You may have seen ads on television or heard them on the radio stating – “don't wait, get your lawsuit settlement today … call this number!” – promising to offer you the full value of your settlement now, even though you have not even begun settlement negotiations and your case is months, possibly even years, away from trial. For those of you injured in a bad slip-and-fall, a car accident or a workplace injury, you may be recovering at home from your injuries, watching the medical bills pile up while you miss work and these advertisements seem appealing. But are lawsuit settlement funding programs that provide lawsuit loans or pre-settlement loans a good or bad idea?
Before we explore the answer to that question, lets first take a look at how most lawsuit settlement loans work:
How It Works
First, there's the client who has been injured in some sort of personal injury accident and is expecting an insurance settlement or favorable outcome at trial. Typically, the client is unable to work due to the recovery needed for their injuries and may be strapped for cash as a result of medical bills and lost income.
The client, hoping not to wait for settlement negotiations or trial to come to an end, contacts a lawsuit loan company. With the help of the client's personal injury attorney, the loan company attempts to determine how likely the client's case is to settle and what the payout will be. Only those cases with a high probability of settling in the client's favor will be considered.
If the loan company decides to issue the client a loan, then the company and the client's lawyer negotiate the specific terms of the settlement advance, which include: the length of the loan, the amount of the loan, and any other terms such as interest and fees. Once an agreement is reached, a contract memorializing these terms is signed by the loan company and the client.
If the client then wins his or her lawsuit or reaches a settlement, then the loan company is paid back from these proceeds, plus fees and interest (usually at a very high rate).
However, if the client loses their case, then they are free from any liability to repay the loan. And if the client reaches a settlement that is in an amount lower than expected, the client's attorney will try to negotiate with the loan company to lower the amount of fees/interest charged.
Issues To Be Aware Of
While lawsuit loans may seem like a good idea, there are a few things you should be aware of. For starters, you cannot expect to obtain a loan close to or in the full amount of your expected settlement or award. This is because your personal injury attorney will likely be entitled to 25-30% of the amount you recover (this is typical for lawyers working on a contingency fee basis), and there will probably be medical liens (from health insurance providers or healthcare providers, etc.) which will amount to about 30% of your award. So the amount that will actually be paid to you, the client, is approximately 30-40% of your total settlement or jury award.
When a loan company decides to offer you a loan, they are lending on only that portion (30-40%) of your expected award.
Another thing to consider is the amount of interest and fees charged by these loan companies. It is not uncommon for clients to end-up paying somewhere from 35% to 120% in interest rates and fees (including application fees, administration fees, etc.) over the life of the loan!!! Interest rates are not regulated by the government and loan companies can decide whether to charge a flat annual rate or a rate that varies month to month.
So, Is A Loan A Good Or Bad Idea?
Given the typically astronomically high interest rates and fees associated with lawsuit loans, most attorneys (and even loan company managers and CEOs) generally advise against obtaining a lawsuit loan. Unfortunately, you may not have this option if the medical bills are stacking up, you are out of work and have mouths to feed (spouse and/or children) and a mortgage to pay. If this is the case, then you need to consult with a qualified personal injury attorney—like those at the Law Office of Jeremy Rosenthal—before attempting to negotiate a lawsuit loan.
Our attorneys have decades of experience representing personal injury clients in all types of cases, and we will diligently review your case, discuss your options with you and negotiate the most favorable outcome for you, or take your case to trial. We are dedicated to you and attaining the compensation you deserve to recover from your accident. For a free consultation with one of our caring attorneys, call us today at (303) 647-4511, or visit us online.