is litigation funding?” you can feel confident moving forward with your application.
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