What You Should Know About Contingency Fees In A Personal Injury Case
Imagine you've been injured in an accident, but you don't have the money to hire a lawyer upfront. Fortunately, there are plenty of personal injury lawyers who are willing to represent you on a contingency fee basis. The following explains how these arrangements work and what to expect throughout your case.
How Contingency Fees Work
When a personal injury attorney works on contingency, that means he or she is willing handle your case without requiring upfront payment or billing on an hourly basis. In exchange, your lawyer agrees to receive a fixed percentage of the settlement or judgment amount upon winning the case. If you lose your case, you can walk away without owing the lawyer a single cent. However, you may still be responsible for paying various court costs.
For a lawyer, working on contingency can be a risky move that's also quite lucrative, especially if a personal injury case is a slam-dunk with a large settlement or judgment attached. For clients in need of effective legal representation, contingency fee arrangements offer an inexpensive way of pursuing a personal injury case without having to worry about the expenses that often come with a lengthy trial.
Contingency Fee Amounts
Contingency fees can vary depending on a broad range of factors including projected miscellaneous fees your lawyer may cover throughout your case. Some lawyers may also adjust their contingency fees to cover periods when successful cases are few and far between. In actual practice, contingency fees tend to be more than the standard per-hour rate charged by other attorneys.
Under most circumstances, your attorney may ask for a standard 33-percent cut of the settlement or judgment amount upon winning the case. Some lawyers may charge more to cover unforeseen expenses. Some may even charge significantly less in an effort to garner name recognition and gain new clients.
Contingency fees may also be set according to state statutes, especially if the defendant decides to settle at the demand letter stage. Once an actual suit is filed, your lawyer may be entitled to receive a higher percentage of the award amount.
Contingency Fee Payment
Instead of receiving your settlement or judgment check along with a bill from your lawyer for services rendered, the courts may send the award check directly to your lawyer. Your lawyer will then deduct the agreed-upon contingency fee before dispersing the remaining amount back to you. This ensures that your lawyer receives his or her share of the personal injury award.
It's not unusual for disputes to emerge regarding the expenses and fees deducted from the award amount. If this happens, your lawyer may set aside the disputed amount in a trust account until the dispute is amicably settled.
Tax Considerations
It's already a given that your settlement may be subject to taxes depending on the type of damages awarded in your case. In most cases, the IRS will consider your settlement or judgment as taxable income. You might think that you're responsible only for the settlement amount you keep minus the contingency fee deduced by your lawyer.
However, contingency fees are also treated by the IRS as income. This means that you'll be on the hook tax-wise for the entire settlement amount, even if 30 or 40 percent of that award went towards contingency fees. This is something to keep in mind when hiring an attorney on contingency.
Keep in mind that certain personal injury awards, including those for personal physical injuries and physical sickness, are tax-free. It's always a good idea to speak to a tax professional with experience in dealing with the tax implications of personal injury settlements and judgments.
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