What Is Litigation Funding?

Litigation funding, sometimes called a lawsuit loan, is financial assistance provided to plaintiffs who are awaiting the resolution of a legal claim. This funding is repaid from the settlement or judgment of the case.

What Is a Lawsuit Loan?

A lawsuit loan is a cash advance offered by private companies based on the potential outcome of a lawsuit. Instead of traditional collateral like a house or car, your pending case serves as the collateral. You repay the loan, with interest, once your case settles or you win a judgment.

Are Lawsuit Loans Expensive?

Yes. Lawsuit loans can be very expensive. They often include application fees, wire transfer fees, and high interest rates that compound quickly over time. For this reason, lawsuit loans should be viewed as a last resort.

Do I Need an Attorney to Get a Lawsuit Loan?

In most cases, yes. Lawsuit funding companies typically require that you have legal representation. You should always discuss your financial needs with your attorney before pursuing a lawsuit loan. A good attorney can help you find a reputable lender with reasonable terms.

When Is Litigation Funding Necessary?

Litigation funding is usually considered when a case is resource-intensive and has strong chances of success. It allows plaintiffs to afford necessary living expenses or continue pursuing legal claims without financial hardship.

What Are the Pros and Cons of Lawsuit Loans?

Pros:

• Immediate access to cash during a lawsuit

• No repayment if you lose your case

Cons:

• High interest rates

• Significant fees

• Reduces your net recovery from the case

What Does Georgia Law Say About Litigation Funding?

In the case of Ruth v. Cherokee Funding, LLC, plaintiffs argued that the funding provided by Cherokee amounted to illegal loans under Georgia’s Industrial Loan Act (GILA) and Payday Lending Act (PLA), both of which cap interest rates.

Cherokee argued that their funding was not a loan, but rather an investment in the outcome of the lawsuit. Georgia law does not cap interest rates for investments.

How Did the Georgia Supreme Court Rule?

The Georgia Supreme Court ruled in favor of Cherokee. It determined that litigation funding does not qualify as a loan under state law because repayment is contingent on a successful outcome. Since there is no obligation to repay if the plaintiff loses, the funding is not a loan and is not subject to GILA or PLA interest limits.

Why Is the Loan vs. Investment Distinction Important?

This distinction determines whether interest rate limits apply. If litigation funding is treated as an investment, companies can charge higher rates without violating state usury laws. This makes understanding your funding agreement critical before accepting any litigation loan.