Trauma Cash

What is Pre-Settlement Funding

What is Pre-Settlement Funding

by Toni Hipolito

What Is Pre-Settlement Funding?

Pre-settlement funding is a financial arrangement that allows the plaintiff in a legal case to receive a portion of their expected settlement before the case is resolved. Accordingly, this funding is often used to cover living expenses, medical bills and legal fees.

According to a recent LendingClub report, 72% of Americans have experienced a financial setback in the past year, with 61% of them tapping into savings to cover their expenses. Pre-settlement funding can be a lifeline for those facing financial hardship while awaiting a court’s decision.

Types of Pre-Settlement Funding

Pre-settlement funding falls into various types, each with unique characteristics and considerations. Understanding these types can help you make an informed decision that aligns with your needs and case specifics.

Funding Types

Non-Recourse Funding

Non-recourse funding is contingent on the outcome of the case. If the plaintiff loses, they are not required to repay the funds. This provides a level of financial security and can be less risky for the borrower, as the obligation to repay is directly tied to a successful legal outcome. Subsequently, this is traditionally the most common type of pre-settlement funding.

Recourse Funding

Recourse funding requires repayment regardless of the case’s outcome. Whether the plaintiff wins or loses, repayment of the funds is required. This type of funding may be suitable for those who are confident in their case’s success or who have the means to repay the funds regardless of the outcome.

Hybrid Options

Some providers offer options combining both non-recourse and recourse funding, allowing for more flexible terms tailored to individual needs and case specifics.

Qualifying for Pre-Settlement Funding

Qualification is a multifaceted process that involves a thorough evaluation of both the case and the plaintiff. The funding company assesses the strength of the case, the likelihood of a favorable outcome, the expected settlement amount and other relevant factors.

Funding companies may also consider the plaintiff’s financial situation, legal representation and overall credibility. This thorough qualification process aims to ensure that the funding aligns with the strength of the case and the plaintiff’s needs, minimizing risks for both parties.

Without Attorney’s Consent

You aren’t required to ask permission from your attorney to get pre-settlement funding. Attorneys do not have the authority to stop their plaintiffs from receiving litigation advances.

While it is possible to apply without an attorney’s consent, it’s wise to ask your attorney’s advice on anything pertaining to your legal case — including the decision to seek a litigation advance. An attorney’s insights can provide valuable guidance and prevent potential pitfalls.

The settlement funding company will likely contact your attorney before approving you for the advance, so your attorney may know you’re seeking pre-settlement funding whether or not you discuss it with them.

Cases That Qualify

Personal injury law encompasses many types of cases. It’s important to know which ones can get funding. Here are some of the main types of cases eligible for this kind of financial support:

 

How Pre-Settlement Funding Works

To get pre-settlement funding, a plaintiff will apply to a company with their case details. This includes legal documents and their attorney’s information.

The company will check things like the case’s nature, the defendant’s ability to pay, and the attorney’s history. If approved, the plaintiff receives up to 20% of the expected settlement. Approval takes 24 hours to a week.

Consumer Protection Guidelines

Consumer protection in pre-settlement funding involves transparency in contracts, clear disclosure of terms and adherence to state regulations. These measures ensure that the plaintiff’s rights are safeguarded and that the funding process is conducted in line with legal requirements.

Some states have enacted legislation to protect consumers in these transactions. The Alliance for Responsible Consumer Legal Funding (ARC) supports laws that provide specific protections, such as requiring plain English and transparent contracts that clearly show the consumer’s rights and obligations.

According to ARC, states with a high level of protection include Maine, Ohio, Nebraska, Oklahoma and Vermont. Indiana has legal protections, but also limitations on the availability of these financial products. ARC is critical of laws enacted in Tennessee and Arkansas, specifically.

Educating the plaintiff about their rights, responsibilities and the intricacies of pre-settlement funding is part of consumer protection. Providing clear information, offering resources for further learning and ensuring that the plaintiff fully understands the terms are all responsible funding practices.