Persons who are injured due to the negligence of others and are involved in a lawsuit or insurance claim are often unable to work and strapped for cash. Financial strain can sometimes lead to unpaid bills, leading ultimately to a lower credit score.
Plaintiffs who find themselves in this situation can explore the possibility of lawsuit “loans”. These financial transactions involve the advancing of cash to plaintiffs prior to settlement. The lawsuit funding company advances money to the applicant and he/she must pledge a portion of the future proceeds of the case, if any. The portion is determined by how long it ultimately takes resolve the case.
Lawsuit Loan Basics
Lawsuit loans are structured as an assignment of the future proceeds of a case. As such, they are actually not loans at all because a traditional loan implies repayment at some point in the future. Lawsuit loans, also known as pre-settlement or lawsuit funding, are not repaid if the lawsuit or claim is unsuccessful. Because of this, lawsuit loans are deemed “non-recourse” advances.
One pre-requisite for a lawsuit loan approval is that the applicant has a lawyer and that lawyer is retained on a contingency fee arrangement. That is, the attorney is not paid a fee unless the case is successful.
Although not all lawsuits qualify, if you have an attorney and filed a claim for personal injury damages, you are likely to qualify. Common lawsuit loan case types include:
- Wrongful death lawsuits
- Product liability lawsuits
- Medical malpractice lawsuits
- Premises liability lawsuits
- Auto accident lawsuits
- Slip/trip and fall lawsuits
Once a plaintiff applies for a lawsuit loan the lawsuit lender then evaluates the case. The company will conservatively estimate a possible settlement. This underwriting process concludes with the lawsuit funding company making an offer of up to 10% of the potential settlement. If agreed to, the client signs the contract and agrees to pay the stated amount dependent upon the ultimate time of resolution.
The cost for this service is a “use fee” which is calculated on the contract amount. Generally, this amount ranges from 18% – 25% every six months. you will generally not make any payments while your case is still pending. Nor will you have to pay any money if you fail to recover any money at all.
What if I Lose or My Recovery is Less than Anticipated?
Most lawsuit loan recipients do not have to repay the lawsuit cash advance if their case is unsuccessful. As previously stated, lawsuit loan transactions are deemed “non-recourse”. The “use fee” the company charges factors in this risk and is part of the business model.
Another scenario could involve you settling the case but for an amount that is less than required to repay the advance. In this case, the company will not be able to recover the entire amount under the contract. Instead, it would be entitled to the remainder after your attorney receives payment and other costs are recouped.
Settlement Funding and Credit Considerations
Because settlement funding transactions are structured as an assignment of future proceeds, you are actually not borrowing money from the lawsuit loan company. For this reason, applicants do not have to have good credit for lawsuit funding. Generally, lawsuit funding companies do not run a credit check.
The lawsuit loan funder is more interested in the probability of success than whether you were able to make your car payments in the past. Due to their cost, lawsuit loans are often a last resort for plaintiffs who are unable to meet their obligations. Creditworthiness is a symptom of the situation, not a determining factor.
The benefits of lawsuit loans are often debated. Yet the benefits may outweigh the negatives in your personal situation.
Now you know that your credit scores will not stop you from getting a lawsuit loan. If you have any other questions about lawsuit loans, please consult your attorney or call a reputable lawsuit funding company.