Can I Get a Loan on a Pending Lawsuit?

Lawsuits can be lengthy and financially demanding, leaving plaintiffs in challenging situations as they await resolution. Lawsuit funding, also known as legal or litigation funding, offers a financial solution during this period. It provides a cash advance to plaintiffs with pending lawsuits, helping them cover immediate living expenses or litigation costs. This funding is distinct from a traditional loan, primarily because repayment is contingent upon the successful outcome of the case.

Understanding Lawsuit Funding

Lawsuit funding functions as an advance against a potential future settlement or judgment, rather than a conventional loan. A key characteristic that sets it apart is its non-recourse nature. This means the funding company assumes the risk; if the plaintiff’s case is unsuccessful and they do not receive a settlement or judgment, they are not obligated to repay the advanced funds.

Unlike traditional loans, lawsuit funding does not involve monthly payments, nor does it typically require a credit check or collateral in the conventional sense. Instead, the pending settlement or court award serves as the basis for the advance. Funding companies are not lenders in the traditional banking model; rather, they provide a sum of money in exchange for a portion of the future proceeds from a successful lawsuit.

Qualifying for Lawsuit Funding

Eligibility for lawsuit funding centers on the strength and potential value of the legal claim. Funding companies assess several factors to determine if a case qualifies for an advance. The primary considerations include the likelihood of success in the lawsuit and the estimated monetary value of the potential settlement or judgment. A strong case typically features clear liability, meaning the defendant’s fault is evident, and demonstrable damages, indicating significant losses suffered by the plaintiff.

Common cases that qualify for funding include personal injury claims, such as car accidents, slip and falls, or medical malpractice. Wrongful death claims, product liability cases, and some employment disputes are also frequently considered. Funding companies look for cases where the plaintiff is represented by an attorney working on a contingency fee basis, which signals the attorney’s belief in the case’s merits. The case must also be active and show progress, with sufficient evidence to support the claim.

The Application and Review Process

Initiating an application for lawsuit funding typically begins with an initial inquiry, which can be made through an online form or a phone call to a funding company. During this step, the plaintiff provides basic details about their lawsuit, including the case type, date of incident, and the jurisdiction where the case is filed. It is also necessary to provide contact information for their attorney, as the funding company will need to communicate directly with legal counsel.

Following the initial inquiry, the process moves to documentation and case review. The funding company’s legal team or underwriters will request specific documents from the plaintiff’s attorney to comprehensively understand the case. These documents often include medical records, police reports, and initial legal filings, all of which help assess the case’s merits and potential value.

After reviewing the information and consulting with the attorney, the funding company makes a decision. If approved, an offer outlining the terms of the advance is extended. Upon acceptance and signing of the agreement by both the plaintiff and their attorney, the funds are typically disbursed rapidly, often within 24 to 48 hours via wire transfer or check.

Financial Aspects of Lawsuit Funding

The amount of funding offered is generally a percentage of the estimated future settlement or award, commonly ranging from 10% to 20% of the case’s projected value. The exact amount depends on the case’s strength, the severity of damages, and the anticipated duration of the litigation. Funding companies consider that attorney fees, typically 33% to 40% of the settlement, and other costs will also be paid from the final proceeds, influencing the advance amount.

The costs associated with lawsuit funding are not termed “interest” in the traditional sense, but rather represent a fixed charge or a compounding rate that accrues over time until the case concludes. These charges are typically higher than those of conventional loans due to the non-recourse nature of the advance, which means the funding company bears the risk of losing its investment if the case is unsuccessful. Transparency in these charges is a key consideration for reputable funding companies, with some rates potentially running from 3% to 4% monthly.

Repayment of the advance occurs solely if the case is successfully settled or won. Once the settlement or judgment funds are received, the plaintiff’s attorney directly repays the funding company the advanced amount plus the agreed-upon fees from the proceeds. The remaining balance is then disbursed to the plaintiff.