Every year, around 40 million new lawsuits are filed through the American court system.
For many Americans involved in these lawsuits, money can be tight. Without external settlement loans to give them an advance to see their case through, justice would be all but inaccessible.
Keep reading for a guide on how a settlement loan works why your loan application may be rejected.
How Do Settlement Loans Work?
When you are taking out an advance on a lawsuit you file, a lawsuit loan from first evaluates the eligibility of your case. The financing firm is trying to gauge how strong the merits for your case are to determine if they can fund you.
Once you receive their green light, the firm will deposit an advance in your account. The expectation here is that when you receive a settlement, you’ll repay the loan. On top of that, the financier also charges you interest and fees on the cash they advance you.
You won’t have to make any payments until you get a verdict on your case or it settles out of court. Before paying the financier, there are certain legal fees and expenses you’ll need to cover off the top. These include:
- Your lawyer’s fees (which often come to around one third to one half of the amount you receive as an award)
- Medical liens from doctors, hospitals, and other medical providers that you receive as a result of the case
- Fees associated with litigation such as process server costs, court costs, etc.
After you settle all these expenses, you’ll repay the lawsuit loan company from the remaining funds from the settlement.
An Example of a Settlement Loan
Let’s say you file a lawsuit seeking $100,000 after suffering injuries from a car crash. When you take your case to a lawsuit loan company, they will evaluate it for viability.
Let’s also say the financing firm feels your case has merit and advances you $20,000 at a 3% interest rate per month (or approximately $750). When you win the case, you will receive a $100,000 award.
Between the lawyer’s fees, medical liens, and other legal expenses amount to around $50,000. After deducting the total fee amount, you’re left with $50,000.
You’ll then need to repay the settlement loan company the principal amount ($20,000) plus interest ($4,500 by 3% per month, assuming your case settled after 6 months). The total comes to $24,500.
You’ll get to keep the net remainder of the proceedings ($100,000 – $50,000 – $24,500), which is $25,500.
What Happens If You Lose the Case?
Even though the settlement loan firm might feel you have a strong case, there’s always a possibility things don’t turn out well. In other situations, the settlement amount could end up being less than what you expect.
What happens to the loan you received?
In almost all cases, you won’t be on the hook for the advance you got if you lose the case. Such a risk is typically part of the settlement loan company’s business model, and they factor it in.
However, some financiers might require you to sign a contract stating otherwise. It’s therefore prudent to look at the fine print on this before signing on the dotted line.
If, on the other hand, you end up with a lesser amount on the settlement, the lender won’t demand the difference. You’ll still pay the financier out of whatever is left over once you settle all the legal fees.
It’s always likely in such a scenario that you may end up with little to no money if the difference has to go to the financier in its entirety. That’s another factor to weigh when looking for a loan for settlement.
Issues That Might Get Your Lawsuit Application Turned Down
Not every settlement loan application goes through, and if you’re in a bind, it can drastically impact your case. To avoid eroding your plans on getting funding to see your case through, here are a few issues to watch out for that could work against you.
1. Restrictive State Laws
Some states don’t allow for settlement loan companies to operate. Before making an application, you should find out if your state allows this type of funding.
Furthermore, some state laws may bar you from receiving funding for your case. For example, settlement loan applications for worker’s compensation cases only go through in 20 states.
Some applicants can also try to pull one over settlement loan companies by applying to out-of-state firms. The ploy can’t work because the firm has to verify that you are a resident of the state you are applying for the loan from.
2. You Don’t Have a Lawyer
Any application for a settlement loan without a lawyer as part of the plaintiff’s case will most likely be turned down.
Financing firms require you to hire a lawyer before applying as the attorney has to provide crucial background information on your case.
3. Hiring an Inexperienced Lawyer
The only thing worse than not having a layer when applying for a settlement loan is hiring an inexperienced attorney.
Having a lawyer who doesn’t have a good track record increases the possibility of you not winning your case. Settlement loan companies will typically try to stay away from such odds and, thus, turn down your application.
4. If Your Case Is New
New cases are also candidates for rejection by settlement loan companies due to the lack of adequate documentation. Even if your case is new and has documentation, you may not have all the necessary information to put up a fight.
To avoid rejection, it’s best to consult your lawyer before applying for such a loan. An experienced attorney is best placed to show you all the things you need to have in place before applying for the financing.
External Funding Can Be a Lifeline for Your Lawsuit
While the seventh amendment gives Americans a right to legal action, justice doesn’t come cheap. If you’re short on money to finance your lawsuit, settlement loans can see you through. Consult an attorney to find out if you qualify before applying.
Legal-Bay believes in the right for every American to seek the justice they deserve. Get in touch with us today to find out how you can get funding for your lawsuit and/or binding agreement and look after your interests.