What happens if I lose my case and cannot repay the funding?
Whether you are suing someone or being sued, no one likes to consider the possibility of losing a case. That said, sometimes the result of a legal battle can be a bitter pill to swallow. In such cases, a plaintiff or defendant who has obtained legal funding might be wondering what will happen if they cannot repay the funding—after all, the money was advanced based on their expected settlement or award.
Fortunately, not repaying a legal funding does not end up in a jail sentence. However, losing a case and failing to repay the money advanced for the case could leave you with serious financial consequences. Here’s what you can expect if you lose your case and cannot repay your funding.
What Is Legal Funding?
Legal funding, which is also known as lawsuit funding, is a type of financing offered by specialized legal finance companies to plaintiffs or defendants who are involved in a civil lawsuit. It gives them access to funds outside of traditional lending channels by providing them with money before the lawsuit is settled. Legal funding companies take on the legal risk of the case in exchange for a reimbursement agreement (called an assignment) that specifies the repayment terms if the case is successful.
The terms of the repayment vary from case to case and can be structured in a variety of ways, such as a percentage of the settlement or a payment upon the successful completion of the litigation process. As legal funding companies are not traditional lenders, getting approved for funding does not require a credit check or other specific criteria—it’s based solely on the merits of the case.
Consequences of Failing to Repay Legal Funding
While there isn’t a criminal penalty for not repaying legal funding, you can still face serious financial consequences. If you lose your case and are unable to repay the money advanced, the legal funding company has the right to take legal action to collect the money, including filing a lawsuit as well as reporting the debt to the credit bureau. A legal funding provider who reports an unpaid debt to the credit bureau will have a negative impact on your credit score, making it difficult to borrow money in the future.
In some cases, legal funding companies may negotiate with their customers who are unable to repay the money they advanced. In such situations, the amount owed can often be reduced or the repayment time period can be extended.
When to Consider Legal Funding
Legal funding can provide a great financial cushion for those who are already struggling to pay for legal fees and other costs associated with a lawsuit. However, it is important to understand just how significant the potential risks associated with failing to repay the money advanced can be. It is also worth considering that legal funding should usually be considered only as a last resort due to the high interest rates and fees associated with these products.
If you are considering applying for legal funding, make sure that you understand the terms of the loan agreement and the consequences of not being able to repay the money. It is also a good idea to discuss your case and options with a legal advisor before applying for legal funding. This will help ensure that you are making an informed decision and can help avoid financial pitfalls in the event that you lose your case.
