According to the US Courts, in 2015, 54,244 cases were filed to the U.S. Courts of Appeals, 361,689 to the U.S. District Courts, and 911,086 to the U.S. Bankruptcy Courts.Thousands go through the judicial process and participate in our Federal Courts. But while there are thousands in the court room each year, there are thousands more waiting for that day to come.
Depending on several factors (i.e. processing legal documents, etc.), it could take months if not years. During this time, the plaintiff’s funds may dry up, in which case they need to assess their financial options, with pre-settlement funding being one of them. Here are 4 scenarios that will give you a better idea if pre-settlement funding is the right option for you.
Scenario #1: Jane Needs a Way to Pay for Piling Expenses
Jane is waiting for her day in court; her case has been pending for roughly over a year. Unfortunately, the car accident Jane was in—the reason for her filing the lawsuit in the first place—physically injured her to the point where she was unable to keep her employment and cannot take on a new job.
Being unemployed and with a piling stack of expenses she is unable to pay (especially her mortgage), Jane runs the risk of foreclosure and potential homelessness. Depending on her sister’s generous donations for the last year has helped her get by, however, her sister cannot financially support her for the next couple of months, but expresses that she can after that time period.
Pre-Settlement Funding Could Be Beneficial
Having exhausted her financial resources, having no revenue stream, facing homelessness, and out of options, settlement funding could be the good choice for Jane. Settlement funding gives momentary relief, bridging the pay gap. This may be beneficial, especially if you know when more funds are coming in. In the scenario, Jane’s sister briefly cannot financially support her, however, she asserts that she will be able to within the next several months.
Scenario #2: Roberto Needs Money to Pay for His Kids’ Schooling
Being a single father is hard enough, let alone Roberto’s pending lawsuit; like Jane, his suit has drawn on for years. Unfortunately, with the new school year coming up, Roberto does not have the available funds needed to pay for his children’s school uniforms, school supplies, and tuition. He has already applied for another line of credit; however, he has wound up with a bad credit score, maxing out his credit cards to pay for legal fees and living expenses. He has already tried applying for traditional loans through banking institutions but keeps getting denied. Roberto has tried several government benefits, grants, and loan programs—such as Lifeline Program, which helps individuals and families get a discounted phone bill. But, because his income is 135% above the poverty line and he does not receive assistance from Medicaid, Federal Public Housing, Head Start, Supplemental Security Income, or Supplemental Nutrition Assistance, Roberto has been notified that he does not qualify. Much less, he does not meet the corresponding requirements for any other government support program. With close to no options left, Roberto is considering taking a home equity loan.
Settlement Funding Could Be an Option—Here is Why
In this scenario, Roberto has tried every other financial means in the playbook. He needs quick access to funds so he can pay for his kids’ schooling. One of the reasons Roberto is not so lucky in securing a traditional bank loan is his bad credit score, which, sadly, is a result of his pending lawsuit. The last option Roberto has before getting a cash settlement advance is taking out a home equity loan, which is extremely risky—it is easy to default on these types of loans, making foreclosure a foreseeable possibility. (In fact, a study determined that as much as $79 billion out of the $474 billion in home equity lines of credit that are resetting in the next couple of years are at risk of defaulting.) A cash advance is a (short-term) quick fix solution to this problem, preventing individuals from having to take out a home loan, helping those who are out of options because of a bad credit score; normally, settlement loan companies do not run a credit report but will look at your case to determine if there is a high chance of receiving a settlement award.
Scenario #3: Abdilah Risks Pulling Funds from her 401(k)
Abdilah is waiting for her day in court but, so far, she has spent more time in her attorney’s office than inside the courtroom. Luckily, while Abdilah is involved in a wrongful termination suit, she has been able to secure another job in the meantime. Nonetheless, with living expenses and legal fees increasing, Abdilah is reaching her financial limit. She is unable to secure a traditional loan, friends and family cannot give her donations, and she does not qualify for government programs and has no extra time to hunt down and get another job to supplement her income. She runs the risk of pulling funds from her 401(k), which—like taking out a home equity loan—is a risky move, especially if she is unable to put back the money she originally pulled out. This could then have a negative effect on her retirement plans, bumping back retirement as much as a couple years, if that.
Pre-Settlement Funding Could Help
At this point, Abdilah’s only resort is her retirement savings plan. As Time Money mentions, doing this hits back at your financial security and undercuts emergency funds—something every household needs tohave. The article goes on to statethat those who make a premature withdrawal may incur a tax penalty.To forgo this type of risk, it may be in Abdilah’s best interest to see if pre-settlement funding is a viable option.
Scenario #4: Ryan Feels Pressure to Stop Negotiations and Agree on a Less-Than-Favorable Settlement
Ryan and his attorney have been negotiating with the insurance company for months on a settlement both can mutually agree on. However, during this time, Ryan is on the verge of declaring bankruptcy. He is even starting to take inventory of his assets. This move could be devastating for him and his family; he has exhausted all of his other financial options and is now considering on taking the deal the insurance company proposed even though it is not as favorable as Ryan would have liked. He has discussed the deal with his attorney, who believes Ryan stands a good chance of receiving a much more favorable settlement if they push with a counter offer. Still, he feels financial pressure to give in.
Perhaps Pre-Settlement Funding May Be a Good Short-Term Route?
Having exhausted all of his other financial options—a home equity loan and 401(k) withdrawal on the table —and risking bankruptcy and foreclosure, settlement funding could be the short-term solution for Ryan’s financial troubles. At the very least, it could buy him some extra time so he and his attorney can come up with a counter offer that will get him a better deal.
Final Thoughts: What These Pre-Settlement Funding Scenarios Show
No matter the financial situation, a pending lawsuit (and court in itself) is financially (and emotionally) taxing. As these scenarios show, during a pending lawsuit, the plaintiff could be undergoing extreme financial troubles—such as bankruptcy, foreclosure, or even homelessness. Not being able to get approved for traditional loans, not qualifying for government assistance, having bad credit, and having either to pull from your home equity or 401(k) as your only available options could mean pre settlement funding is a potential route for you.
Please know that if you are considering this option to research several settlement loan companies—inquire about their interest rates, requirements, reputation, etc. Don’t be afraid to shop around; at the end of the day, this is your case and finances we are talking about.
- Thousands enter the court room each year, yet thousands are also waiting for their day in court
- This time gap could cause financial strain;in which case, you need to assess financial routes—pre-settlement funding being one
- Scenario #1 shows how impactful a car accident can have on an individual; in Jane’s case, she is physically impaired to the point where she cannot work
- Not being employed with a piling stack of bills and no other financial options left, as a short-term solution, pre settlement funding could help her
- Scenario #2 discusses a situation where taking out a home equity loan is the plaintiff’s only option
- Since this is an extremely risky move, Roberto could use settlement funding as a momentary quick fix
- Scenario #3 deals with the plaintiff considering to pull from her retirement savings plan; Doing this may push the plaintiff’s retirement plans years’ back
- With no other traditional financial solutions left, Abdilah is strongly thinking about it
- In this case, a cash advance may be an option
- Scenario #4 illustrates the tough decisions some plaintiffs must make during the negotiation process—whether to make a counter offer or agree to a less than favorable deal to get a cash settlement to pay for piling expenses
- In this case, Ryan is facing bankruptcy and has exhausted all other financial options—a settlement loan could be an option
- If you are considering pre-settlement funding, do your research and don’t be afraid to shop around
Have you been in one of these scenarios before? Feel free to leave a comment.
 Investopedia: What to Do If You Can’t Pay Back a Home Equity Loan