Published on:

Settlement Funding Prior to Resolution of a Case and its Implications

website photo

By Erica L. Pereira, Esq.

In the realm of personal injury claims, once a lawsuit is filed, there are a number of settlement funding companies out there who will advance the funds of the settlement in order to be paid back once an actual settlement is received.  This may seem like a perfect scenario: Get your money now and just pay the funding company back once the case is resolved.  The implications of settlement advancement however are great and every client or potential client needs to know of the serious consequences of getting an advance of your potential settlement.

Many times, this pre-settlement funding is called “non-recourse” funding, in that the borrower does not have to repay the funds that are borrowed unless a settlement is received.  This seems enticing to some clients because there seems to be little downside to borrowing since you don’t have to pay back the advance unless you have the money to pay it back.  Win-Win right?

The problems arise in the fees associated with these type of advance.  In many instances, the advance will come in the beginning of the litigation, since clients are often in desperate need of money due to their lack of employment since their injury.  Settlement funding companies, in their contracts, will often charge a interest rate of 15% and sometimes higher on the money that is borrowed.  This interest rate then compounds and adds to the amount owed so that upon settlement of the case, some clients are forced to pay double the amount that they borrowed, sometimes more.  Further, because this is a CONTINGENT advance and there is no guarantee of repayment, this advance is not considered a loan and is not therefore subject to usury laws governing illegally high interest rates.  Essentially, this means that the company can charge any interest rate that they feel is appropriate, as long as they tell the Attorney General.

Often, it becomes difficult for the attorney or the parties to come to an amicable resolution because the client does not understand the consequences of borrowing the money with such a high interest rate and becomes angry about the amount they have to pay back.  Upon settlement, even if the attorney is able to negotiate with the company for a reduction of its lien, more often than not, the client ends up with very little in his pocket after paying off the fees and the significant funding lien.  This is frustrating to the attorney as well as the client.

If you currently have a claim or if you should unfortunately have to file a claim in the future, please consider ALL of your options on borrowing money to pay for your bills prior to considering a settlement funding company.  These funding companies should only be used as a last resort due to the substantial amount you will be forced to pay should you ultimately receive a settlement.  If you are unsure about how to proceed, our attorneys can guide you in the right direction and properly explain the benefits and consequences of settlement funding.  We are available at all time for a free consultation regarding your claim.

Contact Information