If you are the plaintiff in a personal injury case, you may have been approached about something called pre-settlement funding, litigation funding, personal injury funding, or accident funding. Alternatively, your attorney may have suggested you consider the possibility. So, what is it?
Pre-settlement funding is, essentially, a loan (even though it is not called a loan) against the expected value of your lawsuit, once it is resolved. You make a promise to repay this loan once (and if) the lawsuit is decided or otherwise settled. Of course, there will be interest on the repayment, so you will pay back more than the original amount of the loan. Since a lawsuit can take months or even years, the plaintiff – especially if an injury has made him unable to work – might be in dire need for cash, and this is the most compelling reason to choose pre-settlement funding. However, much like selling an annuity or structured settlement, you can expect to get much less cash from a pre-settlement funder than you would from an outright settlement. The main reason to seek out such a settlement is some immediate need for cash.
So, consider whether you truly need cash up front. Consider whether other funding sources are available to take care of the bills you are facing. Carefully evaluate any offers you receive to make sure what you give up in the future is worth what you need now.
Pre-settlement funding loans are usually “non-recourse,” that is, there is no obligation for you to repay the advance, even if you do not reach a settlement or your lawsuit is unsuccessful. As a result, the prospective lender will take a critical eye of you and your lawsuit in order to compensate them for their risk. The amount of money that your prospective lawsuit is worth to them can vary greatly, from a few hundred to several thousand dollars.
Expect that prospective lenders will contact your attorney to talk about the specifics of your case, especially the likelihood that you will prevail. There may also be specific requirements for a pre-settlement funding, depending on the state where you live. Prospective lenders will likely charge a generous discount rate in order to cover their costs, the risks of taking on a loan to you, and to make a profit. You can also expect that there will be fees over and above the discount rate, such as “legal fees,” “processing fees,” or “origination fees.”
Should your suit be successful, you’re on the hook. So make sure that any pre-settlement funding is absolutely your best option.
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