Alix Digout – October 2018
Is a Litigation Loan Right for You?
In Nova Scotia, most personal injury cases proceed on a contingency fee basis. This means the lawyer and client enter into a Contingency Fee Agreement where legal fees are paid based on a percentage once a successful settlement is reached, or a decision is made by the court following a trial. Contingency Fee Agreements are an excellent access to justice tool, as they allow claimants to obtain top notch legal services without having to pay a retainer or monthly bill. Unfortunately, these agreements do not completely lessen the financial burden faced by those injured because of another’s negligence.
Personal Injury matters are often lengthy and often leave claimants in a financial bind until their claim settles, especially if that individual is off work because of their injuries.
A litigation loan, also known as a lawsuit loan, is a pre-settlement loan or financing for claimants experiencing financial hardship, or those who require additional funding to further their legal proceedings. The loan is essentially a cash advance on settlement proceeds or court-ordered damage awards.
For example, litigation loans can be used to fund the cost of legal disbursements, such as expert reports, necessary medical treatment, or expenses of daily living.
If you feel you need a litigation loan, it is important to discuss the effects of obtaining a litigation loan with your lawyer. Your lawyer can help you navigate the pros and cons and provide you with advice. Here are a few things you should do before obtaining a loan:
- Assess the financial burden: Litigation loans can help provide peace of mind to those who are struggling to make ends meet as a result of being off work or having to pay out of pocket for necessary medical treatment.
- Assess the risks: It is possible your final settlement will not cover the cost of your litigation loan. It is important to discuss the realistic prospects of settlement or success at trial with your lawyer in advance of obtaining a loan to ensure you do not end up owing more than you can afford to pay back.
- Level the playing field: There is a marked disparity between the funding available to the average claimant and the deep pockets of insurance companies. A litigation loan may alleviate the pressure on a claimant to prematurely settle their file because they cannot risk the expense of going to trial and being unsuccessful. The loan serves as a buffer so that claimants can continue to negotiate and work towards recovering a successful settlement and/or prepare for trial without having to worry about the expense of hiring experts.
- High interest rates and fees: Litigation loans are secured through specialized third-party lenders who typically charge higher interest rates than regular financial institutions. As most files take several months or even years to settle, compounding interest and fees accrue at a staggering rate.
- Shop around: There are several reputable companies who offer pre-settlement funding, but not all loan agreements are created equal. It is important to compare the terms, fees and interest rates before signing on the dotted line.
While litigation loans can help in the interim, the lasting financial implications may be significant. It is prudent to first explore alternate forms of funding such as an advance payment, loans from traditional financial institutions, private insurance disability benefits, EI Disability Benefits, CPP Disability Benefits, and borrowing from friends and family.
At MDW Law, we are happy to meet with you to discuss the pros and cons of obtaining a litigation loan or review the terms of a loan agreement to determine whether it is in your best interest.