Attorney Line of Credit

An attorney line of credit is a valuable financial tool used by plaintiff lawyers to maintain cash flow while waiting to collect fees for their services.

A line of credit lets lawyers focus on their work.

When a person sues another person, company, or institution, the wronged party is the plaintiff. This individual is seeking damages (a payment of money) to compensate them for pain and suffering, medical expenses, lost wages, and other financial losses. In a plaintiff practice, the attorney will collect a certain percentage of the amount given to the plaintiff as his or her legal fees.

In a large or complicated law suit, it is not unusual for the entire process to take months, if not years to resolve. If the matter goes to trial, it will take even longer to get a judgment for one party or the other. By that point, the attorney has already spent a considerable amount of time and accumulated a large number of billable hours for which he or she has not been paid. To fill in the gap between performing the work for a client and actually collecting the fees, a line of credit set up by the attorney can be used to pay for a number of different kinds of expenses.

A line of credit can be used to pay for the following types of expenses:

• Pay salaries for staff
• Retain experts
• Advertising
• Other expenses related to the attorney's practice

In some cases, an attorney may have a line of credit which can be in the millions of dollars. Interest will accrue on any funds withdrawn from the line of credit until they are paid. This cost is usually billed to the client as an expense when the final bill is presented.

A law firm would need to have a certain level of billings over several years to qualify for this source of financing. Sole practitioners and firms made up of several lawyers would be able to qualify for a line of credit.

Fee acceleration is an alternative that can be used instead of a line of credit. Even when a law suit is settled or a judgment handed down in favor of the plaintiff, it can still take time before the lawyer collects any money for his or or her hard work. With a fee acceleration plan, a company buys the unpaid legal fees from cases that have settled. The fees involved are a certain percentage of the amount awarded to the plaintiff. In a fee acceleration situation, the lawyer will agree to receive his or her fees early and the fee acceleration company would retain a certain amount for its services.

This type of arrangement can be used in several types of legal actions, including:

• Personal injury cases
• Medical malpractice
• Wrongful death cases
• Product liability
• Discrimination in employment matters

For lawyers, it may make more sense to work with a financing company that specializes in this particular profession. A traditional banker may not have a clear understanding of how a plaintiff litigation practice works and how best to meet their unique needs. For example, a bank may not allow a lawyer to use expected fees for open cases as collateral to finance a line of credit.

Lawyers may use a line of credit regularly or apply for one to cover expenses from a single case only. If they have the flexibility to meet their financial obligations, they can turn their attention to representing their clients in an effective manner.

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