Can You Borrow Money From a Pending Lawsuit?

Individuals involved in a pending lawsuit may encounter significant financial strain while their legal matter progresses. Lawsuit funding offers a solution to bridge this financial gap. This arrangement involves a third party providing money to a plaintiff, an advance, in exchange for a portion of a future settlement or judgment. It operates as a non-recourse advance, distinct from a traditional loan.

Understanding Lawsuit Funding

Lawsuit funding provides cash advances to plaintiffs during ongoing litigation. As a non-recourse funding, if the plaintiff’s case is unsuccessful, there is generally no obligation to repay the advanced funds.

Unlike typical credit products, lawsuit funding does not involve credit checks or impact a plaintiff’s credit score. Repayment is contingent upon the successful resolution of the legal case, either through a settlement or a favorable judgment. This financial mechanism is commonly sought in personal injury cases, workers’ compensation claims, and medical malpractice lawsuits. The funding company collaborates closely with the plaintiff’s attorney throughout the process, assessing the case’s merits and facilitating the advance.

Qualifying for Lawsuit Funding

To qualify for lawsuit funding, the legal case needs to demonstrate strong defendant liability, clear and quantifiable damages, and a high likelihood of success. Funders evaluate criteria including evidence strength, potential settlement value, and the defendant’s financial capacity to pay.

Specific information and documents are required for an initial assessment. These include incident details such as the date, location, and parties involved. Documentation outlining the nature and extent of injuries, accompanied by relevant medical records and bills, is necessary.

Police reports or other official incident reports, along with the attorney’s professional assessment of the case’s merits and estimated value, provide insights. Information regarding the defendant’s insurance policies may also be requested. The plaintiff’s attorney must be actively involved in the case and typically approves the funding request.

The Funding Application Process

Plaintiffs can initiate an application for lawsuit funding through various channels, such as online forms, direct contact with funding companies, or referrals from their attorneys. The funding provider then engages in a thorough review process.

The review often involves direct communication with the plaintiff’s attorney to examine case documents, discuss the merits of the claim, and clarify details. This allows the funder to assess inherent risks and the potential for a return on their advance. If the case is approved, the funding company extends an offer in a funding agreement. This agreement outlines the advance amount, any associated fees, and the repayment terms. The plaintiff’s attorney should review this agreement before it is signed. Once executed, approved funds are typically disbursed within 24 to 48 hours.

Financial Structure and Repayment

The cost of lawsuit funding is structured as “funding fees” or “rates,” rather than traditional interest. These fees accrue over time, sometimes on a compounding basis. Monthly rates can range from 2% to 4%, and the overall cost is influenced by the duration of the lawsuit and the initial advance amount. Some companies may also charge flat fees, origination fees, or processing fees, which can be deducted from the advance.

Repayment of the advance occurs only if the case results in a settlement or a favorable judgment. When the case concludes successfully, the funding company receives their advance plus the accrued fees directly from the settlement or judgment proceeds. This transaction is typically managed by the plaintiff’s attorney, who disburses the funds according to the agreed-upon terms. If the case is lost, the plaintiff has no obligation to repay the funding company.

Key Considerations Before Applying

Before pursuing lawsuit funding, consider the potential impact funding fees can have on the net settlement amount received from the lawsuit. These fees can reduce the final sum available to the plaintiff.

Consult with your attorney. The attorney can provide insights into the likelihood of success, the potential settlement value, and the implications of accepting an advance. Fully understand all terms and conditions outlined in the funding agreement.

Other Funding Options

Other funding options exist for plaintiffs needing funds. These alternatives can include securing personal loans from banks or credit unions, utilizing credit cards, or borrowing from family and friends. Public assistance programs may also offer temporary relief depending on individual circumstances.

These alternatives generally require repayment regardless of the lawsuit’s outcome. A personal loan, for example, necessitates scheduled payments and repayment of the principal plus interest, irrespective of whether the legal case settles or is lost.