Why Lawsuit Funding Gets Denied | The Legal Lifeline

Aaron Winston: I am Aaron Winston, Strategy Director at Express Legal Funding. Thanks for tuning into the Legal Lifeline Podcast. Today, our AI host will explain the top 10 most common reasons an applicant’s pre-settlement funding gets denied. Let’s dive in.

Sam: Let’s be real. If you’re caught up in a lawsuit, uh, just dealing with the legal side is stressful enough, you still got bills piling up. Right?

Kim: Yeah.

Sam: And waiting for that settlement check can feel endless.

Kim: Absolutely. It’s a really tough spot to be in financially.

Sam: And that’s where things like pre-settlement loans pop up.

You might hear them called lawsuit funding, legal funding, or sometimes lawsuit cash advances.

Kim: Exactly. They’re presented as a way. To get some funds based on your potential settlement, but it’s uh, really important to understand they aren’t standard loans. They’re non-recourse.

Sam: Non-recourse, meaning what exactly?

Kim: Meaning you only pay back the advance if you actually win your case and get a settlement or [00:01:00] award. No win, no repayment. Plus, they don’t typically check your credit. It’s all based on the case itself.

Sam: Okay. That sounds like a potential lifeline, but. Getting approved isn’t guaranteed, is it?

Kim: Not at all. And that’s really what we wanna, uh, dig into today.

Sam: We’ve looked into the common reasons why people get turned down for these advances, and we’re gonna cover the top 10. And a really key thing upfront. Getting denied doesn’t automatically mean that you’re loss itself is weak. That’s crucial.

Kim: That’s such an important point. Often, denial is more about the let’s say, the mechanics of the funding process, or timing, or documentation, rather than the actual merit of your claim.

Sam: So our goal here is to break down those reasons, give you a clearer picture, and maybe help you navigate this if it’s something you’re considering.

Kim: Right? Empower you with that knowledge. So, where do we begin? Number one.

Sam: Let’s start with number one. No attorney representation. This sounds basic, but apparently it’s a hard line.

Kim: It really is. It’s a strict requirement for pretty much every legitimate funding company out there.

Sam: Why is that so critical for them?

Kim: Well, think about it from the lender’s side. They rely heavily on your attorney for, um, several key things, validating the claim. First off, providing updates as the case moves along, which can take ages, you know?

Hmm. And crucially. Handling the repayment logistics. If and when you get a settlement, the lawyer ensures the advance gets paid back from those funds.

Sam: Ah, I see. So without a lawyer involved, the lender sees it as just too much risk. No reliable contact or process.

Kim: Exactly. It’s considered far too uncertain.

No attorney generally, no funding.

Sam: Makes sense. Okay. Moving to reason number two. The case itself is seen as weak or too risky. Now, this does get into the details of your lawsuit.

Kim: It does. This is where the funding company puts on its evaluation hat. They’re looking at the likelihood of you actually winning.

They assess, you know, whether the defendant is clearly liable? Is the evidence strong? What are the likely damages?

Sam: And if they look at all that and think, Hmm, this looks like a long shot. Or the proof just isn’t there,

Kim: Then yeah, they’re likely to deny it. They need to feel confident. There’s a good chance of recovery to get their investment back, plus their fee.

Sam: The source we looked at had a good example, like a slip and fall case,

Kim: Right? Imagine a slip and fall, but maybe the witnesses say you weren’t paying attention, or worse, there wasn’t even a real hazard found where you fell.

Sam: So even if you were genuinely injured,

Kim: If the liability isn’t clear, if it looks like proving the property owner was negligent, it’s gonna be really tough.

That weakens the case significantly in the funder’s eyes. The chance of getting paid back looks shaky. Got it.

Sam: All right. Reason number three: the expected settlement value is just too low. This one’s about the dollars and cents.

Kim: Pretty much, it boils down to the potential payout. Most funders have a sort of minimum threshold,

Sam: Like a minimum case value, they’re willing to consider

Kim: Exactly.

Often it’s. Somewhere around, say, $20,000 or maybe more in projected value.

Sam: And the reason is

Kim: It’s practical, really. After your lawyer takes their fees and maybe other liens are paid off, there needs to be enough leftover to actually repay the advance and for you to still get something meaningful.

Sam: Right?

If the total settlement pie is too small, there might not be enough slices to go around after everyone else takes their cut.

Kim: Precisely, the risk for the funder doesn’t make sense if the potential recovery is minimal.

Sam: Okay, number four takes us to a different state with restrictions. Your location matters.

Kim: Huge factor. This has nothing to do with your case specifics, but everything to do with the laws in the state where you live or where the case is filed.

Sam: Some states just don’t allow this type of funding.

Kim: Some flat out prohibit it, or they regulate it so heavily that most companies just stay away. The source mentioned states like Arkansas, Colorado, Kentucky, and Tennessee as examples.

Sam: So even if you have a rock-solid case in one of those states,

Kim: An ethical, reputable funding company will likely have to deny you based purely on the state law. Their hands are tied.

Sam: Wow. Okay, good to know. Number five, maximum funding already reached, like hitting a credit limit.

Kim: That’s a good analogy.

Funding companies don’t usually advance the full expected value of a case that would be too risky. They typically cap the advance amount at a percentage of the estimated net settlement value, often somewhere between 10% and maybe 20%.

Sam: Net settlement, meaning after attorney fees and costs.

Kim: Correct. So if you’ve already taken out a previous advance, maybe from another company,

Sam: Or if you have really large medical bills that have liens against the settlement.

Kim: Right or other significant liens. All those things reduce the net amount available. If taking another advance would push you over that 10 to 20% threshold the funder uses, they’ll likely say no. You’ve basically maxed out what they’re willing to risk on the case.

Sam: Okay, that makes sense. Reason six involves the lawyer again, the attorney won’t cooperate.

Kim: Yes, this can be a major roadblock. Remember how we said the attorney’s crucial

Sam: for validating the case updates? Repayment?

Kim: Exactly. The funding company needs the attorney to provide documents. Confirm the case status and, importantly, sign the funding agreement. Acknowledging their role in repayment.

Sam: Why wouldn’t an attorney cooperate?

Kim: Well, a few reasons. Some attorneys are just generally hesitant about lawsuit funding. They might worry about the cost of their client, the repayment terms, or how it might affect the client’s bottom line from the settlement.

Sam: So even if the case looks good, if the attorney isn’t on board,

Kim: The process stops right there.

The funder can’t proceed without that cooperation.

Sam: Number seven. The case is too new or lacks documentation. It seems like timing is everything here.

Kim: Timing and proof funders need solid information to assess the risk. If your accident just happened or you haven’t really started medical treatment yet

Sam: or filed the actual lawsuit,

Kim: Right?

If there’s no police report yet or medical records showing injuries, no witness statements gathered. No formal complaint filed. There’s just not enough for the funder to evaluate,

Sam: So they need to see some foundational paperwork first.

Kim: Definitely, they need evidence of the incident, the injuries, and some indication of who was at fault before they can make a decision.

A brand new case often just doesn’t have that yet.

Sam: Okay, number eight gets into fault. Again, unclear liability or whether you, the plaintiff. We’re partially at fault.

Kim: This is a big one, especially in certain states. If it’s not clear who caused the accident or if there’s evidence suggesting you might share some of the blame,

Sam: Like in those states with comparative negligence laws.

Kim: Exactly. In those places, if you’re found partially at fault, your potential settlement gets reduced proportionally. If you’re found significantly at fault, you might get nothing.

Sam: So, from the lender’s perspective, that uncertainty or potential reduction in the payout makes it much riskier,

Kim: hugely riskier.

If the settlement could shrink dramatically or disappear altogether because of liability issues, they’re unlikely to want to advance funds against it. The slip and fall example, where maybe you aren’t careful, fits here, too.

Sam: Right? Number nine, outstanding liens or bankruptcy, [00:08:00] preexisting financial complications.

Kim: Yes. This is about who else might have a claim on your settlement money before the funder gets repaid,

Sam: like child support, liens, or back taxes

Kim: Precisely or other judgments against you. These often have priority and must be paid from the settlement first.

Sam: Bankruptcy, too.

Kim: An act of bankruptcy is a major complication because the bankruptcy court might assert control over the settlement funds.

It creates a legal tangle.

Sam: So if there are significant liens or an act of bankruptcy,

Kim: Lenders get very cautious. It reduces the net amount potentially available to repay their advance, increasing their risk significantly.

Sam: Okay, and finally, reason number 10, ineligible case type, where it conflicts with the lender-specific policies.

Kim: Right. Not all funding companies handle all types of cases. While many focus on common personal injury cases like car accidents, some might specifically not fund things like, say, medical malpractice, or maybe workers’ compensation claims, or very complex class actions.

Sam: Why is that too complicated or risky for them?

Kim: Often, yes, those case types can have unique legal challenges, longer timelines, or different risk profiles that a particular lender might just choose to avoid based on their own business model or their financial backer’s preferences.

Sam: So, one lender might say no to a certain case type, but another might be okay with it.

Kim: Absolutely. Eligibility can definitely vary from one company to the next. It pays to understand a lender’s focus.

Sam: Okay, so that’s the top 10. A lot of potential hurdles there

Kim: It is, but hopefully understanding them helps demystify the process a bit.

Sam: So, what should you do if your application is denied? Is it game over?

Kim: Not necessarily. The first step definitely is to find out why. Ask the funding company or your attorney for the specific reason. Don’t just assume

Sam: Knowing the why is key.

Kim: Exactly. Once you know the reason, you can see if it’s something you can address.

Sam: Like if it was missing documentation,

Kim: Right. You and your attorney can work on gathering those police reports or medical records.

If it was about needing ongoing medical treatment, well continue with your treatment plan.

Sam: What if it was related to liens or bankruptcy?

Kim: Those are tougher, but talk to your attorney about strategies to potentially resolve or manage those issues as the case proceeds. I. And

Sam: Sometimes it might just be a matter of waiting.

Kim: Sometimes yes, if the case was just too new, letting it progress further, gathering more evidence, maybe getting past certain legal motions, can strengthen it from a funder’s perspective later on.

Sam: And the source mentioned reapplying is an option.

Kim: Definitely, you could reapply with the same company once the issue is addressed.

Or try a different funding company altogether. Remember, the criteria vary.

Sam: And you mentioned express legal funding, so there is hope for folks denied elsewhere. Offers a second look.

Kim: Yes, that was noted. Getting a second opinion can sometimes make a difference if one company’s specific criteria led to the denial.

Sam: Good to know there are steps you can take, but what if pre-settlement funding just isn’t working out, or you need help now? Are there other options?

Kim: [00:11:00] Yes, and it’s important to consider alternatives. While always, always discussing them with your attorney first.

Sam: Okay. What kind of alternatives are we talking about?

Kim: Well, there are more traditional routes, like personal loans or credit cards, but you have to be really careful there about interest rates and the obligation to repay regardless of your case outcome.

Sam: Right? That’s a key difference from the non-recourse funding.

Kim: Huge difference. You could potentially borrow from friends or family if that’s feasible.

Sometimes, for medical bills, doctors or clinics might treat you under a letter of protection or on a contingency basis, meaning they wait to get paid from the settlement. Okay. What else? There are crowdfunding platforms like GoFundMe. Those success varies, and depending on your situation and location, there might be legal aid societies or local nonprofits that offer some financial assistance programs.

Sam: Lots to potentially explore, but the advice is clear. Talk to your lawyer before jumping into any of these.

Kim: Absolutely critical. Your attorney understands your case and your overall financial picture and can advise on the best course of action, considering all the potential impacts.

Sam: So, wrapping this up, the main message seems to be.

Getting denied for pre-settlement funding is frustrating, no doubt

Kim: for sure,

Sam: But it doesn’t automatically mean your lawsuit is doomed.

Kim: Not at all. As we saw, many denials are about timing, documentation, state rules, or these specific lenders’ policies, not necessarily the core strength of your claim.

Sam: So don’t give up hope immediately.

Try to understand the why.

Kim: Exactly, understanding the reason might open the door to qualifying later. Or finding a different solution.

Sam: It really challenges the assumption that a denial equals a bad case. Maybe the question for you, the listener, is if you were denied, have you truly explored why and what steps you might take next?

Kim: That’s a great point. And remember, resources like Express Legal Funding, offering second opinions, exist, potentially providing another path forward if you need that financial bridge during your lawsuit.

Aaron Winston: Thanks for listening. Visit expresslegalfunding.com to learn more and apply for fast and affordable pre-settlement funding.