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Can Litigation Finance Help Unsecured Creditors to Boost Recoveries?

The biggest loss faced in the case where an individual or entity declare themselves as bankrupt is by unsecured credits. In the case of a bankruptcy, the obligation to repay unsecured loans is generally removed even after the conclusion of the bankruptcy period. However, there are certain exceptions as the borrower may be obligatory to pay certain unsecured loans.

A major problem unsecured creditors have to deal with in case their borrower is filing for bankruptcy is the recovery of their loan amount. As stated above, in the most probability, these loans are forgiven; thus, the lenders are at the risk of losing their money.

One way for the unsecured creditors to recover the money they have given as unsecured loans is to use the litigation finance option. Wondering how it can help them? Is it a viable option? Will it actually work? You will find answers to all these questions in this post. Continue reading!

What is Litigation Finance?

It is a practice in which a third-party company finances the plaintiff. In return, they are entitled to get a portion of the amount recovered. This portion is pre-decided among the parties.

How can Litigation Finance Help to Boost Recovery of Unsecured Loans?

When a person applies for bankruptcy, unsecured creditors do not get enough time to recover the amount they have given as loans. In this situation, they can use this option as it slows down the bankruptcy procedure. This gives time to unsecured creditors to make worthwhile claims that can help them to recover their money.

This option also helps them to have funds to manage their claims and develop evidences to support their case. It is a known fact that there are plenty of expenses associated when a legal claim is filed. Apart from legal costs, it also includes fees of lawyer and witnesses. If the plaintiff has opted for financial litigation, they will not have to worry about these expenses and solely focus on the recovery of their unsecured loans.

As a result, the chances of recovery are high. As stated above, a certain portion of the amount they have recovered goes to the third-party company responsible for litigation funding.

It is to be noted that a financer litigator will not fund every case. They generally conduct a deep analysis on the case before funding it for litigation purposes. Right from the case strategy to potential damages and risks, they consider each and every factor of the case before funding it. This information is not only useful for the litigator but for the plaintiff as well.

A prominent benefit of opting for litigation finance is that it is a no-risk option for creditors. In the case where there is no recovery made, they do not owe anything amount to the litigation funding company. Therefore, it is considered a viable option for them.

Are there any other benefits of using litigation finance option?

Litigation finance option offers plenty of benefits, apart from boosting the recovery process. The benefits are not only limited to the plaintiff, it is also advantageous for law firms and attorneys.

For plaintiffs, this option helps them to cover expenses related to numerous cases they have at their disposal. It also minimizes the risk for settling on the low settlement amount. When it comes to attorneys and law firms, litigation finance option assures them they will get their amount due. Therefore, they are able to work in favor of the plaintiff effectively.

Importance of Litigation Finance Option

This option is becoming immensely popular with law firms across the globe. As per records, the number of firms that have gone for this option has quadrupled in the recent years. It is widely used in the UK and Australia; however, the popularity is rising at a fast pace in the US as well.

Apart from using this option for boosting the unsecured loans recovery, litigation finance can also come handy in following scenarios:

  1. A litigation financer can purchase the complete claim by offering a huge capital to the plaintiff. However, this usually happens when the value of the claim is high and the financer understands all the risks associated with it.
  2. In case of litigation trust, this option can also be used for funding purposes. This results in a quick and efficient recovery of money for creditors and estate.
  3. Law firms can also use this option to lower the risk level when it comes to dealing bankruptcy cases on contingency. This enables them to manage cases efficiently due to a smooth cashflow.

Final Thoughts

To sum it up, it is safe to say that lenders who offer unsecured loans, they can now rest assured that they can still recover their money even if the borrower is filing for bankruptcy.


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