You may have heard the term before, but few people really understand the ends and outs of settlement funding. What was once just a vague term has grown into a rather controversial issue causing many to take up arms in the conflict. What is settlement funding and why the debate over its use?

Settlement funding, also known as litigation funding, is basically an advance of money from an expected settlement in a lawsuit or claim. Often times, people are injured in automobile accidents or the like and are in serious need of cash during the pendency of their case. However, there may be little someone in such a situation may do to solve their dilemma. Traditional lending may not be an option due to lack of employment due to injury or lack of credit on the part of the borrower and few lending institutions will loan money on something as speculative as lawsuit proceeds. Therefore, settlement funding may be the only option some people have when they need cash.

The speculative nature of settlement funding is where the real problem comes in. No one can say for sure how a case will turn out - whether it will settle, go to trial, or produce any money at all. Countless cases end in no recovery, while even more reap inferior awards or settlements. Therefore, loans on expected settlement proceeds may easily go to the wayside.

On the other hand, cases may become more difficult to settle once this type of advance is put in place. Because settlement funding acts as a lien on any potential proceeds, it is sometimes impossible to settle a case and meet all the attorneys fees, medical obligations, and repay the funding. However, it does put the clients needs ahead of the other liens and obligations of the case proceeds.