A personal injury can have significant consequences across all areas of your life, ranging from your physical and emotional well-being to your financial health. In fact, because of the physical limitations, you may experience well after the accident occurs, the costs associated with your accident can quickly add up and go beyond medical costs and property damage. Because of your accident, you may be unable to work for weeks, months, or possibly years.
In addition to a growing pile of medical expenses, you may also contend with a mountain of unpaid bills, growing credit card debt, and other incidentals. In short, you may watch your financial life quickly spiral out of control before you can comprehend what is happening.
The good news is that the law allows victims of wrongdoing and negligence to pursue compensation from the at-fault parties. The bad news is that recovering compensation can take months to years. In the meantime, you must wait patiently and hope that, at the end of the road, you will be able to repay your debts and get your life back on track … or must you?
Thanks to lawsuit funding, or litigation funding, you may be able to get the money to which the law entitles you sooner rather than later through a cash advance. Before you brush off the concept as too good to be true, read on to learn more about lawsuit cash advances and determine if one is right for you.
What Is Lawsuit Funding?
Though commonly referred to as a “lawsuit loan,” lawsuit funding is essentially a type of cash advance. It goes by several names, including but not limited to the following:
- Lawsuit cash advance
- Pre-settlement funding
- Lawsuit advance
- Litigation financing
- Settlement funding
- Legal funding
Regardless of how a company advertises it, settlement funding serves one primary purpose: to help victims of personal injury undergoing financial stress access the money they stand to gain from a personal injury lawsuit settlement or award before the case actually settles. A lawsuit funding company that specializes in this type of financing recognize that living expenses and medical bills can quickly add up during the legal process.
They also recognize that injured parties may struggle to put food on the table, keep a roof over their heads, or maintain a quality of life. To help combat the immediate adverse consequences of an accident, lawsuit lending companies allow plaintiffs to borrow against a potential settlement or award by issuing pre-settlement lawsuit loans. Hence the moniker, “lawsuit cash advance.”
Size of Lawsuit Loans
The amount of money you can borrow against your potential settlement varies from lender to lender, the anticipated value of your award, and your case’s strength. However, it is an industry-standard to issue up to 20% of an expected settlement to applicants with solid cases. Some lenders issue up to 50% of the award to tide plaintiffs over between the settlement of the case and the disbursement of funds.
At NY Legal Funding, we typically extend between 10% and 20% of an anticipated fair settlement award to qualified applicants. However, before we make any determinations, we carefully consider the following factors:
The Type of and Total Value of Damages
As your personal injury lawyer likely did when deciding whether to take on your case, we will assess both the value of your damages and the types of damages you stand to recover. The greater your economic loss, the more likely we will be to extend a sizeable amount. However, if most of your damages are noneconomic and, therefore, difficult to calculate, we may hesitate to issue much more than 10%.
It is not uncommon for the courts to use defendants’ policy limits to place caps on the number of damages plaintiffs may recover. In anticipation of this, we will look to the defendant’s coverage to determine a baseline amount for your lawsuit cash advance.
Finally, we will assess your perceived level of fault. If the defendant claims that you were 30% at-fault for the accident, and if the evidence weighs heavily in his or her favor, we may reduce the amount we are willing to lend you by an equal or greater percentage.
How Litigation Financing Works
Lawsuit funding is a relatively straightforward concept characterized by a relatively short process. Once you initiate a personal injury lawsuit, your lawyer may recommend you to a lawsuit lending company, such as NY Legal Funding. You may also seek out the company yourself if you feel financial pressure early in the legal process.
You or your attorney may fill out the loan application. Once we, or the company with which you work, have the completed application, we will evaluate it and the merits of your case to determine if you qualify for financing. If you do, we will then decide on how much.
If you qualify for lending and accept a loan offer, the lender can issue the funds in as few as 24 hours. In exchange for the lawsuit cash advance, you agree to repay the lender the principal, the funding fee, and the interest from the proceeds of your award or settlement. You do not have to make payments during a pending lawsuit.
Why Use a Lawsuit Loan?
There are several reasons you may wish to use a lawsuit loan while your personal injury case pends—those range from the loans’ lenient eligibility requirements to their low-risk nature.
One benefit of lawsuit funding is you are almost guaranteed to qualify so long as you are the plaintiff in an active personal injury lawsuit. Unlike traditional loans, lawsuit lending companies do not base their approval decisions on individual credit scores, how much is in your bank account, or income criteria. Instead, lawsuit lenders consider the merits and strengths of a case. If your case has a substantial likelihood of success, and if you stand to recover a substantial amount, then you will likely qualify for funding.
Because a lawsuit loan is more like a cash advance, and because lenders do not pull your credit to determine eligibility, another benefit of going this route instead of obtaining a traditional loan is that it does not affect your credit. Given the already challenging financial situation you are currently in, a hard credit pull may only add insult to injury.
A third and final benefit of lawsuit funding is that it is a non-recourse cash advance. What this means is that lenders are limited in the ways they can pursue repayment and in what situations they may do so.
For instance, lawsuit lenders may only seek reimbursement if and when a case settles favorably for the plaintiff when it comes to lawsuit funding. If it does not, the lender has no means for pursuing repayment — not even by seizing property, personal finances, or other assets. Finally, if you end up losing your lawsuit, you have no legal obligation to repay the amount you borrowed. Each of these benefits creates practically no risk for borrowers.
Settling for Less Than What You Owe
One of the most significant benefits of litigation financing is that you do not have to repay the cash advance if your case settles in the defendant’s favor. However, what if you receive less than you and your attorney anticipated? Worse yet, what if your settlement funds are less than what you owe the lender?
Again, you would not be on the hook for full repayment in this situation. However, you may have to repay a portion of the debt, so it is essential to discuss settlement funding with your attorney before taking out a loan.
Qualifying for a Lawsuit Cash Advance
As we briefly touched on in the above section, you do not need stellar credit or proof of income to qualify for funding. That said, a pre-settlement loan does come with some eligibility criteria.
You Must Have a Valid Lawsuit
The most significant and most obvious criterion for qualifying for lawsuit lending is the existence of an active and valid lawsuit. Neither our lending team nor any other reputable firms would be willing to issue an advance on a legal claim that is only prospective or has little chance of winning.
To determine the validity of personal injury cases, our lenders require court documentation, medical records, and proof of the existence of an attorney-client relationship between you and a personal injury lawyer.
You Must Have an Attorney
To qualify for lawsuit advances, you must have a reputable personal injury attorney actively working on your case. Moreover, your attorney must work on a contingency fee basis. What this means is that, like us, he or she does not expect — nor can he or she collect — payment if your case is unsuccessful. We maintain the attorney requirement because it tells us three things.
The first is that you are serious about recovering compensation and are willing to go through any means. The second is that a practicing attorney has enough confidence in your case to place their bets on it. The third and final thing it tells us is that your case is in good hands.
You Must Have an Eligible Case Type
Almost every litigation financing firm maintains a strict list of the types of cases they are and are not willing to fund. Our company is no different. The types of cases we regularly invest are as follows:
- Car/auto accidents
- Premises liability accidents
- Slip and fall accidents
- Construction accidents
- Sidewalk falls
- Medical malpractice
- Head and neck injuries
- Dog bites
These types of cases often yield substantial settlements and awards for injured parties. Moreover, they often tend to settle in favor of plaintiffs, making them low-risk kinds of cases for us.
Every lawsuit funding firm has its own unique list of cases it will and will not fund. If one company cannot or is unwilling to issue you an advance, there is another in New York that will.
Repaying Your Lawsuit Loan
If your lawsuit does settle in your favor, or if you receive a substantial award, you must repay the lawsuit loan. The good news is that repayment requires little if any, effort on your part.
In defeat, the opposing party must issue a check to your lawyer in the agreed-upon or ordered amount. Your lawyer will deposit or cash the check and then write a review to your lawsuit lender.
This check will be in the amount you owe, plus interest and fees. Your lawyer will subtract from the remaining amount you owe him or her in attorney fees, court costs, and other agreed-upon expenses. He or she will then write you a check for the remainder.
Unlike with personal loans or traditional forms of credit, you do not have to worry about making monthly payments, missing due dates or paying compounding interest. Instead, you can enjoy your settlement or award and focus solely on recovering.
How To Use Your Lawsuit Loan
Litigation loans are extremely flexible. In fact, they work more or less like personal loans in that you can use the funds for just about any item, expense or service you feel is important or necessary. Though the terms “important” and “necessary” are subjective, there are some types of expenditures on which our clients use their funds most frequently:
- Medical care
- Physical therapy
- Rent or mortgage
- Car payments
- Credit card debt
- Student loans and other educational expenses
- Fees for children’s extracurricular activities
Our lawsuit financing company does not place limitations on how you may spend your money. However, we do encourage clients to consider the consequences of irresponsible spending. Lawsuit financing is not a handout — instead, it is an advance designed to help you meet your immediate financial needs before your personal injury lawsuit case settles.
If your claim is successful, your borrowed money will come out of your final award or settlement. If your case is not successful, the only money you may have to your name is the money you borrowed. Either way, the more money you spend on frivolous items, the less you will have to put toward necessary expenses, such as medical bills, utilities, rent, mortgage, auto loans, and the like.
What To Expect From Lawsuit Funding
Now that you understand what lawsuit funding is and how it works, it is time to determine if it is right for you. Before you can do that, though, you should understand a few other details regarding litigation financing.
Pre-settlement loans are not free. Lenders charge both origination fees and financing fees. Though the exact nature and amount of fees vary from lender to lender, it is not uncommon for lawsuit loans to come with funding fees of between 2% and 4% per month. This means that the lender charges you between 2% to 4% of the amount you borrowed each month until it receives repayment or until the unsuccessful resolution of your case.
In addition to fees, lawsuit loans come with interest. Again, the rates vary between lenders. However, as of 2018, the median interest rates on lawsuit loan products was 44%. Some lenders charge rates as high as 98%. For this reason, it is crucial that, should you decide to pursue pre-settlement funding, you do your research and work with a company that advertises low interest rates. If your interest rate is too high, you risk walking away from your personal injury lawsuit with little to nothing to show for it.
Most firms that offer litigation financing have processes to help approved parties receive the funds they need in as quick a fashion as possible. As with the other considerations, the turnaround times on funding vary from lender to lender. However, when you go through NY Legal Funding, you can see funds hit your account within just 24 hours of accepting an offer.
Finally, to ensure that you nor any other financially strapped individuals fall victim to costly and unmanageable loans, dozens of consumer protection laws and guidelines exist that regulate everything from how lenders word contracts to what they may charge in interest and fees.
For instance, your agreement must reflect all costs and expenses associated with the loan. Moreover, the lender has a legal obligation to grant you five days of grace in which you may rescind the offer after funds have been disbursed.
Also, lenders cannot offer commissions or referral fees to attorneys, law firms or other interested parties, and attorneys cannot legally gain any financial interest from funding providers that work with their clients.
This list briefly touches on your rights and protections. Your attorney can inform you of all your rights and ensure you make the best decision for your health, finances, and future.
Get the Funding You Need Today
If you decide that lawsuit funding is proper for you, do your homework to identify only the most reputable lenders near you. Begin with NY Legal Funding — contact our office today to learn more about our products, fees, and rates and to determine if our loans are a good fit for your needs. You can get in touch with us online or by phone, or submit an online application now.