Litigation financing is a legal process through which the litigants and the other law firms finance the litigation and all the other required costs by taking finds from the third party. It is also known as legal financing. The process is quite similar to the funding process of legal defence. The financing companies provide money in return of lawsuits and are generally used by those firms who do not have strong financial backup.
The process of litigation financing is more commonly used by the plaintiffs. The money which is obtained through litigation financing companies can be easily used for numerous purposes including both legal affairs and personal requirements. The companies which proceed the legal finance usually offer a separate nonr ecourse amount as advance money to the litigants. This is done in return of a certain percentage of the share which is provided after the judgment or the final settlement.
Classification of Litigation Funds
The ligation funding does not fall under the sub-headings of loans. Instead, it is regarded as a form of asset or capital from a venture. The advance amount provided by the litigation financing companies is not taken under the subheading of debt either. As a result, the money received as the advance is not taken into consideration at the credit bureaus and so the credit rating of the litigant does not get affected due to the litigation funding process.
Process Of Funding
The litigation Financing firms provide the entire sum of money to the litigant in the form of a lump payment. For processing these funds, no special accounts are opened being opened by the litigant. After the advance payment is done, the case proceeds. When the case proceeds at the court of law and the litigant fails at winning, the funding company will have to bear complete loss regarding the investment done in the form of Litigation money.
The litigant, even if they lose, does not repay the money value to the funding party. Apart from that, the litigant even does not receive separate monthly fees. After the payment of the initial sum of advance, the company does not have to pay the person involved in the lawsuit until the case gets settled and the final judgment is received. It can take week, months bad even several years to receive the entire amount of legal funding.
Before taking service from a litigant, the funding company verifies and checks the strength of the litigants’ case. It is because they want to want to make sure that the investment made by then stays worth the risk which is taken.