Pre-settlement Funding

Learn about how pre-settlement funding is a unique financial product and lifeline for plaintiffs embroiled in a legal case. Specifically, how it is an advance on your potential settlement, which provides immediate financial relief during the litigation process.

This vocabulary page gives you an in-depth understanding of what pre-settlement funding is, how it works, the eligibility criteria, various pros and cons, info about interest rates, and identifying possible alternatives.

What Is Pre-settlement Funding?

Pre-settlement funding, often referred to by consumers as lawsuit loans, is a non-recourse financing option provided to plaintiffs involved in a legal case. It is an advance against your future settlement, which helps you have the necessary funds to manage your expenses while your case is ongoing.

Unlike traditional loans, the repayment for a  pre-settlement advance is contingent on the outcome of your legal case. If you lose, you are not obligated to repay the advance, providing a level of financial security for the borrower.

Hence, it is considered an investment rather than a loan.

How Does Pre-settlement Funding Work?

The process of acquiring pre-settlement funding is straightforward. Here’s how it works:

1. The plaintiff applies for funding, providing case details and their attorney’s information.
2. The funding company assesses the case’s strength, expected settlement amount, and other relevant factors. They contact the attorney for additional info.
3. If approved, the plaintiff receives an advance of 10-20% of the expected settlement (range reported by funding companies). Depending on the company, approval usually takes somewhere between 24-48 hours.
4. When the plaintiff wins or settles their case, their attorney will handle the payment for the advance along with the agreed-upon fees and interest from the case proceeds. If they lose, they generally don’t have to repay anything.

Reasons to Opt for Pre-Settlement Funding

Pre-settlement funding is particularly beneficial for those grappling with financial challenges while their lawsuit is in progress. Here are a few reasons to consider it:

• Cover Living Expenses: Legal cases can drag on for months or even years. During this time, plaintiffs may struggle to cover basic living expenses like food and rent. Pre-settlement funding can help bridge this gap while claimants wait for their cases to be resolved.
• Pay For Medical Expenses: For personal injury cases, out of pocket medical expenses can pile up. The advance can help cover these costs, ensuring you get the necessary treatment.
• Avoid Low Settlements: Insurance companies often capitalize on a plaintiff’s financial hardship by offering low settlements in hopes that they will accept the offer out of desperation, which, although legal, is unfair.
  Pre-settlement funding can provide you with the financial stability to reject low offers that feel enticing and hold out until a later date after your lawyer negotiates a fair settlement on your behalf.

How To Qualify For Pre-settlement Funding?

The eligibility requirements for pre-settlement funding includes a thorough evaluation of the case and the plaintiff’s situation.

The funding company assesses the strength of the case, the likelihood of a favorable outcome, the expected settlement amount, and other relevant details, such as whether there is insurance coverage.

Crucially, you do not need a good credit score to qualify, as pre-settlement funding is not the same as a loan.

Types of Cases Eligible for Pre-settlement Funding

A wide range of civil and personal injury claims are eligible for pre-settlement funding. The following are some of the most common claim types:

• Motor vehicle accident (MVA) claims
• Negligence claims
• Slip and fall claims
• Employment discrimination
• Animal bites

Can You Get Pre-settlement Funding Without Attorney’s Consent?

While you aren’t required to ask permission from your attorney to apply for pre-settlement funding, it’s wise to discuss it with them. Attorneys can provide valuable advice and help navigate potential pitfalls.

Additionally, the lawsuit funding company will likely contact your attorney before approving the advance and require them to sign what is known as an Attorney Acknowledgement for your funding agreement.

This signed acknowledgment is how lawyers let the funding companies know they represent you on the claim and that they promise to pay the company back what it is owed at the time of disbursement from the case proceeds.

Pros and Cons of Pre-settlement Funding

Like any financial decision, pre-settlement funding has its own set of benefits and drawbacks. Here’s what you need to consider:

Pros

• You receive money that can help cover living expenses.
• Advanced funding allows you time to negotiate a better settlement.
• Typically, no repayment is required if the court completely rules against you and you have get no settlement money.

Cons

• High interest rates apply to repayment amounts if you win your case.
• Funding fees can be expensive.
• You are not guaranteed to qualify, as approval is based on the merits of your case.

Is Pre-settlement Funding a Loan?

Pre-settlement funding is not considered a loan. Here’s a breakdown to understand its classification:

Comparison With Traditional Loans:

• Interest and Repayment: Unlike traditional loans between a lender and borrower, where the obligation for repayment is absolute, the condition for repayment for pre-settlement funding is contingent upon the success of the plaintiff’s case. If the case is lost, the plaintiff owes nothing.
• Collateral: The funding debt is secured against the potential settlement award or judgment in favor of the claimant in the future, making it non-recourse in nature.
• Risk Assessment: The decision for pre-settlement funding companies to extend funding is based on the strength and potential value of the plaintiff’s case rather than the individual’s credit history or financial status.
• Regulatory Differences: The consumer legal funding industry is not regulated nationally in the same manner as banks and conventional lenders, leading to differences in how these agreements are structured and enforced.
  Several states, including Missouri, Ohio, and Oklahoma, have passed laws regulating it as a unique financial product.

While pre-settlement funding shares some characteristics with loans, its non-recourse nature, reliance on the outcome of legal cases for repayment, and specific regulatory environment differences distinguish it significantly.

Whether it is classified as a loan can depend on legal definitions and regulations, which vary by jurisdiction. It’s essential for consumers to understand these distinctions and consult with an attorney to make informed decisions regarding obtaining pre-settlement funding.

What Are the Interest Rates For Pre-settlement Funding?

Reputable pre-settlement funding companies provide precise and easy-to-understand quotes of the monthly interest rates that generally range between 2% and 4%. Interest rates exclude standard costs, like an origination fee.

Interest rates for pre-settlement funding can vary widely based on the company, the type of case, and even the length of time until settlement. It’s important to understand that these rates are typically higher than those of traditional loans due to the risk involved.

Understanding Simple vs Compounding Rates

When considering pre-settlement funding, it’s crucial to understand the difference between simple and compounding interest rates.

Simple interest is calculated on the principal or original amount of the advanced sum.

Compounding interest, on the other hand, is calculated on the principal amount and the accumulated interest of previous periods, meaning it can grow exponentially. Interest is charged on the unpaid interest.

Always ensure you understand the type of interest being applied to your advance before signing the agreement.

Pre-settlement Funding Alternatives

While pre-settlement funding can provide immediate relief for plaintiffs in need, it’s not the only solution. Other options include obtaining:

• Personal loans
• Credit card cash advances
• Home equity loans
• Title loans
• Payday loans
• Borrowing from friends or family

These options, if available, may offer lower interest rates but could come with their own set of risks and requirements since, unlike pre-settlement funding, they are types of recourse debt.

Lawyers Explain Pre-settlement Funding Benefits Their Clients

Learn what some of the top car accident and personal injury lawyers from across the United States have to say about the benefits of pre-settlement funding for their clients.

Boost Case Value With Pre-settlement Funds

Sharif Gray, Trial Lawyer, RVA Personal Injury Lawyers, shares the following about how pre-settlement funding can improve the value of personal injury claims:

Pre-settlement funding has helped my clients get the funds they need to recover from their injuries and pay the bills. As a result, it has also helped increase the value of my clients’ cases.
The medical treatment they receive is evaluated as part of their case, and it helps my clients hold out for a larger settlement or verdict since they are getting the funding they need.

Strategic Patience Enables Fair Settlements

Riley Beam, Managing Attorney, Douglas R. Beam, P.A., shares how pre-settlement advance funding helps his clients remain patient and gain fair settlements:

Pre-settlement funding provides immediate relief by covering pressing expenses, allowing my clients the patience to wait for a fair settlement offer. In turn, this patience becomes a strategic advantage for us.

When negotiating with the opposing party or insurance company, we now have the luxury of time.

The urgency to accept a quick, potentially lower settlement diminishes as pre-settlement funding alleviates financial strain. This newfound stability empowers my clients to hold out for a more favorable resolution.

It not only ensures a more just compensation but also sends a clear message to the opposing side that hasty, inadequate offers won’t suffice.

Pre-Settlement Funding Covers Essential Costs

Attorney Alex Freeburg, Owner of Freeburg Law, mentions how pre-settlement funding can help his personal injury clients who require medical treatment:

One of the most tangible benefits is its role in personal injury cases, where clients face substantial medical bills as a result of their injuries.

Pre-settlement funding allows them to address associated costs promptly and ensures that they can access the necessary medical treatments without any delay.

Medical attention aside, this funding also covers rehabilitation expenses, along with daily living costs. For example, rent, utility bills, and other essential costs can all accumulate during the course of a lawsuit.

When a client is still recovering, they’re unable to work temporarily or permanently due to their injuries.

This is where lawsuit funding steps in to alleviate the financial strain, enabling clients to cover rent and maintain a basic standard of living until a settlement is reached.

The contribution from these licensed lawyers supports the concept that pre-settlement funding is an essential tool for injured plaintiffs that provides immediate financial relief for them to cover their expenses while they wait for their cases to be resolved.

Express Legal Funding: Overview of the Pre-settlement Funding Company

Express Legal Funding is a top-rated pre-settlement funding company based in Plano, Texas. The company was founded in 2015 and is a national leader that provides financial assistance to individuals awaiting the resolution of their injury and accident legal claims.

By offering its lawsuit cash advance service, Express Legal Funding aims to alleviate the financial pressure on individuals who might otherwise struggle to meet their day-to-day expenses during the often lengthy pending lawsuit process.

Another way to understand who is the clientele that can best benefit from the company’s trustworthy service:

People who enter search terms like “pre-settlement funding” or “lawsuit settlement loans” on Google or Microsoft Bing fit the ideal customer profile for Express Legal Funding.

They can get the reliable legal funding assistance they seek by visiting the company’s website at expresslegalfunding.com.

Remember that by understanding its workings, eligibility criteria, interest rates, and alternatives, plaintiffs can make an informed decision about whether lawsuit funding is right for them.

Written by Aaron R. Winston
Last Updated: February 21, 2024 1:13pm CST