When you enter a lawsuit, a plaintiff is making a commitment to much more than showing up in court on occasion. While pursuing a lawsuit, particularly a personal injury lawsuit, expenses can mount up. Oftentimes a personal injury precludes one from working, which puts further financial strain on a person. Add to that the many necessary medical visits and treatments a plaintiff might need in the meantime and long before a settlement is reached. These expenses can discourage those who are due compensation and can force them to take a much lower settlement than they deserve.
However, there are opportunities for relief, and you should be aware of them to best serve your clients as an attorney. If the subject comes up, here’s a guide to the types of settlement funding for your clients. Watch out for them, and ensure you are working with reputable and respectable firms and financial institutions.
Settlement Funding
To start with, let’s answer the question: what is settlement funding? In brief, settlement funding is financial assistance that plaintiffs can receive during a lawsuit, such as personal injury lawsuit funding. Settlement funding is not a loan, like you might receive from a bank or similar lending association. Loans come with fees and interest and usually require credit checks and other steps to receive. Settlement funding, on the other hand, is not a loan per se. It is a form of borrowing. Precisely, you are borrowing money according to the projected settlement for the plaintiff if they win the case.
Who Can Get Settlement Funding?
Obviously, the plaintiff can receive settlement funding, but there’s more to it than that. The person seeking settlement funding, of course, needs to have experienced an injury in which another individual or entity was liable for the injury. Next, the case must be considered viable enough to go to court. The plaintiff must also retain the services of an attorney, as most reputable financial institutions that provide settlement funding require an attorney’s approval. Finally, the plaintiff must need the cash to cover their expenses (medical and living, not legal) as the case proceeds. Settlement funding comes in two forms: pre-settlement funding and post-settlement funding. And yes, the names say it all.
Pre-Settlement Funding
Pre-settlement funding is typically provided before the lawsuit’s conclusion. The financial institution has dealt with similar cases in the past, whether it’s an auto accident, workers’ comp claim, or a typical slip-and-fall-type accident. Looking at these past cases, as well as the facts of the plaintiff’s case, they calculate the potential settlement and loan a percentage of that amount. Reputable institutions will not overfund a case but will provide an amount that can help with expenses. Unlike a loan, a plaintiff doesn’t have to pay the lender back if they lose the case, but if they win, they will pay back the full amount, plus any interest or fees if applicable. The lender won’t lend the money if the case doesn’t seem winnable, so keep that in mind.
Post-Settlement Funding
Post-settlement funding is naturally the flipside of pre-settlement funding, since it’s lent after the lawsuit is over and the settlement is still pending. Once again, the amount is based on the projected settlement, but with post-settlement funding, the cash is lent to deal with expenses in the meantime. Settlements sometimes don’t arrive until much later, so a plaintiff will appreciate being able to pay off their bills and other debts until then. When the settlement is finally awarded, the lender will collect as much as they would with pre-settlement funding.
Who To Borrow From
Borrowing money can often come with risks and choosing a pre- or post-settlement funding company or institution can be a minefield. Before setting a client up with anyone, keep the following cautions and considerations during your dealings.
- Clarity—Expect the institution to provide documentation and contracts that are clear and to the point. Review any contract before your client signs it! If the contract doesn’t make sense or is needlessly confusing, walk away.
- An Extensive Background—Look for an older firm that’s been around the block more than a few times. Brand-new institutions can be shifty and unreliable operations.
- Fees and Interest Rates—One thing to pay close attention to in those contracts are any hidden fees or interest rates that can pop up when it comes time to pay.
- Good Word of Mouth—One of the beautiful things about the Internet is that every company leaves a trail of reviews, both good and bad. If a company has more negatives than pluses from past customers, don’t deal with it. Naturally, if a friend or respected business associate can vouch for a lender, give them a shot.
Alternatives
Are there other ways to get funding during a lawsuit? Yes, there are several. But each comes with its drawbacks. Banks can loan the money, of course, but you can expect higher interest rates, fees, and so forth. Credit cards are another means of paying off bills, but that can also lead to higher interest and fees. Borrowing this way also puts one’s credit rating at risk, especially if they can’t pay the lenders back right away. Dipping into savings and retirement accounts is also a means of getting cash, but if you lose the case, then you risk losing it all. And unless a plaintiff has family or friends with deep pockets, those aren’t always the best sources for loans, as borrowing from loved ones also runs the risk of damaging relationships with those individuals. Pre- and post-settlement funding may not be available for or even viable for everyone, but it runs fewer financial risks than the above ways of acquiring funds.
That’s a basic guide to the types of settlement funding for your clients. Review the specifics of seeking such funding with them and whether it’s an avenue worth pursuing. Even a small amount can make a major difference in their lives and keep them going during a lawsuit’s leaner times. Contact Apogee for more details and to schedule a consultation!
