Lawsuit funding companies often prove to be a big help for individuals finding it difficult to keep their finances in order while they are litigating a case. Even a simple and straightforward case may sometime take a long time to reach a settlement. And even when the verdict is in favor of the plaintiff, he may need to wait another extended period of time to receive the eventual payout.
However, during all this time, daily life continues on its own course. The plaintiff will have to go on paying his rent, mortgages, phone, gas, and electricity bills, daily expenses, school or college fees of kids if there are any, medical expenses…and the list goes on.
So, needless to say, all this puts the plaintiff under significant financial burden and stress. This is where litigation funding or cash advances from lawsuit funding providers may act as a welcome and much-needed recourse to plaintiffs and, at times, to their attorneys as well.
Pre-Settlement Loan vs. Post-Settlement Loan
Pre-settlement loans go by many names. Most common of these include lawsuit loans, lawsuit advances, alternative litigation funding, structured settlement loans, non-recourse loans or non-recourse advances. And most of these names actually apply to post-settlement advances as well.
What is a Pre-Settlement Loan?
Now, although this type of cash advance is often referred to as a loan, it actually differs from a loan in two important ways (this applies both to pre- and post-settlement funding).
First, unlike a traditional loan, the qualification criteria for this type of funding have nothing to do with the applicant’s credit history, income or job profile. More importantly, these so-called ‘loans’ are actually NON-RECOURSE advances, meaning that if the borrower fails to win his case (in case of pre-settlement advance) or if, for some reason, he is not able to collect his settlement payout (in case of post-settlement), he will owe nothing whatsoever to the funding company.
In other words, these cash advances can be seen as a sort of investment on the part of the funding company. The company invests in a portion of the plaintiff’s settlement or expected settlement and if things turn out in the plaintiff’s favor, it will collect the capital lent plus the agreed upon interest and fees. If the plaintiff loses his case or fails to collect the payout, the loan will be forgiven and the company will lose its money as well. It’s that simple.
How Does Pre-Settlement Advance Work?
Now, come to pre-settlement funding in particular, this is basically a cash advance lent by a lawsuit funding company to a plaintiff for a pending litigation. The terms of these loans stipulate that the borrowing party will repay the loan plus all agreed upon fees and interests only when he or she receives the eventual settlement funds.
Based upon all the present evidence, the funding company will judge the relative merit of any particular case and will decide, on the basis of this judgment, whether or not an applicant qualifies for a requested advance. In other words, if you have a good chance to win the case and there is strong evidence that the defendant is at fault, you can be pretty sure to qualify for a pre-settlement lawsuit advance.
These cash advances help since they provide the necessary funding assistance to a plaintiff at a time when he is highly prone to find himself under significant financial strain. Having this financial assistance also means that the litigant will be able to hold out for a better and just settlement instead of having to opt for an (often out-of-court) settlement amount that is much less than what he rightfully deserves.
But how much money can you actually get via a pre-settlement funding?
This will primarily depend on the anticipated recovery of your lawsuit. Funding companies typically work within percentage limits. This means they will normally lend between 15% and 20% of the total anticipated value of your settlement. It is strongly recommended, however, that you only borrow the amount you absolutely need to hold out for the time being. Keep in mind that settlement loans (especially pre-settlement ones) are quite expensive—which is altogether understandable given that the funding company is also running a huge risk to lend you money on your pending lawsuit—and as such, they will cut into your eventual payout.
This also means that you must ensure that you’re working with a reputable funder who is charging a reasonable amount. The lawsuit funding is a relatively new industry and unfortunately, there are parties that are out to exploit the plight of the common individual by charging excessive interest rates and many different types of fess and so on. Needles to say, you need to stay away from this sort of providers. But we’ll have more to say on this later in the article.
Post-Settlement Loans: Why Apply for Post-Settlement Advances
Also referred to simply as Settlement Funding or Settled Lawsuit Loans, a post-settlement loan is a cash advance that is disbursed against lawsuits that have already reached a settlement. This is a financial product accessible by both plaintiffs and their attorneys once a lawsuit has reached a resolution in favor of the plaintiff.
NOTE that a defendant, if he wins the case, can never apply for settlement funding.
Now, many may ask why apply for a loan when someone is already awarded a settlement. Well, for the simple reason that you’ll not receive the payout immediately after having been awarded the settlement. On the contrary, it often takes much longer than anticipated to actually receive the money on your hands. The delay can be due to many reasons. These include:
• Lien and judgment resolutions
• Medicare resolution
• Estate distribution protocol
• Awaiting a formal approval from the judge
• There are more than one plaintiff/litigant in the case
• Ratification of the payout terms (lump sum vs. structured settlement)
In addition, insurance companies are notorious for dragging their feet when it comes to disburse settlement payout. They will often stall the process by carrying out totally unnecessary investigations and so on.
Finally, one also needs to take into account the possibility that the defendant might appeal the judge’s ruling and try to continue the lawsuit at a different court or on another level. And this last is the worst that can happen to a plaintiff after a settlement has already been awarded. With the new case, or appeal rather, starts another long and tedious journey and months and even years may go by before you’re eventually handed the payout (and that, too, only if the appeal gets turned down).
Benefits of Post-Settlement Funding
Post settlement funding helps plaintiffs get quick access to their cash while the official payout is still pending. A legal battle can be a real drain on one’s pocket and many individuals will find themselves cash-strapped at the end of a lawsuit. As such, they can meet a variety of needs by taking out a settlement cash advance. They can pay off overdue bills, use the cash for medical checkups and other such emergencies that had to be put on hold while the case was still ongoing and can overall re-arrange and manage their finances in a proper manner once they have the much needed cash on hand.
Take note that attorneys of winning clients can also apply for post settlement funding on their own. Settled lawsuit advances often help attorneys pay for various business costs including costs of new contingency cases.
How Do Post-Settlement Loans Work?
A post-settlement loan can be requested either by the plaintiff himself or by his attorney as long as the plaintiff has a successful claim and is entitled by the court’s order to receive monetary settlement.
Just as with pre-settlement funding, there are no monthly payments involved; you don’t need to provide any personal guarantees and there is no liability involved vis-à-vis the money received; and your income or credit rating play no role in the qualification criteria.
All you’ll need to do is provide copies of the fully executed settlement agreement and of the general release letter between the insurer and the plaintiff and mention the requested advance amount.
Compared to pre-settlement loans, the evaluation process for post-settlement funding is much quicker on both ends. As an applicant, you won’t need to provide a variety of documents in order to prove the strength of your case. And as far as the funding company is concerned, they won’t need to carry out any lengthy investigation to ascertain the merit of your case. As long as there is proof that you’re entitled to a settlement, you’ll qualify for the loan and in most cases, the money will reach your account in 1-2 days or even faster.
How Much Money Can I Get?
This will vary from one funding company to other. Typically, though, you can expect to receive up to 50% of your awarded settlement, especially if you are applying through your attorney. And as with pre-settlement advance, the money (plus interest and other associated fees) will be paid back once you receive the actual payout.
And NOTE that just like pre-settlement funding, post settlement loans against a lawsuit victory as a plaintiff are similarly NON-RECOURSE advances. That is to say, if the defendant defaults on the settlement for some reason (having gone bankrupt, for example), you’ll owe nothing to the funding company. Also, if the defendant has appealed the initial ruling and if the subsequent ruling goes in favor of the defendant, your debt will be forgiven.
Interest and Fees
Since the risk is considerably lower with settled cases as opposed to pending lawsuits, you’ll pay much lower interest rates on post settlement loans than what you’ll normally pay for pre-settlement litigation advances. The exact interest rate will vary from case to case and will depend, among other factors, on the estimated arrival of the payout and on the size of the awarded settlement. Most companies will take these factors into account and will then give a quote on interest and other fees.
Now, as we mentioned earlier, lawsuit funding is a still a new and, for the most part, an unregulated industry. So, there are disreputable agents around who charge exorbitant interest rates on top of a variety of fees, hidden costs, etc. So, make sure to do your research well and also consult with your attorney before settling for one or another funding company. With a reputed funding company, you’ll enjoy much lower interest rates (both for pre- and post-settlement loans) and can even obtain a price match on your agreement.