Contingent Fees: The Good, The Bad, and The Reason Many Lawyers Don’t Handle Them

Generally, a client pays a lawyer for his services by the hour, which is exactly what it sounds like. If a lawyer with an hourly rate of $250 does an hour’s worth of work, then the client owes the lawyer $250.

In some instances, a lawyer will handle a matter on a contingency fee basis, which means that the fee is paid only if there is a favorable result (i.e. “I don’t get paid unless YOU win”). The exact fee is calculated as a percentage of the amount of money recovered in the case.

Because I do creditor’s rights law, I’m sometimes asked to handle matters on a contingent fee. With the economy being where it is, however, I’m far less likely to accept creditor cases on this agreement. With so many people broke, the possibility of payment is lower than ever and the fight to get that money is harder than ever.

Proponents of contingency fees argue that they provide access to lawyers and the justice system for people who, otherwise, couldn’t afford lawyers (and that expensive hourly rate). That’s true.

My experience with accepting clients on a contingency fee billing is that those clients–i.e. the ones who are not paying for every phone call, every email, every step of the litigation–are the ones who have the most unreasonable demands of my time. Paying good money for an hour long phone call has a good way of discouraging any unnecessary hour long phone calls. If a nasty fight on an inconsequential issue doesn’t cost them anything, well, of course, they want you to fight on that issue.

When a client asks me to take a collections case on a contingent fee basis, I’m generally pretty frank with them in response. I explain the factors I consider: (a) how much actual work will  be required; (b) whether the defendant has lots of assets;  and (c) whether payment of the claim will be very quick. In short, it’s only a good deal for  the lawyer if it’s going to be a windfall involving not much work and a quick payment.

In this economy, it’s rare to find the collections referral that pays quickly and without much effort. In a contingency fee case, the risk of nonpayment rests entirely on the lawyer’s shoulders. From a client’s perspective, the risk is that a lawyer is going to lose motivation to work on a case over a long duration when it doesn’t produce results (i.e. money).

My advice to lawyers is to be careful on these types of cases; my advice to the clients would be the same.

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