Can You Get a Loan While on Workers Comp?

When an individual experiences a workplace injury or illness, the financial repercussions can be immediate and challenging. Workers’ compensation benefits are designed to provide a safety net, covering medical expenses and a portion of lost wages. However, the process can often involve delays, leaving injured workers struggling to meet their ongoing financial obligations. This situation frequently leads individuals to explore various avenues for financial assistance while they await the resolution of their workers’ compensation claims.

Types of Financial Assistance Available

Securing traditional financial products such as personal loans, bank loans, or credit cards can be difficult for individuals receiving workers’ compensation benefits. Lenders typically evaluate an applicant’s creditworthiness based on stable income, and workers’ compensation payments, while a form of income, are often considered non-traditional or potentially unstable. This can make traditional financial institutions hesitant to approve loan applications. The absence of a regular employment income and the reliance on benefits can raise concerns about a borrower’s ability to make fixed monthly payments.

In contrast to conventional lending, a distinct category of financial assistance exists specifically for those with pending workers’ compensation claims: pre-settlement funding, sometimes called legal funding or lawsuit loans. This type of funding is not a traditional loan, as its repayment is contingent upon the successful outcome of the workers’ compensation case. This fundamental difference means that eligibility and repayment terms for pre-settlement funding operate under a different set of principles than those governing standard personal loans.

Understanding Pre-Settlement Funding

Pre-settlement funding provides a cash advance against the potential future settlement of a workers’ compensation claim. It helps individuals cover expenses like medical bills, utility payments, and daily living costs while their case is ongoing. This financial tool is specifically designed to bridge the gap during the often lengthy process of resolving a workers’ compensation claim, which can take months or even years.

Its non-recourse nature means that if the workers’ compensation case is lost or does not result in a settlement, the individual is generally not obligated to repay the advance. This differs significantly from a traditional loan, where repayment is always required regardless of the borrower’s financial circumstances or the outcome of a legal matter. Pre-settlement funding also typically does not involve credit checks, income verification, or collateral requirements, as the funding decision is based primarily on the merits and expected value of the workers’ compensation claim.

To qualify for pre-settlement funding, an individual needs a valid workers’ compensation claim, sustained work-related injuries, and attorney representation. The attorney plays a crucial role in the application process by providing case information to the funding company, which then assesses the strength and likelihood of success of the claim. The funding amount offered is usually a percentage of the expected settlement, often ranging from 10% to 20%.

The costs associated with pre-settlement funding include fees and interest rates. While some companies may offer fixed fees or simple interest, others might apply compound interest, which can significantly increase the total repayment amount over time. Transparency regarding these costs is important, and companies should clearly outline the terms of the agreement. Repayment of the advance, along with the agreed-upon fees and interest, occurs directly from the settlement proceeds once the case is successfully concluded. The attorney handles this repayment, deducting the amount owed to the funding company before disbursing the remaining funds to the claimant, typically within a few days of the settlement being received.

Exploring Other Financial Options

Beyond pre-settlement funding, individuals on workers’ compensation have several other strategies to manage financial challenges without incurring new debt. One approach involves proactive communication with existing creditors and service providers. Negotiating payment plans or requesting temporary deferrals for bills like rent, utilities, or credit card payments can provide immediate relief. Many companies are willing to work with individuals facing financial hardship, especially when they are transparent about their situation.
Various non-loan assistance programs can also offer support:

• Government aid programs such as the Supplemental Nutritional Assistance Program (SNAP) for food assistance, Medicaid for healthcare, or Temporary Assistance for Needy Families (TANF) can provide essential benefits.
• State-specific temporary disability benefits might also be available to supplement income during recovery.
• Local community resources, charitable organizations like the United Way or Salvation Army, and industry-specific charities may offer financial grants or support for medical expenses.
• Additionally, some medical facilities provide financial aid options or flexible payment plans directly to patients.
• For those with support networks, seeking assistance from family or friends can be a non-debt alternative, offering interest-free financial support, though clear communication about repayment terms is advisable.