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If you’re involved in a pending lawsuit and facing financial pressure while waiting for your case to resolve, lawsuit loans (also known as pre-settlement funding) might provide much-needed relief. This comprehensive guide explains everything you need to know about obtaining funding based on your pending litigation.
What is a lawsuit loan?
A lawsuit loan isn’t technically a traditional loan but rather a non-recourse cash advance against your potential settlement. This means if you lose your case, you typically don’t have to repay the funding. Companies provide these advances by analyzing your case and estimating its likely settlement value.
When lawsuit funding makes sense
Pre-settlement funding may be appropriate when:
- You have mounting medical bills from your injury.
- You’re unable to work due to your injuries.
- Regular bills and living expenses are becoming difficult to manage.
- You need to avoid accepting a low settlement offer due to financial pressure.
- Your case is likely to take months or years to resolve.
Types of cases that qualify for funding
Most funding companies focus on cases with clear liability and substantial damages:
- Personal injury claims.
- Auto accidents.
- Slip and fall cases.
- Medical malpractice.
- Product liability.
- Employment discrimination.
- Wrongful termination.
- Sexual harassment.
- Whistleblower cases.
- Class action lawsuits.
The application process
If you think you qualify for pre-settlement funding, you’ll most likely follow these basic steps:
- Consult with your attorney
Before pursuing funding, discuss it with your attorney. Their cooperation is essential as the funding company will need to communicate with them about your case. Most reputable companies won’t proceed without attorney involvement.
- Research and select funding companies
Look for companies that:
- Have transparent fee structures.
- Maintain good reviews and ratings with the Better Business Bureau.
- Specialize in your type of case.
- Offer reasonable rates (though rates are typically higher than traditional loans).
- Have clear, understandable contracts.
- Complete an application
Applications typically require:
- Basic personal information.
- Details about your accident/incident.
- Information about your injuries and damages.
- Your attorney’s contact information.
- Case documentation (medical records, accident reports, etc.).
Many companies offer online applications, phone applications, or both.
- Case evaluation
Once you’ve applied, the funding company will:
- Contact your attorney to verify case details.
- Review provided documentation.
- Assess the strength of your case.
- Estimate the likely settlement value.
- Determine the amount they’re willing to advance.
This process typically takes 24-48 hours but can sometimes be completed same-day.
- Receiving your funds
If approved, you’ll receive:
- A contract outlining all terms and fees.
- Funds via check, direct deposit, or wire transfer.
- Documentation for your records.
Get Cash Before Your Lawsuit is Settled
Life doesn’t wait for your settlement, you shouldn’t either.
Understanding the costs
Lawsuit funding typically comes with higher costs than traditional loans due to the risk the company takes on:
- Funding companies typically charge monthly or annual fees (often between 2-4% monthly).
- Fees may compound over time.
- Some companies use a “factor rate” structure instead of interest.
- Total repayment is usually capped at a percentage of your settlement.
For example, if you borrow $10,000 with a 3% monthly fee, after 12 months you would owe $14,260 (including principal). After 24 months, the amount would be approximately $20,369.
Pros and cons of lawsuit loans
As with any financial decision, it’s crucial that you weigh the advantages against the drawbacks before moving forward:
Advantages
- No repayment if you lose your case.
- No monthly payments while your case is pending.
- No credit check or employment verification required.
- Fast approval and funding.
- Can help you hold out for a fair settlement.
Disadvantages
- Higher costs than traditional loans.
- Compounding fees can significantly reduce your final settlement.
- Industry is not uniformly regulated in all states.
- Can complicate your case strategy.
Regulations and consumer protections
The lawsuit funding industry has varying regulations by state:
- Some states cap interest rates or fees.
- Others classify these advances differently from loans.
- Several states require specific disclosures.
- A few states have banned the practice entirely.
Check your state’s specific regulations before proceeding.
Questions to ask before signing
- What is the full fee structure, including all potential fees?
- Do the fees compound? How often?
- Is there a cap on the total amount I’ll owe?
- What happens if my case takes years to resolve?
- Are there any penalties for early repayment?
- How much of my settlement will go toward repayment in various scenarios?
- Has my attorney reviewed and approved this arrangement?
Alternatives to consider
Before committing to lawsuit funding, consider:
- Personal loans from banks or credit unions.
- Help from family or friends.
- Negotiating with creditors for temporary hardship arrangements.
- Disability benefits if applicable.
- Community assistance programs.
- Medical liens that allow treatment with payment deferred until settlement.
The bottom line
A lawsuit loan can provide critical financial relief during a difficult time, but it’s important to understand the full implications:
- Only take what you absolutely need.
- Have your attorney review all documents before signing.
- Compare multiple funding companies.
- Calculate the potential impact on your final settlement.
- Consider if cheaper alternatives are available.
By carefully weighing your options and understanding the costs involved, you can make an informed decision about whether lawsuit funding is appropriate for your situation. Remember: Lawsuit funding should be used as a last resort to help you pursue justice without financial duress—not as an opportunity to access quick cash for non-essential purposes.
There’s always JG Wentworth
If you can’t wait for your lawsuit to be settled, we might be able to help get you the cash you need when you need it. After reviewing your case and consulting with your attorney, JG Wentworth can connect you with a funding company to get you a lump sum. Give us a call today so we can get the process started*…
* JG Wentworth does not provide pre-settlement/lawsuit funding services. All leads are brokered to unaffiliated third party providers by Peachtree Funding Northeast, LLC.
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