Legal battles can be financially draining, often taking months or even years to resolve. For many plaintiffs, the wait for justice comes with mounting medical bills, lost wages, and daily expenses that don’t pause for litigation. This is where Pre-settlement Funding can be a lifeline, offering financial support while awaiting a fair settlement. However, before committing to this option, it’s crucial to weigh both its benefits and potential drawbacks.
What Is Pre-settlement Funding?
Pre-settlement Funding is a type of financial assistance provided to plaintiffs who have pending legal claims. Unlike traditional loans, these funds are non-recourse, meaning repayment is only required if the plaintiff wins the case or reaches a settlement. This type of funding is particularly beneficial for those struggling to cover necessary living expenses while their lawsuit is ongoing.
How Pre-settlement Funding Works
- Application Process – Plaintiffs apply for funding, providing details about their case.
- Case Evaluation – A funding company assesses the claim’s strength in collaboration with the plaintiff’s attorney.
- Approval and Funds Disbursement – If approved, the plaintiff receives an advance based on the expected settlement amount.
- Repayment – If the plaintiff wins or settles, the funding provider is repaid from the awarded amount.
The Pros of Pre-settlement Funding
1. Immediate Financial Relief
Legal proceedings can stretch over long periods, making it difficult for plaintiffs to manage financial responsibilities. Pre-settlement Funding provides immediate cash to cover expenses such as rent, medical bills, and daily necessities, allowing plaintiffs to focus on their case without added financial stress.
2. No Repayment If You Lose
Unlike traditional loans for settlements, pre-settlement funding is non-recourse. This means that if a plaintiff does not win their case, they are not required to repay the funds. This minimizes financial risk and provides a safety net for those uncertain about their lawsuit’s outcome.
3. Stronger Negotiation Power
Insurance companies and defendants often try to pressure plaintiffs into accepting lower settlement offers, knowing they may be desperate for financial relief. By securing Pre-settlement Funding, plaintiffs can afford to wait for a fair offer rather than settling prematurely due to financial hardship.
4. No Credit Check or Employment Verification
Unlike traditional loans, pre-settlement funding is based solely on the strength of the lawsuit. This means plaintiffs do not need a high credit score or employment history to qualify, making it a more accessible option for many individuals.
The Cons of Pre-settlement Funding
1. High Costs and Fees
One of the main drawbacks of Pre-settlement Funding is that it often comes with higher interest rates and fees compared to traditional loans for settlements. Since providers take on a significant risk by offering non-recourse funding, they charge a premium to compensate for potential losses.
2. Potential Reduction in Final Settlement Amount
Because repayment includes interest and fees, plaintiffs may receive less from their final settlement than originally expected. It’s important to carefully review funding agreements and calculate the potential impact on the settlement amount before accepting the advance.
3. Not Available for All Cases
Not every lawsuit qualifies for Pre-settlement Funding. Funding providers typically approve cases with strong chances of winning, such as personal injury claims, wrongful death lawsuits, or workers’ compensation cases. Plaintiffs with weaker claims may struggle to obtain funding.
4. Possible Attorney Disagreement
Some attorneys may advise against pre-settlement funding due to its cost. Since repayment comes from the final settlement, it can complicate negotiations. It’s always best to discuss this option with legal counsel before making a decision.
Key Considerations Before Applying
Before choosing Pre-settlement Funding, plaintiffs should consider the following factors:
- Assess the Costs – Understand interest rates, fees, and total repayment amounts.
- Consult Your Attorney – Ensure that funding will not negatively impact your case or settlement.
- Explore Alternative Options – Consider personal loans, family assistance, or financial aid programs.
- Choose a Reputable Provider – Research funding companies and read client reviews to avoid hidden fees or unfair agreements.
Pre-settlement Funding can be a valuable resource for plaintiffs facing financial hardship while awaiting a settlement. It provides immediate relief and prevents plaintiffs from settling for less than they deserve. However, the high costs and potential settlement reductions mean it is not the right choice for everyone. Understanding both the benefits and drawbacks is crucial before making a decision. By carefully evaluating your financial situation and legal options, you can determine whether this type of funding is the best solution for your needs.