California’s vibrant cities, Oakland, San Jose, Fresno, and Riverside, see thousands of lawsuits filed every year, from personal injury and workplace claims to complex liability cases. With more than 180,000 civil filings recorded statewide in 2023, the demand for financial relief during lengthy court proceedings continues to climb. For many Californians, months—or even years—can pass before a settlement arrives, leaving everyday expenses, medical bills, and rent piling up along the way.
In response, a growing number of plaintiffs are turning to California legal funding as a lifeline while their cases unfold. However, while this option can alleviate financial stress and help you stay afloat, it also entails certain costs and considerations. Understanding the pros and cons of using legal funding during your lawsuit can make all the difference in deciding whether it’s a smart financial move or one best approached with caution.
Understanding Legal Funding
Legal funding, also known as a lawsuit loan or pre-settlement funding, is a type of financial service that provides plaintiffs with cash advances for their lawsuits. Unlike a traditional loan, repayment is contingent on the result of the case. If the plaintiff wins or reaches a settlement, the company then recovers its investment, often with interest. If the plaintiff is unsuccessful, they typically have to pay nothing.
Advantages of Legal Funding
Listed below are the advantages of legal funding.
Immediate Financial Relief
One of the biggest advantages is that you gain access to cash quickly. Plaintiffs are generally required to incur increasing costs, such as medical bills or lost wages. Legal funding helps alleviate this financial stress, allowing individuals to focus on their physical recovery and their pursuit of justice without worrying about a financial burden.
No Repayment if You Lose
One of the main benefits is the non-recourse feature of the funding. And if the plaintiff fails in the case, they usually do not need to repay the advance. This feature makes it a safer bet compared to traditional loans, which require repayment regardless of the situation.
Leverage in Negotiations
Many plaintiffs also benefit from having the funds to cover the costs of settlement negotiations. Defendants may make minimal settlement offers, expecting that financially stressed plaintiffs will cave in. Funding allows plaintiffs to hold out until they can settle for more favorable terms.
Disadvantages of Legal Funding
Listed below are some of the disadvantages of legal funding.
High Costs
The biggest downside comes from the cost. Due to high fees and substantial interest, companies often accumulate large sums of money. This implies that even when the plaintiff wins, a significant portion of the settlement is used to repay the funding provider.
Impact on Settlement Amount
While accepting legal funding can be beneficial, it can also result in a plaintiff receiving a smaller net amount from their settlement. However, a portion is allocated to the funding company, so plaintiffs may receive less than they expected. While these options may provide faster financial relief, it is essential to consider the potential lower settlement proceeds.
Limited Availability
Not all cases are eligible for legal funding. However, plaintiffs may not be entitled to an advance because funding companies must consider the strength of a case before issuing an advance. Not everyone with a case is able to obtain this, due to the selective nature of the process.
Factors to Consider
Mentioned are some factors that must be considered.
Case Strength
The strength of the case is an essential element. Funding companies review each case and predict whether the product has a path to success; guarantees are not made until it’s confirmed. Plaintiff should also consult with their lawyer to assess whether legal funding is a viable option.
Financial Necessity
Evaluate whether the need is so urgent that the steep prices make sense. The immediate relief compensates for the long-term withdrawal, but others may seek a different solution.
Alternative Options
Another path to consider before resorting to legal funding is to explore these alternative financial resources. Shaking out your personal savings, asking family or friends for help, or taking out traditional loans may have more lenient terms. Every choice should be considered in terms of its potential impact on overall finances.
Making an Informed Decision
Legal funding can be an option for individuals who cannot afford to pursue a lawsuit. However, one needs to strike a balance between the advantages and disadvantages. Invoking this type of bankruptcy may provide clarity, but consulting with legal and financial advisors can help determine if it is the right move for the individual.
To Sum Up
The more a plaintiff understands the impact that legal funding can have on the outcome of their case, the more they can make decisions that will fit their best interests. Although this can provide immediate relief from the burden of litigation and lowers the risk of entire repayment if the case is lost, costs and the potential impact on settlement amounts need to be carefully considered. Ultimately, the decision must be made based on both financial necessity and the long-term consequences of the chosen funding type.
