Can You Get an Advance on a Settlement?

For individuals awaiting the resolution of a legal claim, financial pressures can intensify as expenses accumulate during the often lengthy legal process. A settlement advance offers a potential solution, providing funds before a case concludes. This financial option can help manage immediate needs, allowing individuals to avoid debt or maintain financial stability while their legal matter progresses. Understanding how these advances function is important for anyone considering this path to bridge the gap between filing a claim and receiving a final settlement.

What is a Settlement Advance

A settlement advance, often referred to as legal funding or pre-settlement funding, is a non-recourse cash advance provided against the potential proceeds of a future legal settlement. Unlike a traditional loan, repayment is contingent upon the successful outcome of the case; if the case is lost, the advanced funds generally do not need to be repaid. This arrangement provides immediate financial relief to individuals involved in ongoing legal disputes, helping them cover living expenses, medical bills, or other costs while their case proceeds.

Pre-settlement funding is provided before a case is resolved, allowing access to funds while litigation is still active. Post-settlement funding, on the other hand, occurs after a case has settled but before the actual funds are disbursed, which can still take time. Another form is structured settlement factoring, where an individual sells future periodic payments from an existing structured settlement for a lump sum. Structured settlements involve payments received over time rather than a single lump sum, often from personal injury claims or lottery winnings.

Qualifying for an Advance

Eligibility for a settlement advance depends on the strength and nature of the legal case. Funding companies assess the likelihood of a favorable outcome and the potential value of the anticipated settlement. Cases commonly considered for funding include personal injury claims, such as car accidents, slip and falls, and medical malpractice, where clear liability and significant damages are present. The involvement of an attorney representing the claimant on a contingency fee basis is a prerequisite, as the funding company will communicate directly with legal counsel to evaluate the case.

To apply for an advance, specific documentation and information are necessary for case assessment. This includes the attorney’s contact information, details about the legal claim, and any relevant supporting documents. For personal injury cases, this means providing police reports, medical records, and insurance information. Supplying accurate information streamlines the evaluation process and improves approval chances.

The Advance Process and Repayment

Once an application for a settlement advance is submitted, the funding company reviews case information. This review involves direct communication with the applicant’s attorney to verify case details, assess merits, and determine the potential settlement. The attorney provides necessary legal and medical documentation to the funding company for an informed decision.

If the case is approved for funding, the company will present a funding agreement outlining terms and conditions. Upon acceptance and signing by the applicant and attorney, the approved funds are disbursed. Funds are sent via direct deposit, wire transfer, or check, within 24 to 48 hours. The advance, along with any associated fees, is repaid directly from settlement proceeds upon successful case conclusion.

Understanding the Costs

Settlement advances involve costs that differ from traditional loan interest. Funding companies charge fees through monthly rates (often 2% to 4% per month) or flat fees. These rates are not considered interest but represent the cost of the funding service and the risk assumed by the funding company. Some providers may also charge origination or processing fees, which can be 5% to 10% of the advanced amount.

Fees may compound over time. Compounding means charges accrue on the initial advance and accumulated fees, substantially increasing the total repayment if the case extends for many months or years. The non-recourse nature means no repayment if the case is lost. This contributes to a higher cost structure compared to standard loans, as the funding company bears the risk of loss.

Unlike traditional loans, settlement advances do not require a credit check or impact personal credit scores. No monthly payments are required while the case is ongoing. Repayment is solely dependent on the case’s success, with the funding company receiving their portion directly from settlement proceeds before the remaining amount is disbursed.