Is Pre-Settlement Funding Right For Your Case?
If you suffered a personal injury that has you out of work and unable to pay your bills or your case involves a massive investigation that needs funding in order to continue, a pre-settlement loan might be a solution to the money problem. It’s important that you understand the ins and outs of pre-settlement or litigation funding before you go talk to a financial company because their are ethical issues you might want to think about.
What Is Pre-Settlement Funding?
It has numerous names including lawsuit loan, legal funding or financing, settlement funding, or third-party funding. It’s all the same though, it’s funding intended to provide financial support to to plaintiff in a lawsuit before it’s been settled or resolved by a court or trial. In some instances this can be a helpful investment:
- when the plaintiff needs money for bills and expenses while the case is still ongoing
- to take pressure off of settling early and not getting the amount the case is actually worth
- to finance a better investigation for the case to get a larger verdict
How Does It Work?
Financial firms offer a loan to the plaintiff until the plaintiff receives his or her judgement or verdict and receives their award (if the plaintiff wins). However, these loans are “non-recourse” loans meaning that the plaintiff does not have to pay back the loan if these judgement is against them (and for the defendant). Therefore, the financer of the loan loses money if the plaintiff wins so pre-settlement firms, have to be very selective about who they offer a loan too.
Since the loan is a “non-recourse” loan, the financial institutions usually charge a higher interest rate (greater the risk, greater the reward!). Some companies will charge a flat rate for the total loan, some will charge a monthly percentage of the loan. These can be as high as 15% each month.
The procedure would look something like this: you and your lawyer decide you should get the pre-settlement funding to support yourself financially and the case’s investigation. You go to a pre-settlement company and as them for the loan. They call your lawyer to make sure the case is a good investment. Based on the information that your lawyer provides, the put together an estimate for how much your verdict is worth and offer that to you along with how they will charge their fees. You accept and within a few days you receive the money.
The case can go on for however long it has to. In this example will say it goes on for another four months. If you win and the get the verdict you had anticipated, the money will go to the financial company before going to you and you’ll receive whatever is left over after attorney fees and the interest rate or fee on the loan. If you lose the case, the company gets nothing, your lawyer gets nothing, and you get nothing. If you win but the verdict is smaller than the loan company anticipated, you still owe them that money but do not have to pay anymore than what you received in court.
When Should You Get A Pre-Settlement Loan
Personal Injury Lawyers will generally pay for all the legal service until your case reaches a verdict. This is the contingency agreement you have with your lawyer. He won’t charge you fees until he wins your case and then he gets a percentage of the winnings (usually 33%). Lawyers can’t cover your medical or household expenses because this would create a conflict of interests.
Cases can take years before a settlement or verdict is even in site and injuries can cause you to be out of work for months while racking up medical bills, so it might be necessary to get a pre-settlement loan to get by until your settlement or verdict.
Obviously the best course of action you can take is to talk to your lawyer and make sure you’ve researched all of your options. You might qualify for workers compensation or unemployment insurance.
Because the fees can get so high, this should be considered the last resort for your funding
If you do decide to get a loan, check with several companies and find one you trust and that offers the most competitive rate.