When you’re involved in a personal injury lawsuit, waiting for a settlement can be a long and frustrating process, especially when you’re struggling to cover medical bills, living expenses, or lost wages. This is where pre-settlement funding, also known as lawsuit funding or legal funding, can offer financial relief. But while it can help you stay afloat during a tough time, there are also potential downsides to consider.
In this article, we’ll explore the pros and cons of pre-settlement funding for personal injury cases, shedding light on how it works, who benefits the most from it, and what risks are involved.
What is Pre-Settlement Funding?
Pre-settlement funding is a cash advance that plaintiffs in personal injury cases can receive while waiting for their case to settle or go to trial. Unlike traditional loans, pre-settlement funding is non-recourse, which means the borrower only repays the amount if they win or settle their case. If they lose, they owe nothing.
This form of financial support is typically offered by legal funding companies that assess the strength of the case and the expected settlement amount before advancing a portion of it to the plaintiff. The idea is to provide plaintiffs with the financial resources they need to cover immediate expenses without forcing them to accept a low settlement offer from the insurance company out of desperation.
The Pros of Pre-Settlement Funding
Pre-settlement funding can offer several key benefits to plaintiffs, particularly those facing financial hardship. Below are some of the most compelling advantages.
Immediate Financial Relief
One of the most significant benefits of pre-settlement funding is that it provides immediate financial relief to plaintiffs who are often struggling to make ends meet. Personal injury lawsuits can take months or even years to settle, and during that time, plaintiffs may face mounting medical bills, lost wages, and other financial burdens. Pre-settlement funding allows them to access a portion of their future settlement now, helping them cover essential living expenses and medical costs.
No Risk if You Lose Your Case
Unlike traditional loans, which must be repaid regardless of the outcome of your case, pre-settlement funding is a non-recourse cash advance. This means that if you lose your case or don’t receive a settlement, you won’t be required to pay back the money. This can be a major relief for plaintiffs who are worried about the risks of borrowing money during their legal battle.
Strengthens Your Negotiating Position
Insurance companies are notorious for offering quick, low-ball settlements to plaintiffs in financial distress, knowing they might be tempted to accept less than what they deserve just to get some money quickly. Pre-settlement funding allows plaintiffs to take the time needed to pursue a fair settlement without being pressured into settling early. With access to financial resources, plaintiffs can wait for their attorneys to negotiate a higher settlement that more accurately reflects the damages they’ve suffered.
No Credit Checks or Income Verification
Since pre-settlement funding is based on the merits of your case rather than your credit score or income, you don’t need to worry about being denied due to poor credit history or lack of income. Legal funding companies focus solely on the likelihood of your case succeeding, making this an accessible option for plaintiffs who might not qualify for traditional forms of credit.
The Cons of Pre-Settlement Funding
While pre-settlement funding can be a lifeline for many plaintiffs, it also comes with some significant downsides. It’s important to carefully weigh these factors before deciding whether it’s the right option for you.
High Interest Rates and Fees
One of the most significant drawbacks of pre-settlement funding is the high cost. The interest rates and fees associated with these advances can be much higher than traditional loans. Legal funding companies typically charge interest on the advance, and this interest accrues over time, meaning that the longer your case takes to settle, the more you will owe. In some cases, plaintiffs have found themselves having to repay double or even triple the amount they initially received once interest and fees are factored in.
Reduced Settlement Payout
Because pre-settlement funding companies take a portion of your final settlement, you could end up receiving significantly less money than you initially expected. While the advance can help you cover immediate expenses, it’s important to remember that you’ll be repaying the advance plus interest from your final settlement, which can leave you with less money to cover long-term needs like ongoing medical care or future lost wages.
Limited Availability for Certain Cases
Not every plaintiff qualifies for pre-settlement funding. Legal funding companies are selective about the cases they accept, and they typically focus on cases with a high likelihood of success and substantial potential payouts. If your case is weak or the potential settlement is small, you may not be approved for funding. Additionally, certain types of cases, such as workers’ compensation claims or cases with uncertain liability, may not be eligible for pre-settlement funding.
Legal and Ethical Concerns
There are also some legal and ethical concerns surrounding pre-settlement funding. Some critics argue that the industry is not well-regulated, which can lead to predatory lending practices. Plaintiffs may also feel pressured to take out larger advances than they actually need, leading to higher repayments down the line. Additionally, some attorneys may have concerns about their clients becoming too reliant on pre-settlement funding, potentially complicating the settlement negotiation process.
Should You Consider Pre-Settlement Funding?
Deciding whether to pursue pre-settlement funding is a personal choice that depends on your unique financial situation and the specifics of your case. If you’re facing significant financial hardship and your case is strong, pre-settlement funding can provide the relief you need to stay afloat while waiting for a fair settlement. However, it’s crucial to carefully consider the costs involved and understand how much of your future settlement will go toward repaying the advance.
Alternative Options to Explore
Before opting for pre-settlement funding, it may be worth exploring other options. For example, you could:
– Negotiate payment plans with your medical providers or creditors.
– Apply for a personal loan or credit card with lower interest rates than pre-settlement funding.
– Ask friends or family for financial assistance.
– Seek help from local charities or community organizations that offer financial support to individuals facing medical or financial crises.
These alternatives may help you avoid the high costs associated with pre-settlement funding.
Conclusion
Pre-settlement funding can be a valuable tool for plaintiffs in personal injury cases who need financial support while they wait for their case to settle. It offers immediate relief and the peace of mind that comes from knowing you won’t have to repay the advance if you lose your case. However, the high interest rates and fees, along with the potential to reduce your final settlement payout, mean that it’s not a decision to be taken lightly.
Before pursuing pre-settlement funding, carefully weigh the pros and cons, explore alternative options, and consult with your attorney to ensure that it’s the right choice for your situation.
About the author: Mark Scott
With a law degree under his belt, Mark Scott understood very early that law communication was a relatively neglected area. He decided to help people by “translating” the language and offering information and advice in a clear, helpful, and actionable manner. For this reason, instead of finding him in court, you will most likely find his name online, where he is very active and thriving as a legal columnist. His part of making the world a better place is to make the law a less convoluted maze. He aims to make it easier for people to understand when and how to seek legal counsel, how to proceed in a significant number of legal matters, and how to find the proper resources so they can stand up for their rights.