Types of Legal Funding Available to Plaintiffs

Types of Legal Funding Available to Plaintiffs

Types of Legal Funding Available to Plaintiffs

Legal funding, also known as lawsuit funding or pre-settlement funding, is a financial tool that helps plaintiffs access funds while their case is pending. It provides a way for individuals to cover legal fees, medical expenses, and daily living costs without relying on their own savings or taking out traditional loans.

Legal funding comes in various forms, each designed to meet the specific needs of plaintiffs in different situations. The two main categories of legal funding are consumer litigation funding and commercial litigation funding.

Consumer vs. Commercial Litigation Funding

Differences in Types of Cases Funded

Consumer litigation funding is designed for individuals involved in personal injury cases, such as:

  • Discrimination
  • Consumer fraud
  • Medical malpractice

On the other hand, commercial litigation funding focuses on business-to-business disputes, including:

  • Intellectual property
  • Trade secret theft
  • Breach of contract
  • Antitrust cases

Differences in Clients Funded

Consumer litigation funding is aimed at individuals who may have little to no experience with the legal system or settlement negotiations. These plaintiffs often need financial assistance to cover their expenses while waiting for a settlement.

Commercial litigation funding, however, works with business entities to protect their commercial rights and interests during a legal claim. The funding firm typically covers a portion of the legal fees in exchange for a percentage of the future compensation.

Pre-Settlement Funding: A Safer Alternative to Cash Advances

Pre-settlement funding is a safer option compared to traditional cash advances. It does not affect personal finances, and there are no employment history or credit checks required.

Additionally, pre-settlement funding is a non-recourse loan, which means that if the case is not successful, the plaintiff is not obligated to repay the loan. This makes it a more favorable option for borrowers.

Recourse vs. Non-Recourse Loans

The Internal Revenue Service categorizes loan debts into two types: recourse and non-recourse.

Recourse debt holds the borrower liable for the entire amount, often with compounded interest. This means that the lender can pursue the borrower’s assets to recover the total amount loaned, while the interest continues to grow.

Non-recourse debt, on the other hand, limits the lender’s recovery to the collateral associated with the loan. The lender cannot ask for more from the borrower than the value of the collateral.

Cash Advance Settlements for Personal Injury Cases

Cash advance settlements provide financial relief to claimants in personal injury cases while they await their settlement. Lawsuit loan companies offer a cash advance in exchange for a portion of the anticipated compensation.

The amount of the cash advance depends on the expected recovery amount. It’s important to note that a cash advance is not a traditional loan, as it does not require credit checks, employment verification, or application fees. The approval is based solely on the strength of the case and the likelihood of a future settlement.

Benefits of Cash Advance Settlements

Cash advance settlements help plaintiffs cover various expenses, including:

  • Medical and legal fees
  • Bills and daily living expenses
  • Allows plaintiffs to hold out for a better settlement offer
  • Risks are taken by the legal funding firm, not the borrower

In our experience, cash advance settlements have been a lifeline for many plaintiffs who would have otherwise been forced to accept a lower settlement due to financial pressures.

Potential Drawbacks of Cash Advance Settlements

While cash advance settlements offer many benefits, there are some potential drawbacks to consider:

  • High-interest rates compounded monthly can make the loan expensive
  • Not all cases qualify for funding
  • Unregulated in some states
  • Hidden fees may be present in contracts

It’s crucial to carefully review the terms of any cash advance settlement and consult with a personal injury lawsuit lawyer before making a decision.

We may be biased, but we recommend exploring all available options, including budgeting and alternative funding sources like borrowing from family or friends, before committing to a cash advance settlement.

Real-World Example of Legal Funding

To better understand how legal funding works, let’s consider a hypothetical example:

John was injured in a car accident caused by a negligent driver. He suffered severe injuries that required extensive medical treatment and left him unable to work.

As his medical bills piled up and his savings dwindled, John struggled to make ends meet. His lawyer advised him that his case was strong, but the insurance company was dragging out the settlement process.

John decided to apply for pre-settlement funding and was approved for a $10,000 cash advance. This allowed him to cover his medical expenses and living costs while his lawyer negotiated a fair settlement.

In the end, John’s case settled for $100,000. He repaid the $10,000 cash advance plus interest and fees, which amounted to $15,000. Despite the cost of the funding, John was able to secure a much higher settlement than he would have without the financial support.

Legal and Regulatory Considerations

It’s important to note that legal funding is not regulated in all states. Some states have laws that require lenders to comply with federal lending regulations, while others have no specific rules governing pre-settlement funding.

In states where legal funding is regulated, there may be caps on interest rates and fees, as well as requirements for clear disclosure of loan terms. It’s essential to check with your lawyer about the regulations in your state before pursuing legal funding.

Takeaways and Next Steps

Legal funding can be a valuable tool for plaintiffs who need financial support while awaiting a settlement. However, it’s crucial to consider both the benefits and drawbacks before making a decision.

We recommend consulting with a personal injury lawsuit lawyer to discuss your options and review your budget to see where expenses can be cut to save money.

If you decide that legal funding is right for you, the loan representatives at Tribeca Lawsuit Loans can help you navigate the process and find the best solution for your needs. Give us a call today at 866-388-2288 to learn more!

Frequently Asked Questions

How long does it take to get approved for legal funding?

The approval process for legal funding typically takes 24-48 hours, depending on the complexity of your case and the documentation required.

Can I get legal funding if I have bad credit?

Yes, legal funding is based on the strength of your case, not your credit history. No credit checks are required for approval.

What happens if I lose my case?

If you lose your case, you are not obligated to repay the legal funding. The lender assumes the risk of your case not being successful.

How much can I borrow with legal funding?

The amount you can borrow depends on the expected value of your settlement. Most legal funding companies offer advances of 10-20% of the anticipated settlement amount.

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