What lawsuit funding is and how it works
Lawsuit funding (also called settlement funding or litigation financing) is a cash advance a third-party company gives you while your car accident case is pending. You do not repay it unless you win or settle. If your case is dismissed or you lose, you owe nothing back.
Here is the basic structure: a funding company reviews your case, decides whether they think you will win, and if they do, they send you money. When your case settles or goes to judgment, the funding company takes their repayment from the settlement amount before you receive the rest. The cost of this advance is built into what they take back—typically 30 to 50 percent of the amount they gave you, though this varies by company and case strength.
This is different from a loan. A traditional loan requires you to repay it on a fixed schedule regardless of what happens to your case. Lawsuit funding only requires repayment if you win, which is why it exists: to help people cover living expenses while waiting months or years for a settlement.
Key Takeaways
- Lawsuit funding is a cash advance that you repay only if your case settles or wins; if you lose, you owe nothing back.
- The funding company takes their repayment directly from your settlement, so you never write a check yourself.
- The cost ranges from 30 to 50 percent of the amount advanced, depending on how long the case takes and how strong it is.
- You can receive funding while your case is still in negotiation or discovery, not just at the end.
- Your attorney must approve the funding agreement, and some attorneys have preferred funding partners or restrictions.
When people use lawsuit funding and why
Most people turn to lawsuit funding because the settlement is months away but bills are due now. If you were injured in a car accident and cannot work, you may be waiting for your medical treatment to finish before the case can settle. During that time, you still need to pay rent, utilities, medical copays, and groceries.
Lawsuit funding bridges that gap. Instead of taking a low settlement offer just to get money quickly, you can afford to wait for a fair one. Instead of going into credit card debt or borrowing from family, you can take an advance against the money you expect to receive.
The trade-off is the cost. If you borrow $5,000 and the case takes two years, you might repay $7,500 or more. That is expensive, but it is less expensive than the interest on a credit card over two years, and it does not require you to make monthly payments while injured and unable to work.
How the process and approval process works
To get lawsuit funding, you contact a funding company directly or through your attorney. You will need to provide basic information about your case: the type of accident, the injuries, the defendant's insurance company, and your attorney's contact information. The funding company will then contact your attorney to verify the case details and assess the strength of your claim.
The company is not evaluating whether you personally are creditworthy—they are evaluating whether your case is likely to result in a settlement large enough to cover the advance plus their fee. A strong case with clear liability and documented injuries moves faster and costs less. A weaker case may be declined or offered at a higher cost.
If approved, you sign a funding agreement that spells out the amount advanced, the repayment percentage, and how the company will be repaid from your settlement. Your attorney must review and approve this agreement before you sign. Some attorneys will not work with certain funding companies, or they may have a preferred partner they recommend.
Approval typically takes three to seven business days. The money is usually sent directly to you via check or bank transfer, though some companies require the funds to go to your attorney's trust account first.
What happens when your case settles
When your case settles, your attorney receives the settlement check. Before distributing your portion to you, they deduct what you owe to the funding company and send that amount directly to the funder. The remaining balance goes to you.
For example: your case settles for $50,000. You received a $10,000 lawsuit funding advance with a 40 percent repayment rate. You owe the funder $14,000 (the $10,000 plus 40 percent). Your attorney sends $14,000 to the funding company and $36,000 to you. You also owe your attorney's contingency fee (usually 25 to 40 percent of the settlement), which comes out of your portion.
This is why it matters that your attorney approves the funding agreement: they need to make sure the total deductions—attorney fees plus funding repayment—do not exceed what the settlement actually is. If your case settles for less than expected, you could end up with very little after both are paid.
The cost and how to compare offers
Lawsuit funding companies charge different rates depending on how long they think the case will take and how confident they are in the outcome. A case that settles in six months costs less than one that takes two years, because the company's money is tied up longer.
When comparing offers, look at the total repayment amount, not just the percentage. A company offering 35 percent on a $10,000 advance costs $3,500. Another offering 45 percent costs $4,500. The difference is $1,000, which matters when you are already stretched financially.
Ask each company for their repayment schedule in writing. Some charge a flat percentage regardless of how long the case takes. Others charge a monthly interest rate that compounds, so the longer the case takes, the more you owe. A case that takes three years with a monthly rate can end up costing far more than a flat percentage.
Also ask whether there are any fees beyond the repayment percentage—process fees, processing fees, or monthly service fees. Some companies charge these on top of the percentage; others do not. These add up quickly on smaller advances.
Risks and things to watch for
The main risk is that you receive funding based on a settlement amount your attorney estimated, but the case settles for less. If your attorney thought the case was worth $60,000 and you borrowed $15,000 against that estimate, but the case settles for $35,000, you now owe the funder a large percentage of a much smaller pot. Your attorney's fee comes out first, and you may be left with very little.
This is why your attorney's approval of the funding agreement is critical. They should only approve an advance that is reasonable relative to the likely settlement range, not the best-case scenario.
Another risk is taking multiple advances from different companies. Each one takes a cut from the settlement. If you borrow from two companies, you could owe 60 to 100 percent of the settlement before you see any money. Your attorney should track all funding and make sure the total does not exceed what the case is likely to bring in.
Finally, be cautious of companies that pressure you to sign quickly or that do not require attorney approval. Legitimate funding companies always contact your attorney and require their sign-off. If a company is pushing you to bypass your attorney or sign without their review, that is a red flag.
Alternatives to lawsuit funding
If the cost of lawsuit funding is too high, other options exist. Some attorneys will advance you money directly from their operating account while the case is pending—this is called a non-recourse loan or attorney advance. The terms are usually better than a third-party funder because the attorney has a long-term relationship with you and wants to keep your business.
You can also ask your attorney whether they will negotiate a lower contingency fee in exchange for you waiting longer for payment. Instead of paying them 33 percent of the settlement when ready, you might agree to pay 25 percent but wait an extra month for your portion. This reduces the total amount leaving your settlement.
If your injuries are severe and you cannot work, you may be able to file for workers' compensation (if the accident happened at work) or short-term disability through your employer or a private policy. These do not depend on the lawsuit settling and can provide income while you recover.
Some nonprofits and legal aid organizations also offer emergency financial information to people in active lawsuits. These are usually small amounts ($500 to $2,000) and have income limits, but they do not require repayment. Ask your attorney whether they know of any programs in your area.
Frequently Asked Questions
Can I get lawsuit funding if my case is still in early stages?
Yes. Funding companies will advance money at any stage as long as your attorney believes the case has merit and is likely to settle. Cases in discovery or negotiation are funded regularly. The earlier the stage, the longer the company expects to wait for repayment, so the cost may be higher.
What if my attorney says no to the funding company I chose?
Your attorney has the right to refuse to work with a particular funder. This usually happens if the company's terms are unreasonable or if your attorney has had problems with them in the past. Ask your attorney which companies they prefer or will work with, and contact one of those instead.
Do I have to use lawsuit funding if my attorney recommends it?
No. Lawsuit funding is entirely optional. Your attorney may recommend it if they think it will help you avoid a low settlement offer, but the decision is yours. If you can cover your expenses another way, you do not need to borrow.
What happens if I settle my case while I have an active funding advance?
Your attorney will deduct the repayment amount from your settlement and send it to the funding company before distributing your portion to you. Make sure your attorney knows about the advance so they can account for it in the settlement calculation.
Can the funding company contact my employer or family about the debt?
No. Lawsuit funding is not a traditional debt, and the company has no right to contact third parties. They can only collect from your settlement. If a company threatens to contact your employer or family, report them to your state's attorney general.