How to Pay for Your Legal Fees: An Exhaustive Tutorial

Background on Legal Fees

The type of fee arrangement your firm offers significantly impacts the financing needs of your clients and the need for third-party financing companies. Below is an overview of the most common legal fee structures.
Paying by the Hour
Hourly rates are the most traditional way lawyers have billed their clients for hundreds of years. Traditionally, they bill in increments of hours (rather than minutes), or by the "tenths of an hour" (6-minute) increments. If a lawyer works on a case where he has to drive to a hearing that takes 15 minutes, he would bill for 0.1 hour. Pay by the hour is more common for litigation and appellate work due to its unpredictable nature and appeals. On any given month, the hours worked drastically change, depending on how many appeals are being filed. While hourly rates can be beneficial in terms of getting paid on time, they are no longer the favored fee structure in most jurisdictions. Most clients prefer the flat fee model, so they know exactly what they will pay.
Flat Fees
A flat fee structure is when the lawyer agrees to do specific tasks for a set fee. The benefit to your clients is that they know the total cost upfront, and can pay the fee prior to obtaining the work, something you can’t guarantee under the hourly rate structure .
Contingency Fees
Most commonly used for personal injury litigation, contingency fees significantly reduce the financial burden on clients because they don’t have to worry about paying legal fees if they lose their lawsuit. While this is ideal from a client’s perspective, as a litigator this structure means agreeing to take on a financial risk. What if you win a case but get paid only a fraction of your full fee? The rampant abuse of "reverse contingency fees" is one reason the American Bar Association has not developed a model rule on them.
Retainers
Some law firms require prepayment of legal fees by their clients before they can hire a lawyer. Some firms charge a simple retainer fee that entitles the client to only a certain number of hours of legal services per month, while others require clients to put down a holding fee. A holding fee is like a deposit on work to come, which the firm will keep on account until billing occurs for it. The holding fee generally allows the firm to recover all or part of its costs and fees before the client has a chance to dispute the amount owed.

Why Financing Legal Fees is Necessary

While many clients have the ability to pay for their legal services up front and in full, there are those who, for a myriad of reasons, may be faced with the need to finance their legal fees. Be it a steep divorce attorney retainer agreement or a costly medical malpractice action, legal proceedings can carry hefty price tags. However, securing financing to have access to justice can prove well worth the cost.
For American families, securing financing of any sort can be difficult, especially with crippling high interest rates, if they are able to get financing news at all. The innovative legal financing industry was born to help American families bridge the gap between financial need and stretched budgets by overcoming thin margins and high interest rates.
The legal financing process is simple: an individual submits an application with their attorneys, who is then set up with a dedicated legal representative to help guide them through the application process, which can have a decision returned to them within 24 hours.
Securing financing of legal fees can make or break the direction and outcome of a legal proceeding. It can be the difference between paying your share of court fees and not having representation during a legal proceeding. All things considered, a family should not be forced into representing themselves in court simply due to financial instability. Legal finance can also relieve stress on a budget and allow a family to focus on healing, rebuilding, or whatever other purpose may be present in the case. In cases of personal injury, legal financing can be the difference between a quality life after an accident sustained due to someone else’s negligence or a lifetime of debt.
In addition, legal financing can even help secure higher valuations for a case. In some cases, legal financing can be secured without monthly payments to the financing company while the legal process continues, allowing funds to be recouped after the case is closed. The ins and outs of legal financing can vary by state and case type, but premiums are typically a percentage of funds received by the financing company from case proceeds.
Law firms can also benefit from legal finance of legal fees. Partnering with a legal finance company can yield more business by allowing firms to offer a little more to prospects in need of capital. Firms can retain 100 percent of their cases’ fees by financing the legal fees for clients as opposed to accepting a percentage of their award. Firms can adopt a more aggressive approach to litigation without having to turn away or dissuade a client with financial needs.
Securing financing of legal fees might be something to consider prior to engaging in a legal proceeding and could prove an excellent step in starting another chapter for a family. Financing legal fees can eliminate roadblocks that could eventually cost a family a small fortune.

Options for Financing Legal Fees

As a consumer of legal services, you should know that there are a wide variety of options available to finance the fees for your case.
Personal Loans
If you are set on paying your law firm using cash, you may be able to obtain a personal loan at your bank to cover your retainer and fees. This option is great for consumers who have good credit and are looking to minimize their legal fees.
Advantage: Paying cash for your fees may minimize your overall costs.
Disadvantage: Even individuals with good credit may have to pay interest at or near the rate of inflation to cover the amount of withdrawal.
Credit Cards
You can always use credit cards to pay any legal fees. Some law firms will accept this as an alternative to cash payments.
Advantage: You do not have to go to a third-party lender to obtain credit to cover your fees.
Disadvantage: When you consider signup fees, interest, and late-payment penalties charged by credit card companies, it is often more expensive to finance fees this way.
Legal Finance Companies
Some credit companies specialize in legal financing. Legal financing is a practice in which a third-party lender pays for a consumer’s legal bills.
Advantage: Legal finance companies are not governed by state laws. Some also charge lower interest rates than traditional lenders.
Disadvantage: The terms are strictly regulated. Finance fees for legal expenses could reduce your recovery by up to 30 percent.
Payment Plans
Another option exists where the attorney agrees to collect its fees directly from the consumer. Firms even offer 0 percent interest on six-month payment plans, and some do not even charge interest on their payment plans.
Advantage: These plans allow you to spread payments over many months.
Disadvantage: The arrangements are usually bare-bones, and you must have enough money to cover the retainer structure upfront.

Evaluating Legal Fees Companies

When considering a legal financing provider, it is important to keep in mind that not all companies will serve your best interests. As with any major financial decision, it is essential to carefully evaluate your options before proceeding. The first factor to consider when evaluating a legal financing provider is whether the company is reputable and trustworthy. Look up reviews of the company online, and see if they have received positive feedback from other consumers. You can also ask your attorney if they have heard of the company or know anybody who has used them to obtain legal financing. If the company has a poor reputation, you should find a different one with a track record of satisfied clients. In addition to looking up reviews online, you can check with the Better Business Bureau for information about the company. The BBB’s website displays a star rating for the company, as well as any complaints that customers have made against the company. If a company has received many complaints against it, or is not accredited by the BBB, it might be best to keep searching for more trustworthy options. Interest rates should also be taken into consideration. Ask the company about their interest rates for legal financing, and when interest will start accruing on your principal balance. Do not forget to ask them about any applicable fees, so you can understand how much it will ultimately cost you to obtain the funds you need. You may also want to ask how often you will be expected to make payments, and if it is a large sum, whether there are payment plans available. A legal financing provider who has low interest rates and offers flexible payment options can be an excellent choice to get you the funds you need. If time is of the essence in your case, you may need the funds immediately. Ask the legal financing provider how soon you will be able to receive the funds after your case is evaluated, and if the funds can be deposited directly into your attorney’s trust fund. Some companies will be able to approve your case and have the funds sent to your attorney within 24 hours, while others may require a longer approval process or have restrictions against sending the funds to your attorney. If it is urgent for your attorney to receive the funds right away, you need to ensure that you can receive them as quickly as possible. It is important to understand how the transaction will work and to make sure the provider has a straightforward, transparent process. The legal financing provider should explain the steps of the process and how much the money will cost you in the end. Take some time to read through your contract to ensure that you understand the terms. Keep in mind that the legal financing provider is working for you, and you should not feel pressured into making any decisions that you do not want to make. If the legal financing provider seems more focused on making a sale than helping you obtain the money you actually need at an interest rate you could afford, you should find another option.

Legal Considerations in Financing Legal Fees

As with most purchasing decisions, the terms and conditions of financing legal fees in general (that is, not exclusively for a divorce) can have a significant impact on your financial picture. Before you sign off on a deal, here are some legal issues of which to be aware:
Credit Score – Many clients need financing just to have the money to pay their attorney. I’ve had clients who have been denied by certain financing companies simply because their credit scores didn’t meet the financing company’s parameters. Most companies will pull the report and use a slightly modified version of the FICO score used by lenders for credit cards and normal loans. If your credit is good, then this shouldn’t be an issue. However, if you have a credit report that is less than stellar, you should check out the lender’s requirements before applying. Otherwise, you may find that your application is denied, which could hurt you.
Credit Inquiries – As I mentioned above, many financing companies require you to have your credit score run as part of the approval process. In general, multiple inquiries into your credit report by companies for the purpose of granting credit in response to a consumer’s application do not harm your FICO score . In other words, your credit has not really been adversely affected by any of these employers requesting your credit report and are unlikely to be affected by any additional applications. However, if you have similarly sought financing from multiple companies within the same period of time, I would recommend waiting before applying elsewhere. Then, if that application is denied, you could have an issue when trying to apply to finance other debts.
Loan Times – Not all companies can approve your loan as quickly as others. Each company will have its own policies regarding approvals and how long it will take to get you those funds. Some companies can provide funds within 72 hours of approving your transaction. Other companies, however, do not have access to the required funds and are subject to contractual requirements that may delay disbursement. Aside from state laws relating to funds being placed in a trust account for the benefit of the client, which relate to family law divorces, you should ensure that you know when you will be receiving funds from your financing company.
These are just some of the legal issues you need to be aware of when seeking financing, whether for a divorce or other legal matter.

Tips for Saving Money on Legal Fees

A comprehensive guide to financing your legal fees – Options for all circumstances, including using a loan, legal aid and contingency fees
One of the major costs associated with a legal matter is the fees paid to the attorneys for their services. The legality of an attorney charging fees is often entirely dependent on the agreement between the attorney and the client. This fee will typically be charged on an hourly basis, but clients can negotiate with the attorney for a flat rate for their case. Additionally, as discussed in this post, the lawyer can charge a contingent fee, where the client only pays an agreed-upon percentage of their money recovered.
Since every case and every client is different, there are multiple ways to reduce the cost of an attorney. Negotiate your fees early to ensure that things do not get out of hand later on. Never assume your attorney will acquiesce to your request – most lawyers know what they are worth and will not hesitate to tell you to take a hike if you make them an offer they do not like. Do not bi-pass the law by paying your attorney with cash, a practice that can land the attorney in hot water with the state bar, and potentially cost you more money in the long run.
Another way to cut costs is to utilize mediation. Mediation allows the parties involved to go before an expert mediator, who will attempt to reach a settlement that is both fair and equable. Since most of the time, the issue is about too much money being spent, going through mediation often allows for parties to save face, and save money. At mediation, the mediator will have the parties sign an agreement, that among other things, promises not to sue each other. When this is signed, everyone goes home and no one owes any bills. This is the best resolution for all involved.
Finally, and probably most importantly, low-cost legal aid services are available to those who qualify. If you have been granted a low-income status, you might be able to visit a legal aid clinic – a pro-bono clinic where multiple associates and lawyers donate their time to helping people who cannot afford to pay for your services.

Case Studies in Financing Legal Fees

In our previous posts, we have reviewed the basic steps to getting a case funded along with the many different options available to funders and their acceptance criteria. Now let’s take a look at some actual case studies from KI Finance customers who successfully financed their legal fees.
Single Parent The father of one of our customers had been the primary caretaker for their children, and he was able to get them into the best schools. His ex-wife had not made her alimony payment since their divorce settlement two years prior. We funded a post-judgment collection action for the father. As a result of the lawsuit, the father received an additional $10,000 in child support plus 18 months of alimony payments.
Better to Settle than to Fight We funded a case for a customer who had been sued for breach of contract. She was facing financial ruin because the amount owed was almost five times more than any funds she had in the bank. Her attorney found out about us and asked us to review the case. The underlying cause of action was very old, and the statute of limitations had lapsed. So the case had to be defended, not settled.
We reviewed fraud claims filed against the customer, her husband and her husband’s employer . It turned out indeed that there were no facts to support claims against the customer, and the claim against the employer was so weak that it was worth less than the costs to go to trial. The customer was able to tender these facts to opposing counsel and the case was settled for a fraction of what the opposing party had been demanding (and much less than what was claimed by the other side).
Family Law and Business Litigation We’ve also had blended cases. For instance, a customer was sued in family court for divorce, child support and maintenance. In addition, there were claims for fraudulent conveyance against her husband’s company. Both cases were pending simultaneously, so we funded both actions.
Under Employment of Counsel A borrower was backed by her husband in a claim against a general contractor who had defaulted on a contract for home construction. We provided legal funding for her attorney so he could take the case on a contingency basis. There was a qualified attorney representing the defendant general contractor. The defendant did not engage in discovery and did not produce any meaningful information. As a result, the borrower won the case on a summary judgment motion shortly after the case was filed.