Waiting on a financial compensation settlement stemming from a lawsuit can be a long and frustrating experience. Not only do the court and the respondents move slowly for a variety of reasons, the plaintiff is often recovering from serious injury and has been left in a precarious financial position.
Getting by can be very difficult, and any avenue to alleviate the situation often must be taken. That relief can take the form of a lawsuit loan for many injured victims, but there are some definite advantages and disadvantages to taking this commonly needed action.
All personal injury lawyers advise caution when making the decision to request lawsuit loans because they can further complicate a personal injury case under certain circumstances. However, there are also some assurances for the borrowing plaintiff as well.
What is a Lawsuit Loan?
Lawsuit loans are typically issued by designated companies who understand the applicant is facing a financial dilemma and that repayment is contingent on a successful legal filing. This is very similar to the plaintiff attorney contingency agreement when lawsuits are filed.
As a matter of fact, the borrower’s legal counsel in the case can help reassure the lender when the injury case is strong and there is little chance of a successful defense for the respondent. There are specific rules that apply when accident victims seek lawsuit loans, and lenders commonly evaluate the case thoroughly before issuing a loan for financial recovery assurance purposes.
Advantages of Lawsuit Loans
There are clearly some advantages to taking out a lawsuit loan in high liability cases. Many times claim liability is obvious, such as in a total fault auto accident case, and the time it takes to settle the case is due to failed negotiations in determining an equitable amount of compensation entitlement for the injured plaintiff.
One advantage is that there are conditions where no repayment is necessary in the event the case is lost. Aside from any exemptions, the borrower does not have to wait for the case to settle before being compensated at least to some degree. The lender will conduct a thorough investigation into claim liability before producing an amount they will loan, but this does not mean the whole amount should be taken.
There will be a cost associated with the loan, also termed as a “funding fee” for the lending service. Borrowing a smaller amount against the lawsuit settlement proceeds may be the best choice for some injured parties, and especially when general damages for pain and suffering could be discounted due to a significant percentage of comparative negligence.
Disadvantages of Lawsuit Loans
The primary disadvantage of any lawsuit loan is the cost of the cash advance, which is exactly what the loan will look like in the agreement. There is a specific process that happens when settlement payouts are made to plaintiffs even if a case actually goes to trial.
Most personal injury cases do not go to trial when liability is obvious, but some cases can find their way there when the total damage amount may be reduced. Lawsuits requesting punitive damages always go to trial for jury assignment unless the respondent includes the potential award in a settlement offer.
The first step is deducting lawyer fees from the total amount of the settlement. The next step will then be paying the court for processing the lawsuit and ensuring that all medical bills are paid off of the top as well. These are necessary expenses for any case, but they nonetheless are costs associated with the filing that must be considered when total damages are being accepted in a settlement.
The Cost of Borrowing Against Your Future Lawsuit Proceeds
The next step will involve the lawsuit loan, with the funding fee typically being determined by the number of months it has taken to settle the claim. This is a primary cost disadvantage of lawsuit loans because fees are presented in seemingly reasonable monthly increments.
The monthly fee applications are compounded by multiplying the percentage and number of months since the loan was taken. The compounding means that a 2% funding fee per month will take up to 25% of a total settlement amount if the case takes a year to settle.
This can become a very serious amount of money in the end, and it is a primary reason why it is important to conduct a comprehensive evaluation into how much money is actually needed to get through the settlement negotiation period. An experienced attorney can usually provide effective and accurate information at this point regarding a time frame when deciding whether to take the loan or not.
Borrowing the funds in emergency is typically best, and then so when a minimal amount can be determined and feasibly applied in terms of cost/benefit analysis.
Make a Prudent Decision
These are just a few concerns injured plaintiffs should have when it appears necessary to apply for a lawsuit loan. The final outcome of a civil case should be absolutely certain before the claimant can qualify for a lawsuit loan, as lenders want solid assurance that they will recover their fee and the principle in full amount.
In addition to lawsuits, lenders also often loans to individuals who will be receiving an inheritance or endowment of any amount when the decision is final and funds are awaiting transfer. Loan papers are filed with the court and the funding fee is deducted from the transferred amount in accordance with the agreement before the recipient is paid, very similar to an injury case.
Always perform some due diligence evaluation of your personal budget before deciding to accept a lawsuit loan. They are regularly offered upfront in total liability cases that only take time to process and negotiate for an equitable whole compensation amount.
Lawsuit loans are almost always expensive decisions, and there are multiple lenders on the market who will make contact with an offer when the case is qualified. Always consult with your attorney before making this very serious personal financial decision, and especially when total damage amounts could be reduced by a jury.