Many people who are injured and pursuing financial compensation for a personal injury are in a seriously bad predicament. Not only can they often not earn a living from working, but they are also operating a household on limited income and low to non-existent personal funds.
Part of the damage created by an accident is the actual financial impact on the victim and their families, which can be an element of the non-economic general damages allowance for pain-and-suffering when the case is being finalized. Luckily for many who have a solid case, there is an alternative to struggling through the settlement process period.
That alternative is a settlement loan issued by a specific type of lending company that evaluates the individual situation and makes a decision on the potential of advancing some of the eventual proceeds to the claimant. However, this is an option that can have a serious affect on the total amount of compensation received because the claimant must repay these funds. Taking out a loan of this nature should not be done without in-depth consideration beforehand.
But, for those who do decide to look for pre settlement funding, here is how lawsuit loans work when a claimant needs a cash advance.
The Pre Settlement Funding Process
Lawsuit loans differ from a typical installment loan in certain respects. Most loans are not repaid through a regular monthly payment, but typically paid off at the time the settlement funds are transferred. Settlement agreements are calculated first in a total lump sum payout in most cases, with allowances for attorney fees and medical bills coming out of the proceeds first.
In cases where there is no cash advance before the settlement, claimants receive the total amount after contingency fees and attached required payments to medical treatment professionals and facilities are paid. In cases where money has been advanced prior to case settlement or a jury award, the lender is paid next after medical costs and attorney fees.
The Cost of Borrowing
Lawsuit loans are subject to an interest payment on the total amount, which is usually 2-3% per month for the time between the loan issuance and the final settlement transfer. While this seems relatively low, the amount can assuredly add up to a significant level when the case takes a considerably long time to finalize.
If the case takes over one year to make its way through the courts or end in a settlement to shorten the process, this can amount to over one-third of the total compensation. This outcome is not acceptable for many, and it is assuredly a solid reason to avoid a loan it at all possible.
Loan Limitations
Another aspect of receiving pre-settlement payments is the fact that they are usually limited to 15-20% percent of the anticipated settlement amount. The decision on loan limitation is made by the lending company. They make an offer to the applicant regarding the loan allowance, and then the injured claimant who is applying for an advance can decide if they want to take the money.
The types of personal injury cases that lending companies will accept can be limited as well, but they typically include:
- Auto accident injury
- Premise liability injury
- Product liability injury
- Wrongful death
- Medical malpractice
Losing a Case
One of the primary problems with applying for a lawsuit loan is that the court may find for the defendant after a trial. A loan is only practical for the most part for those with high negligence percentage claims against a defendant. This is particularly problematic in auto accident and premises liability cases because injured drivers and claimants are assessed for comparative negligence by the jury.
Some states use a modified comparative negligence law that bars financial recovery at either 50% or 51% for injured drivers seeking compensation for injuries. And in some states, even a 1% contributory fault finding can result in a claim denial. This is an issue for the lending company because the applicant is not required to repay the loan if there is no settlement award. Plus, if there is a balance left after the proceeds are divided, the lender cannot sue for the remainder.
The lender does not have a right of recourse against the applicant when they lose a lawsuit based on comparative negligence or any other technicality.
Seek Advice from an Attorney Before Deciding to Apply
While a lawsuit loan can be an effective short-term fix for a temporary financial problem, there are risks involved for both the lenders and the applicants. A thorough evaluation of how a loan affects all parties is essential in arriving at the proper decision, and the lender may not be willing to issue a loan unless the circumstances are acceptable to the company.
It is always important to discuss this situation with your legal representative who may be able to make some recommendations regarding a reputable lending company as well as offer an alternative when a client is in a particularly bad financial situation.