Because the resolution of a civil lawsuit can take months – or sometimes even years – one of the biggest challenges for plaintiffs is to remain patient while their case is pending. This can be especially difficult for plaintiffs in personal injury cases whose injuries prevent them from working. In these circumstances, financial stress can make a difficult situation even worse.
Lawsuit funding can be a viable source of financial relief for plaintiffs in these circumstances. But with so many sources to choose from, how do you know which one – if any – is best for you? Here is what you should know about shopping for lawsuit funding.
What is lawsuit funding?
If you are the plaintiff in a personal injury case and you need money to make ends meet until your case is settled, lawsuit funding may be a worthwhile option. It allows you to get a cash advance against your settlement that you can use to pay your medical bills, buy groceries, and make your mortgage payments, rent and so forth. Once your case is resolved the funding company will deduct the amount of the cash funding plus any applicable fees and other charges from the settlement.
Eligibility for lawsuit funding
Unlike a bank, credit union or similar lender, companies that provide lawsuit funding don’t rely on traditional metrics – such as your credit score – to determine eligibility. Instead, they assess the information about your case provided on your application. They will also talk to your lawyer about the strength of your case, the chances of a settlement or judgment in your favor and its potential value.
Choosing an honest provider
Critics often warn consumers that the lawsuit funding industry is largely unregulated. They also claim that this allows unscrupulous lenders to charge exorbitant interest rates and incorporate hidden fees into lawsuit loans.
While this was true in the industry’s infancy, it is not necessarily so now. In recent years, several states have implemented or considered implementing rules and regulations for the industry. The industry has also taken steps to police itself.
If you are considering a lawsuit funding, don’t be afraid to ask your lawyer for advice. He or she is probably familiar with different providers and should be able to recommend a few.
The Alliance for Responsible Consumer Legal Funding (ARC)is another good resource. This is because it encourages practices and protocols that allow plaintiffs and their attorneys to make informed decisions. Its ultimate goal is to ensure that accident victims and their families in need of financial reliefs have more options.
The different types of lawsuit funding
When shopping for lawsuit funding, it is also important to understand that this is actually a broad term that includes several mechanisms for financial relief. Three of the forms a funding is most likely to come in, depending on your state of residence, are a purchase agreement, spring forward agreement or loan.
Here’s a basic overview of each.
A purchase agreement assigns a portion of the pending proceeds from your legal claim plus any associated charges and fees.
Spring forward agreements
Although they aren’t widely advertised, spring forward agreements are another mechanism for financial relief. This type of arrangements allows you to sell an asset (such as a portion of your settlement) for a specified price on a future date.
In other words, you – as a plaintiff in a personal injury case – can enter into a contract to sell some of the proceeds from your settlement for a specific amount immediately. However, the deal isn’t finalized until the case is resolved. This means you don’t usually have to report the proceeds from the sale as income until that time.
Depending on your state of residence, a funding may come in the form of a loan. Similar to a purchase agreement, a lawsuit loan allows you to have quick access to cash against the proceeds of your pending legal settlement. However, in this case, repayment plus charges and fees may be required regardless of the outcome of your case.
You should also be aware that most other expenses are taken from your settlement or judgment before the funding company deducts its share. These typically include:
- The attorney’s fee (which can be one-third to one-half of the settlement/judgment amount in personal injury cases).
- Any costs associated with the litigation, such as fees for copying and filing relevant documents and paying process servers.
- Those needed to meet any demands for payment for medical services
Another important caveat is that there is no guarantee your case will be resolved in your favor or that you will get as much in a settlement or judgment as you expected. The details in your loan agreement determine what happens in either case. The company may or may not be able to recoup all or even some of the total amount owed.
Because these types of transactions can be tricky, however, it is always best to secure the proper legal and financial advice before choosing this option.
Furthermore, doing your own research and then making an informed decision can also keep you from making a costly mistake.
Oasis provides pre-settlement funding, also known as consumer litigation funding, to its customers through different products depending on their state of residence or cause of action. Many consumers will be provided pre-settlement funding in the form of a purchase agreement, which assigns a portion of the pending proceeds from their legal claim. Other consumers, such as those in CO, IL, MN, MO, SC, WI and some OK residents, will be offered a funding in the form of a pre-settlement loan, sometimes referred to as a lawsuit loan. These transactions have important differences, therefore, consumers should carefully review and be aware of the type of transaction that is offered to them by any funding company.