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Getting a Loan to Sue

Lawsuits are expensive. The average civil lawsuit in a federal court costs $15,000, according to the Federal Judicial Center. If your case requires expert scientific or medical evidence and testimony, costs can exceed $100,000. Depending on your agreement with your attorney, you may not be required to pay these costs if you lose your case. However, the high costs of litigation make attorneys less likely to take on cases that are not clear winners. If they lose the case, they have large litigation costs to pay.

An alternative to this arrangement is becoming more common. Hedge funds and several banks have begun the business of providing loans for lawsuits. These can include providing living expenses to plaintiffs who cannot work due to their injuries and providing large law firms with funds to pay expensive expert and litigation costs until a verdict or settlement is reached.

This is a relatively new development. Prior to the 1990s, many states had laws that prohibited investing in lawsuits. Some states are now taking these statutes off the books. In 1997, Massachusetts was the first state to repeal this prohibition. South Carolina, Texas, and Ohio have also repealed similar statutes.

Although this new source of money for litigants and their attorneys provides obvious benefits, there are drawbacks as well. Like any other loan, these loans require interest payments, and rates from 15 percent to 24 percent, substantially higher than those found at a bank, have been reported. Also like other loans, these must be paid back, regardless of whether you are successful with your case.

Some litigants have been surprised to learn that their law firm borrowed money to fund their case. Although this information should be provided to a client early in the relationship, some plaintiffs have been surprised when they receive bills from their attorney for interest payments after a case has been completed.

In the right situation, with proper disclosure, lawsuit financing can provide plaintiffs with the opportunity to have cases heard that would otherwise be turned down by attorneys because of lack of funds. If your case involves substantial expert and litigation costs, you should check with your attorney regarding the availability and cost to you of lawsuit financing. This is a changing area of the law and the requirements will vary from state to state.

For further information on this subject, go to:

The Center for Public Integrity