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What to Look for in Your Lawsuit Funding Agreement
by
JG Wentworth
•
March 28, 2025
•
5 min
Navigating the complex terrain of lawsuit funding requires a keen eye and thorough understanding, especially when it comes to your funding agreement. Also known as litigation financing or pre-settlement funding, this form of financial aid helps plaintiffs manage their expenses while awaiting the resolution of their court case or settlement negotiations. This article breaks down the critical elements of a lawsuit funding agreement, guiding you through what to scrutinize to protect your financial and legal interests.*
1. Clear Definition of Terms
The cornerstone of any legal document is clarity. Your funding agreement should begin with precise definitions of all terms used within the document. It is vital to understand terms such as the “funding amount” (the money you will receive), the “return amount” (the total amount you are expected to repay), and any terms related to the calculation methods for fees or interest. Misunderstandings about these terms can lead to unexpected financial burdens, so ensuring clarity from the outset is paramount.
2. Total Amount of Funding
The exact amount of funding you will receive should be explicitly stated in the agreement. This section should detail not only the total funding amount but also itemize any fees or charges deducted from this total before you receive the funds. These deductions can include application fees, processing fees, and attorney review fees. Ensure that the net amount you will receive meets your needs, and that you understand each deduction.
3. Interest and Fee Structure
Understanding the interest and fee structure of your agreement is crucial as it can significantly affect the total amount you owe. Lawsuit funding does not typically require monthly repayments like traditional loans, but the accumulated fees and interest can grow substantially over time. Find out if the interest rate is simple or compound, how often it is compounded, and any additional fees like origination fees or case handling fees. Knowing these details will help you foresee the financial outcome of your agreement.
4. Repayment Terms
Lawsuit funding is unique in that repayment is usually contingent on the success of your legal case. The agreement must clearly state that repayment is only required if you win your case or reach a settlement. It should also outline the terms for scenarios where the settlement is lower than expected or if the case is lost. Typically, you should not owe anything if you lose your case, but this must be confirmed in writing within your agreement.
5. Timeline for Repayment
The agreement should specify when the repayment is due, particularly how long after a settlement is reached you are expected to repay the funds. Be aware of any penalties or fees associated with late payments, especially if the delay in payment is due to your own actions, such as failing to promptly notify the funding company of a received settlement.
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6. Your Attorney’s Role
Your attorney plays a crucial role in the lawsuit funding process. Funding companies often require direct communication with your lawyer, who must also acknowledge and agree to the terms of the funding agreement. Ensure that your attorney thoroughly reviews the agreement to help you understand all terms and implications. Their legal expertise is vital to ensure that the funding arrangement does not adversely affect your case’s strategy.
7. Confidentiality and Privacy
The agreement should also cover confidentiality and privacy provisions. It’s important to understand how your information will be used, who it can be shared with, and the measures the funding company takes to protect your personal data. Ensure that your case details and personal information are handled with the utmost security and discretion.
8. Cancellation and Cooling-off Period
Check whether the agreement includes a cancellation or cooling-off period, which allows you to reconsider your decision without incurring penalties for a set period, typically within 5-10 days after signing. This option is crucial as it provides flexibility and peace of mind if you find a better funding option or decide against lawsuit funding altogether.
9. Grievance and Dispute Resolution
Lastly, the agreement should clearly outline the process for addressing grievances or disputes related to the funding arrangement. This section should specify how disputes will be resolved, whether through arbitration or court, and under which jurisdiction. Understanding this part of the agreement is essential for managing expectations and preparing for any potential issues that might arise during the funding process.
Conclusion
Signing a lawsuit funding agreement is not merely a procedural step; it is a significant financial decision with far-reaching implications for your legal proceedings and financial health. By scrutinizing these key elements of the agreement, you can ensure that you are well-informed and prepared to make decisions that best suit your needs. Always engage with your attorney before committing to any agreement to guarantee that the terms are clear and beneficial to your specific situation.
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