How Does Pre-Settlement Funding Work?

Pre-settlement funding offers individuals involved in a legal dispute a financial advance against their potential future settlement or court award. This type of funding provides a way to access funds before a case concludes, helping plaintiffs manage financial pressures that often arise during lengthy legal proceedings. It is not a traditional loan, as repayment is contingent upon a successful case outcome. This financial tool aims to provide stability, allowing individuals to pursue the full value of their claim without being forced into a premature, low settlement due to immediate financial needs.

Eligibility and Application

Securing pre-settlement funding begins with an assessment of eligibility, primarily centered on the merits of the legal case itself. Funding companies evaluate various factors, including the type of lawsuit, such as personal injury, medical malpractice, or workers’ compensation claims. A strong case typically demonstrates clear liability on the part of the defendant and sufficient damages incurred by the plaintiff, indicating a high likelihood of a favorable resolution. Unlike traditional lending, a person’s credit score or employment history are not considerations for approval.

Applicants must have active legal representation from an attorney who is handling their case on a contingency fee basis. Attorneys provide insights and cooperation to assess case strength and value, ensuring claim validity.

The application process typically starts with a simple online form or phone call to a funding company. During this initial step, applicants provide basic contact information for themselves and their attorney, along with details about the incident and the nature of their claim. Following this, the funding company will contact the applicant’s attorney to gather necessary documentation and verify case details.

Specific documents requested include medical records, which demonstrate injuries and related expenses. Other supporting claim documents, such as witness statements or insurance information, further aid the funding company’s evaluation of the case’s potential. The funding company’s underwriting team reviews this information to determine the likelihood of success and the estimated settlement amount.

Understanding the Funding Agreement

Once a case is deemed eligible, the funding company determines the amount of funding to offer, which is typically a percentage of the estimated value of the case. This amount often ranges from 10% to 20% of the anticipated settlement. The evaluation considers factors such as the severity of damages, clear evidence of liability, and the defendant’s ability to pay, often through insurance coverage.

The financial terms of pre-settlement funding involve a fee structure rather than traditional interest. However, these fees often accrue or compound over time, meaning the total repayment amount increases the longer the case remains unresolved. While some companies may offer a flat fee, others use tiered rates, and the overall cost can be higher than traditional loans due to the inherent risk the funding company undertakes.

A fundamental aspect of the funding agreement is its non-recourse nature. This means that if the legal case is lost and no settlement or judgment is obtained, the individual generally owes nothing to the funding company. This provision protects the plaintiff from financial obligation if their claim is unsuccessful. The funding company essentially assumes the risk of the case not resulting in a recovery.

The agreement also establishes a lien on the potential settlement, meaning the funding company has a right to a portion of the proceeds if the case is won. The attorney plays a crucial role in the agreement process, reviewing the contract to ensure its terms are fair and align with the client’s best interests. Attorneys cannot directly provide funding due to potential conflicts of interest, but their acknowledgement and cooperation are necessary.

Disbursement and Repayment

Upon finalization of the funding agreement, the approved funds are disbursed to the applicant. This process is typically rapid, with funds often available within 24 to 48 business hours. Common methods of disbursement include direct deposit into a bank account, wire transfer, or a physical check. These funds provide immediate financial relief, allowing the plaintiff to cover various expenses.

When the legal case concludes, either through a settlement or a court judgment, the repayment process is initiated. The attorney handling the case typically receives the settlement funds first. From these proceeds, the attorney is responsible for repaying the funding company directly. This repayment occurs after the attorney’s fees and litigation costs are covered, and any medical or governmental liens are satisfied.

If the plaintiff does not win their case and no settlement or judgment is awarded, there is no obligation to repay the funding company. The funding company assumes the entire risk of non-recovery. This means the individual will not face collections, negative credit impacts, or legal action for non-payment if the case is unsuccessful.