What is a Contingency Fee?
In short, contingency fees are a sum of money that attorneys receive only if a client’s case has a successful resolution. This means that anyone who has endured some form of injury can attain legal representation with no upfront costs. A contingency fee agreement is customarily used in cases where a plaintiff is seeking monetary damages for a physical or mental injury.
In your contract, there will be a consideration for both the client and the attorney to determine a proper fee amount. Depending on how your case plays out, your attorney may have to file a lawsuit and go to trial. If this occurs, the agreement may have a higher contingency fee percentage. This is because attorneys and their staff have to do much more to prepare for litigation.
If your case doesn’t need to go to trial, then your attorney may settle your case through mediation. In this case, the contingency agreement may provide for a smaller percentage. If there is a doubt whether the fee arrangement is consistent with the client’s best interest, the attorney should discuss and explain the basis of the fees.
Contingency fee agreements are typically used in cases where a victim is seeking monetary damages because of an injury.
What Are the Pros & Cons?
Personal injury victims often face mounting medical bills, costly repairs or other expenses. It is often difficult for victims of personal injury to pay these costs because they may have to miss out on work. Hiring an attorney during this difficult time should not add any stress to your life. This is why The Carlson Law Firm doesn’t charge injured clients upfront fees. Our firm is ready to work on your behalf so that you can focus solely on your healing process.
Another benefit is that if you lose, your lawyer doesn’t collect a fee. This may provide peace of mind because it serves as an incentive for your attorney to get you a favorable resolution. Attorneys who work on contingency fees will often work harder to make sure the case goes your way.
The most obvious advantage of a contingency fee is that clients pay no upfront fees. Clients of The Carlson Law Firm, for instance, your financial recovery determines the amount you pay. Other contingency fee advantages include:
Legal representation against large companies. The benefit for our clients is the ability to attain legal representation when going up against companies with seemingly endless budgets and savvy attorneys.
Lower risks to the client. When you enter into an hourly rate agreement, you can face substantial legal bills—particularly if your case is not successful. Attorneys will pay for the initial costs to litigate your case so that you have no out of pocket expenses. In many cases, you have zero financial risks.
Builds a better attorney-client relationship. Truth be told, attorneys paid on a contingency fee agreement are essentially agreeing to work for you for free. That said, to get paid, these attorneys must work hard on your behalf. Attorneys working on contingency will usually try to resolve your case in a timely manner and for the most money possible. This is often a win-win for both the client and the attorney.
A contingency fee agreement shows confidence. A contingency fee demonstrates that an attorney is confident that a client’s case is winnable. If you go to an attorney that bills on an hourly you risk hiring someone who will accept the case just to bill you and collect fees through the process.
The main disadvantage of contingency fees is that it may end up costing you more than standard hourly billing. Because contingency fees agreements are established ahead of settlements, you will owe the amount the contract declares no matter how long it takes for your case to be resolved. No matter if your attorney negotiates a settlement in one week or the defendant drags out a year-long trial—you will pay the same fee. Both the attorney and the client face risks when working on a contingency fee agreement:
Clients: If a case settles quickly or recover a lot of money, clients may feel frustrated that the attorney was paid more than what they may have deserved.
Attorneys: If a case goes longer than expected or recovers very little money, the attorney may feel frustrated by lost time and expenses.
No matter what, attorneys should thoroughly explain your contract and the contingency percentage.
Is There a Standard Contingency Fee for Attorneys?
As we’ve established, attorneys collect contingency fees when your legal issue is successfully resolved. Most states permit contingency fee agreements; however, many states have state bar organizations that limit the amount and use of contingency fees. The American Bar Association reports that the average attorney contingency fee is one-third (33.3 percent) of the recovery if the attorney does not have to take the case to trial. Summarily, the fee amount is determined by the amount finally paid to the client minus necessary expenses.
Once the contingency fee agreement is set, the attorney will pay any necessary expenses. Such expenses may include paying filing fees, arranging for payment of depositions and mediations, and paying for copies of medical records. If your attorney obtains a judgment or settlement on your behalf, the written contingency contract will determine how your funds’ disbursement.
What is a Fair Contingency Fee?
The Texas Center for Legal Ethics gives a number of rules of conduct for attorneys to follow when it comes to fees. Lawyers may not enter into arrangements, charge or collect an illegal or unreasonable fee. To determine the reasonableness of a fee an attorney may include:
•Time and labor
•If accepting the client will preclude other the lawyer from other employment
•The standard fee in the industry
•The amount involved or the results obtained
•Time limitations imposed by the client or the circumstances
•The nature and length of the relationship with the client
•Experience, reputation, and ability of the lawyer or firm
•If the fee is fixed or contingent on results obtained or uncertainty of collection before the legal services
What Areas of Law Use Contingency Fees?
Contrary to popular belief, contingency fees are not available to all areas of legal matters. The myth persists because of the ever-persistent advertising on TV, Radio, and Billboards. However, contingency fees are generally only limited to the following legal areas:
Commercial vehicle crashes
Fire and Burn Injuries
Sexual Abuse & Sex Trafficking
Defective Auto Products
Traumatic Brain Injuries
And many other areas of personal injury
Get Your Contingency Fee Agreement in Writing
A contingency fee agreement should be in writing to reduce the possibility of a misunderstanding. The agreement must also explicitly state the method used for determining the fee. For example, if the fee will differ depending on the outcome, such as the case settling or having to go to trial, the exact percentage the attorney receives for each different outcome must be clear. A contingency fee agreement must also include:
•Litigation expenses deducted from the recovery
•Any other expenses deducted from the recovery
•When the expenses are deducted
What is a Settlement Disbursement Sheet?
After a settlement or jury awards damages, prior to disbursing funds, your attorney prepares a settlement disbursement sheet. This sheet will list the gross settlement amount or the jury verdict at the top. In addition, it will detail various deductions including the attorney’s fee, file expenses, medical bills and lien amounts subtracted from the gross funds. The settlement disbursement sheet will list your net (how much you get) proceeds.
Are Lawsuit Settlements Taxable?
According to the Internal Revenue Service website, if you receive a sum of money as a result of a personal injury or physical sickness and did not take an itemized deduction for medical expenses related to the sickness in prior years, the full amount of your settlement is non-taxable. If you did not take an itemized deduction or make payments related to your ailments, do not include settlement proceeds in your income.
How the Carlson Law Firm Can Help
You hear it all the time from personal injury attorneys, “no fee guarantee” or “we don’t get paid unless you win,” but The Carlson Law Firm isn’t part of the new crop of personal injury attorneys popping up all over Texas. We have more than 40 years of experience protecting the rights of injured victims. Additionally, we have a team of attorneys, on-staff nurses, and private investigators ready to assist you.
If you are the victim of a personal injury, we are ready to invest in your case. The team at The Carlson Law Firm has recovered hundreds of millions of settlement dollars for people just like you who have been injured as a result of another’s negligence.
Call The Carlson Law Firm 24/7
We’re available any day at any time, in English and Spanish.