Pros, Cons, and Other Considerations
Being seriously injured in an accident—whether in a car, at work, or home—can upend a person’s life.
In addition to overcoming debilitating physical injuries, victims also face medical debt, job loss, and mental trauma.
Facing any of these challenges individually would be challenging, but facing them collectively is overwhelming.
Thankfully, Texas law allows victims to bring suit against those responsible. If the lawsuit is successful, the court may grant them a significant financial award as compensation for their injuries.
But, the reality is more nuanced. Hiring a lawyer does not have to cost an arm and a leg. Many legal professionals offer alternative plaintiff payment plans to work around their client’s financial situation. Of these payment alternatives, the contingency fee structure is perhaps the most popular.
What Is a Contingency Fee?
A contingency fee is simply a fee structure that allows the client to receive legal services at no out-of-pocket cost.
How it works is simple: instead of receiving direct payment from the client at the beginning, the lawyer takes his payment from the damages the client is awarded if the lawsuit is successful. The word “if” is important here; that is, the lawyer only gets paid for the attorneys’ fees if he or wins or settles the client’s case. If the lawsuit is unsuccessful, the attorney gets nothing in attorney’s fees.
However, the client is often still responsible for court fees and other ancillary costs incumbent with filing a lawsuit. Talk to a personal injury attorney today to learn more about their billing structure.
Contingency Fee Pros
Obviously, from the client’s perspective, one of the most striking pros is that they are not directly responsible for the lawyer’s fee.
For this reason, the contingency fee makes legal services available to a demographic that would otherwise be priced out.
Furthermore, most accident victims are in the midst of a tremendously difficult personal situation; they have lost their job, incurred debt, and suffered mental trauma. Even for a client of considerable means, having to think about money and payment right off the bat is not always ideal. The contingency fee allows them to focus on their own wellbeing, and that of their family, instead of having to focus on making timely legal payments at the onset.
Contingency Fee Cons
Although the payment structure of the contingency fee is one of its pros, it can also be one of its cons.
It is true, the client is left with no out-of-pocket costs, sparing them the stress and debt that often comes with hiring a lawyer. But trading no out-of-pocket costs for a chunk of damages may seem good until the client actually wins the lawsuit.
Clients see their lawsuit as a way back to normal, and a means to get their life back on track. An award of damages can pay rent and put food on the table, pay bills, and pay down debt. Additionally, they symbolize a positive development in an otherwise bleak and challenging time. Seeing any amount go to a lawyer, even if it is just 10 percent, may seem unpalatable for some clients.
Furthermore, it can be difficult to predict exactly how much a case is worth, and in some cases, the court may award more damages than anticipated. In this situation, the contingency fee may turn out to be more costly than a traditional fee structure.
Taxes are another potential negative. Tax expert Robert W. Woods writes in Forbes Magazine, “The IRS Tags You With 100 percent Even if Your Lawyer’s Share Comes Off the Top. Whenever your lawyer’s share is 33 percent or more, the IRS treats you as receiving all the money and simultaneously paying your lawyer. That can create tax problems. You may only be entitled to a miscellaneous itemized tax deduction for the fees.”
In sum, the contingency fee is not suitable for every situation. A lot depends on an individual client’s financial situation. Before deciding on any fee structure, a prospective plaintiff should always consult with their lawyer, their family, and potentially a financial planner.
Lawyers can use contingency fees in many different contexts, and the American Bar Association considers it a valuable alternative payment structure; however, there are still restrictions.
The contingency fee is barred by law for certain cases, including all criminal and family law matters. The contingency fee may also be prohibited in contract and bankruptcy contexts, depending on the local jurisdiction.
Additionally, contingency fees often influence the attorney-client relationship in certain ways which may or may not be favorable to a prospective client.
For example, clients may fear that a lawyer who works for an hourly fee may drag out work to find more billable hours. Lawyers working on a contingency fee basis do not have this same incentive.
However, lawyers that work on contingency may either play it safe to increase the likelihood of success (and in turn the likelihood that they collect a paycheck) or make bolder decisions in hopes of more damages (and thus a larger payday). Again, these tendencies are not necessarily good or bad and each client should evaluate their own unique situation before choosing a fee structure.
Every client is unique. There is no one-size-fits-all fee structure or payment that is suitable for every client’s needs.
However, clients who want legal representation without the thought of legal bills piling up should consider the contingency fee. Even if they can afford to pay out of pocket, it may afford them a degree of flexibility not found in a more traditional billing arrangement.
Of course, the pros and cons described above should always be weighed with the help of an attorney or financial expert. Taking legal action against someone who, because of their own negligence or wrongdoing, caused you serious harm is always about achieving justice for yourself and your loved ones. Only pursue an alternative fee arrangement if it helps facilitate this objective. Consider your options and speak with a personal injury attorney today.