Pre-settlement loans (also called lawsuit loans, litigation funding, or legal funding) provide plaintiffs with financial support while awaiting settlement of their legal cases. However, not all applications are approved. Understanding why these loans get denied can help potential applicants like yourself better prepare or explore alternative options.

A bit more about pre-settlement loans

Before diving into denial reasons, it’s important to understand that pre-settlement “loans” aren’t traditional loans. They’re non-recourse cash advances against a future settlement—if you lose your case, you typically don’t have to repay the advance. This unique structure makes the funding company’s evaluation process different from conventional lenders.

Common reasons pre-settlement loans get denied

This list doesn’t include every possible scenario, but the usual reasons your loan could get denied include:

1. Case merit and liability issues

• • Unclear liability: Funding companies look for cases with clear liability. If fault is disputed or unclear, your application may be denied.
  • Insufficient evidence: Lack of documentation proving negligence or wrongdoing can lead to denial.
  • Contributory negligence: If you share significant responsibility for the incident, funding companies may view this as reducing settlement value and likelihood.

2. Attorney representation factors

• • Unrepresented plaintiffs: Most funding companies require you to have legal representation. Self-represented plaintiffs are typically denied.
  • Attorney non-cooperation: If your attorney refuses to share case details or sign required documents, your application will likely be denied.
  • Attorney experience and reputation: Some funders consider your attorney’s track record with similar cases.

3. Case type and value concerns

• • Low case value: Cases with potential settlements below a certain threshold (often $10,000-$15,000) may be denied as too small to be profitable for the funding company.
  • Case type restrictions: Some funders avoid certain case types like medical malpractice or product liability due to complexity and unpredictable outcomes.
  • Advanced case stage required: Many funders prefer cases past the initial filing stage to reduce risk.

4. Insurance coverage issues

• • Insufficient insurance: If the defendant has inadequate insurance or is uninsured, collection becomes difficult, making funders hesitant.
  • Coverage disputes: When insurance companies contest policy coverage for the incident, funding companies see increased risk.

5. Prior funding and financial considerations

• • Existing liens: Multiple existing liens against your potential settlement may leave insufficient funds to repay a new advance.
  • Previous advances: If you’ve already received substantial funding relative to your case value, additional funding may be denied.
  • Poor case economics: When existing medical liens, attorney fees, and other obligations would consume most of the settlement, funders may decline.

6. Applicant-related factors

• • Bankruptcy: Current bankruptcy proceedings often result in denial.
  • Criminal history: Some funders consider criminal background in their risk assessment.
  • Credibility issues: If there are inconsistencies in your statements or documentation, funders may question your credibility.

7. Jurisdiction and legal environment

• • Unfavorable venue: Some jurisdictions have laws or damage caps unfavorable to plaintiffs.
  • Anti-funding legislation: Certain states have regulations limiting or prohibiting pre-settlement funding.