Understanding the Different Types of Lawsuit Loans
Everyone who has been involved in a lawsuit knows that the litigation procedure takes much energy, time, and money. While there is little you can do about the first two, the financial issue may be addressed by taking out a lawsuit loan. It is a type of pre-settlement litigation funding where a third party provides you a cash advance to see your lawsuit from beginning to the end.
Basics of a lawsuit loan
Only if you are a plaintiff or complainant can you apply for a lawsuit loan. Although dubbed “lawsuit loan,” the label itself is misleading, as the money provided to you by the litigation funding company to advance a favorable outcome of your case is an investment on their part. As such, you are not required to make monthly payments. When the dispute is settled, and you win your case, only then will the company collect payment for the advance fee plus a share of the proceeds. In addition, it is a non-recourse fund, which means that you are not liable to repay the advance fee, if the jury and the court rule in favor of the defendant.
It is not to be confused with credit lines available to lawyers and their firms, which are real loans used to fund litigation procedures. Technically called a non-recourse litigation funding, what is popularly known as lawsuit loan is provided to individuals making personal injury claims, looking to settle a business dispute, and those subjected to discrimination at work. Your condition as a plaintiff should be that your work productivity and means of livelihood suffer from what the defendant put you through, rendering you incapable of paying off bills. After all, car payments, medical expenses, mortgages, utility bills, and daily living expenses will come regularly regardless of your financial and physical condition.
To qualify for non-recourse lawsuit funding, you should be legally represented by a lawyer and have initiated an existing lawsuit. Since the litigation funding company has a financial stake in your lawsuit, it can be expected that its representatives will constantly meet with your attorney to keep an eye on the status of your case. They will most likely ask for your case documents to review your claim.
Claims covered by lawsuit loans usually involve loss of work and income, unfair resolution or delay in the release of payments made by insurance companies to plaintiffs, prolonged lawsuit settlement due to appeals procedures, and financial distress as a result of the plaintiff’s condition and of the lawsuit itself. The coverage mainly depends on the litigation funding company, and as there is also stiff competition in the industry, some companies even include amusement park accidents and animal bites.
Different types of lawsuit loans
Although the names and coverage may vary from one litigation funding company to another, lawsuit loans come in four common types. These are pre-settlement funding, structured settlements, commercial litigation, and law firm funding.
Pre-settlement funding
A pre-settlement funding is the most popular of the four, as this covers personal injury claims whose resolution may have been delayed for years. Its popularity is founded on its choice of beneficiaries—plaintiffs who are individuals like you, who may not afford to pursue a lawsuit and maintain a decent standard of living, especially with injuries related to the case. For this type of lawsuit loan, the funding company usually assesses the cost of past and ongoing medical treatment, including physical and psychological therapy; conditions pertaining to job and wage loss; expenses that the plaintiff had to shell out money for immediately as a result of the injury; and regular household and utility bills.
Structured settlements
When an insurance company and an insured individual who has been involved in an accident agree to settle the payment on an installment basis over a given period, it is referred to as a structured settlement. Structured settlement lawsuit funding allows you to collect an advance when you suddenly become in dire need of money, and payment is not yet due.
Commercial litigation
Commercial litigation funding typically covers businesses in need of funds due to legal disputes. For this type, pre-settlement and post-settlement funding are available, and similar with litigation funding for individuals, it is required that the business requesting approval of the fund is the plaintiff in the lawsuit. The cash advance that the litigation funding company will give should be sufficient for payment of bills, payroll, other operational costs, and business expansion, as well as for litigation expenses. The claims covered by this type of financing scheme includes contract and intellectual property issues, defective products, environmental litigation, medical malpractice, securities fraud, and wrongful termination, to name a few.
Law firm funding
The fourth type, law firm funding, is legal funding for lawyers or law firms. The scheme makes credit lines, lawsuit funds, and law firm loans available for attorneys and firms handling lawsuits where payment is made based on contingency. Payment through contingency basis means that a lawyer does not get paid unless the case is settled in favor of his or her client. If the client loses, the lawyer is unpaid even for his or her effort.
Advantages and disadvantages of lawsuit loans
Lawsuit loans has its pros and cons. As an advantage, its non-recourse feature frees you from risks. If your lawsuit does not hold strong in court, and you end up losing your claims, you will have no need to pay back the litigation funding company for the advance fee which they have invested in you. Another advantage is that the requisites of lawsuit loans are not based on your credit history, so even if you have bad credit and your bank account is not at all satisfactory, you may still qualify depending on the strength of your case. With a lawsuit loan, you can see your lawsuit through from beginning to the end—hopefully, to a favorable one—without spending your own money and worrying about your living expenses.
There is a catch to these benefits, though. For one thing, it is purely business to the litigation funding company—not charity work. This means that your application can be rejected just because the company representatives think that your case will not bring them money. In addition, to secure the company’s position in the event that it does fund your lawsuit and you lose your case, the lawsuit loan has a higher premium and interest rate than other loan types. Hence, it is important that you check out any monetary benefits that you may not know about and weigh your options well before signing an agreement with a litigation funding company.
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