How Does a Lawsuit Loan Work?
Getting a loan for your pending lawsuit is quick and easy:
1. Complete the online quote form.
2. We will contact your attorney to verify your case. We ask your attorney to send us documentation to verify the incident, injuries, insurance coverage, etc.
3. We approve your loan. As soon as your lawyer faxes back the lawsuit information we need, a decision regarding your lawsuit loan is made.
4. We send your check overnight. Once we receive the signed contract from you, the funds are sent to you via mail or we can simply wire your money directly into your bank account.
Lawsuit loans and funding usually come in the form of non-recourse cash loans, provided to the plaintiff in return for a promise to repay the loan after the lawsuit settles or when the plaintiff wins their case. As this is a “non-recourse” loan, meaning an injured person does not have to repay the loan if they are unsuccessful in the lawsuit. In the event that a plaintiff receives a settlement smaller than anticipated, they are only required to repay up to the amount of their share of the settlement. Due to the risk involved in issuing a non-recourse loan, the fees associated with lawsuit loans can be significant. There are legal, ethical, and practical issues which need to be taken into consideration, if you are thinking about applying for a lawsuit loan.
How Lawsuit Loans Works
The effected person contacts a company that offers lawsuit loans, sometimes at the suggestion of their lawyer. The lending entity contacts the attorney who is handling the case, and obtains all details regarding the case. Based upon the information provided, the loan company estimates the value of the likely eventual settlement or verdict, and offers a loan advance to the injured person based upon that estimate. The fee may be a flat fee, or a monthly fee that accrues each month that the loan is outstanding. When the case settles, or when the defendant pays after losing in court, the loan and associated fees are paid to the lending entity.
These advances are offered as non-recourse loans, which means that an injured person has no obligation to repay the advance if the lawsuit is lost. Similarly, if the ultimate settlement or verdict yields a smaller amount than anticipated, the repayment obligation never exceeds the amount of the injured person’s share of the verdict or settlement. For legal reasons, these amounts are characterized as advances, and are not viewed as loans.
Settlement and pre-settlement amounts available vary significantly, depending upon the nature of the case and the company involved. Many companies offer pre-settlement funding amounts between $500 and $100,000. Fees also vary depending upon the company and the type of case. Some companies will fix the fee for the advance up front. Others will charge a monthly fee for each month between the time the funding is issued and when it is repaid.
When Is Pre-Settlement Funding Appropriate?
Litigation can take a very long time. Sometimes, cases may drag on for years. While cases are pending, even where an injured person’s attorney is paying all of the legal expenses associated with the litigation, the injured person has to have enough money to get by. If the injured person is unable to work, has reduced income, or has expenses associated with care or disability, it may not be possible to wait until the end of the lawsuit before obtaining funds.
Given the fees involved in the funding, it is important for plaintiffs to consider all options. This type of financing should ordinarily be the last resort. The fees are premised upon the risk to the lender associated with non-recourse loans, but keep in mind that these companies choose their cases carefully in order to minimize risks. If they offer you an advance, it is because they believe that you will receive money from your lawsuit. If you decide to obtain a pre-settlement loan, you should let us submit your request to our database of lawsuit loan investors, in order to obtain you the most favorable terms.
As you consider an advance on a lawsuit, an obvious question may arise: Why can’t injured people simply borrow money from their attorneys? The answer is that state bar associations recognize that when a lawyer becomes a creditor to a client, a conflict of interest is created. This can potentially interfere with the attorney-client relationship, and so it is a generally discouraged practice.
Sometimes, attorneys resist signing any contract with a settlement financing company, and in other instances, certain states may prohibit lawyers from signing onto necessary liens to secure this type of funding. As a result, lawsuit loan companies typically require that the injured person sign a contract, and that the attorney sign an acknowledgement of the client’s instructions on the repayment of the loan and associated fees for the eventual verdict or settlement.
In order to avoid usury laws (laws against charging excessive rates of interest), the funds you receive from a pre-settlement funding company will not be described as a “loan.” For example, the advance might be described as a “cash advance” or“investment.” Technically, as the contract is not to repay the amount received, but is instead a promise to pay a portion of any eventual verdict or settlement (which may never occur.) These amounts are not loans. No matter the outcome of the trial, a person who receives pre-settlement funding keeps the full amount of the advance.