Pre-settlement funding is a type of lending given to victims of personal injuries as they wait for their cases to be settled. Personal injuries from accidents sometimes come with devastating consequences financially, especially when the victims lose their ability to continue with their income-generating activities. It means that they will have to seek funds to take care of their medical expenses, as well as to meet their day to day financial obligations.
It usually reaches a point when all sources, including savings, borrowing from friends and family members, and credit organizations are exhausted, but life still has to move on. This is when pre-settlement funding is considered as a way of getting some financial reprieve as one waits for their cases to be settled. If the lending is advanced, it is expected that it will be repaid when the case is settled.
The concept of legal funding is relatively new in the United States, and as such, there are still no clear rules guiding the industry. The industry is neither regulated by the state or the federal government and as such, it is a kind of self-regulation. Nonetheless, there are certain legal funding factors that the states where it is practiced tend to agree on. This include-:
- It is permissible for the legal funding companies such as com to provide information to other funding company, but with the consent of the client.
- It is okay for an attorney to meet part of the client’s settlement to a pre-settlement company.
- Clients are not open to cooperating when third party funding companies come into the picture since some think it is not entirely legal and it may sometimes encourage grey hat litigation practices.
However, despite all you have heard about legal funding, including the sad stories of what happened to some clients, it still remains a good concept and a wonderful source of financial reprieve when considered and executed carefully. If you ever find yourself in litigation, it will be a good idea to consider legal funding due to the followings:
It preserves the role of all parties
One thing that most people fail to understand about legal funding is that when a third party is the source of the plaintiff’s funding, then the doctors, attorneys, and the plaintiff will all be best served. It is never proper for medical providers to take upon this role, or even think about having any financial interests once a case is settled. The job that the medical providers have is to accord the plaintiff the best medical care and nothing else. The same should also be the case for attorneys who should focus on providing the best legal representation and ensure that their client’s rights and interests are well taken care of.
If at all there is a conflict of interest, where the party responsible for providing the plaintiff with funds also have some financial interest in the settlement, then it is likely that they would be willing to have the case settled for less than its actual value so that they can get their own repayment. This is not how it should be and it should never be allowed to happen this way.
However, with the involvement of a third party legal funding company, both the attorneys and the doctors will not have any interests in the lending company, and the only compensation they will receive will be for the medical and the legal services rendered to the plaintiff respectively from the time the treatment commenced to the time the settlement was made. When the doctor is giving their opinion or coming with the treatment plans, these should be based specifically on the needs of the patient and not on whether or not the patient has the ability to meet the treatment costs.
Legal funding is contingency based
Lawsuit loans are usually contingency-based. This implies that the plaintiffs are not obligated in any way whatsoever, to repay the money advanced to them, except through the settlement and there are no guarantees that the case will end with a positive settlement. Lawsuit loans are not intended to be repaid by the plaintiff at a later date as is always the case with the other types of loans.
In fact, they are not necessarily loans since they will be recovered from a settlement in a lawsuit, and this will happen only if the case goes the plaintiff’s way and is concluded successfully. In other words, if the plaintiff loses the case, the monies advanced will not be recovered nor the plaintiff with be required to repay them using any other sources. As such, it will be a loss to the lending company.
Other than the settlement not going the plaintiff’s way and them not having any obligation to repay the loan, there is also the case when the settlement is lower than the liens the plaintiff had. In such a scenario, they are also not obligated anything more than what they have received in the settlement.
Your budget for the best case scenarios
Risk management and proper underwriting are very vital in the legal funding industry. Legal funding companies are able to add value to attorneys and plaintiffs by properly calculating anticipated settlements and advance rates factoring in only the best case scenarios. This is the only way attorneys and plaintiffs are able to have an upper hand against the insurance companies who will make all attempts to ensure the plaintiff settles for less. Provisions such as “rolling contracts” have always been of tremendous help for plaintiffs when they are pressed finances, yet they are dealing with a case whose timeline is not definite.
When the funds are availed to the plaintiff in small portions over time, they are effectively saved a lot of money in the long run, and also they get higher chances of getting a higher take-home settlement when the settlement finally comes through. This is more ideal compared to advancing a lump sum amount upfront, which may result in a myriad of long-term financial problems, with issues such as funds mismanagement becoming real possibilities.
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