Case Costs Financing

CASE COSTS FINANCING

The IRS requires attorneys who handle contingent fee cases of hold the expenses advanced to their clients as accounts receivable (assets). This results in the attorney being in the banking business for something that the attorneys considers the cost of doing business, filing fees, deposition costs, investigation expenses, models, etc. To make matters worse attorneys cannot charge a client interest on these costs advanced because this would be profiting from the attorney client relationship. Being the clever folks that they are the finance industry has moved in to solve the problem. It is called “case costs financing”. These plans involve the client borrowing the costs of maintaining a legal action from a financial institution and paying the financial institution the interest charges. Since the clients seldom are credit worthy, the attorney guarantees the loan, but makes no profit from it. The interest rates are usually in the area of credit card rates. A bank in the Dallas area, Access lst Capital Bank has started making this service available at about 4 points over prime. (I must confess that I am a stockholder in this bank and my son is one of the principals in the bank.) A phone call to them will save your clients interest expense. The client gets a precise statement of the costs advanced on the case. The attorney frees up his cash and may be able to handle a case he would have difficulty financing. His accounting to the IRS is simplified.