May 8, 2020

Your injury case is dragging on, the bills keep coming, and you may not be able to work. Then an ad promises fast cash against your future settlement, with nothing to pay unless you win. It can sound like a lifeline. Before you sign anything, it is worth understanding exactly how these arrangements work, what they really cost, and what other options you may have while your injury case is pending. The Reyes Firm Struggling Financially While Your Case Is Pending? Talk to us before you sign a lawsuit loan. Had a bad day? Contact Us Now Non-Recourse You typically repay only if you win The defining feature High Cost Effective rates can far exceed credit cards The key warning Not a Loan Structured as a purchase of future proceeds Why protections may not apply Talk First Speak to your lawyer before you sign The takeaway When an injury keeps you from working and the bills do not stop, financial pressure is real, and it can tempt you into decisions you would not otherwise make. Pre-settlement funding companies know this, which is why their marketing is everywhere. These products are not inherently a scam, but they are expensive and often misunderstood, so going in with clear eyes matters. What is pre-settlement funding, or a lawsuit loan? Pre-settlement funding is a cash advance provided by a third-party company against the settlement or judgment you expect to receive in your pending case. People often call it a lawsuit loan, though as we will see, it is usually not structured as a loan at all. The company gives you money now, and in exchange it is entitled to be repaid, usually a larger amount, out of your eventual recovery. The feature that makes it attractive is that it is typically non-recourse. That means if your case does not succeed and you recover nothing, you generally owe the company nothing. The company is betting on your case, and it prices that risk into the cost, which is where the expense comes from. Why do people consider a lawsuit loan? The reasons are usually pressing and completely understandable. An injury can stop your income while your medical bills, rent, and everyday expenses continue. Cases take time to resolve properly, and waiting can be genuinely difficult when money is tight, as our guide to how your case progresses during the pre-suit phase explains. There is also a subtler reason that matters. When you are financially desperate, you are far more likely to accept a quick, lowball settlement offer just to get money now. Some people turn to funding specifically to relieve that pressure so they can hold out for a fair result. That is a legitimate concern, but as we will explain, funding is not the only way to address it, and it comes at a real cost. How does pre-settlement funding actually work? The process is usually straightforward. You apply to a funding company, which then contacts your attorney to evaluate the strength and likely value of your case. Unlike a traditional lender, the company generally does not look at your credit score or income, because it is relying on your case, not your finances, for repayment. If it approves you, it advances a portion of your expected recovery, often a modest percentage of the anticipated settlement. When your case resolves, the company is repaid directly from the settlement, typically before you receive your share, along with its fees. Because the arrangement is generally written as a purchase of a piece of your future proceeds rather than a loan, it often falls outside the lending laws that cap interest and protect borrowers, which is a key reason the cost can climb so high. 💡 Did You Know? A lawsuit loan is usually not legally a loan. It is typically structured as a non-recourse purchase of part of your future settlement, which means the usury caps and consumer lending protections that limit other high-interest credit often do not apply. Regulation of this industry varies by state and continues to evolve. What’s the catch? The real cost of lawsuit loans. The catch is the price. Pre-settlement funding is among the most expensive money you can get, and the effective cost can far exceed even high-interest credit cards. Charges are often applied at rates that compound over time, so the amount you owe does not just grow, it accelerates. On a case that takes a year or two to resolve, which is common, the total you must repay can end up being several times the amount you originally received. This is the part that catches people off guard. A few thousand dollars taken early in a case can consume a large share of the settlement by the time it resolves, and in a long case with a modest recovery, the funding company’s cut can swallow a painful portion of what should have been yours. The money you accept today is money, and often much more, taken directly out of your future recovery. ⚠️ Important Warning: Before signing any funding agreement, get the full cost in writing, including exactly what you would owe at six months, one year, and two years out. Because the fees often compound, the balance can balloon over a long case and consume much of your settlement. If a company will not clearly show you the total repayment over time, treat that as a serious red flag. What alternatives should you consider first? Before turning to funding, it is worth exhausting less costly options, several of which your lawyer can help you with: Health insurance and letters of protection. For medical bills, using your health insurance or arranging for providers to treat you under a letter of protection, paid from your eventual settlement, can ease pressure without a funding company. Your PIP benefits. In a Florida auto case, your Personal Injury Protection can cover a portion of medical bills and lost wages regardless of fault, which may help in the near term. Negotiating with