Quick Answer: Pre-settlement funding obligations include repaying the advance from your settlement proceeds, covering the principal amount, agreed-upon interest, and any fees. If you win your case, failure to repay can lead to legal and financial consequences.

So, you’ve taken the leap and secured pre-settlement funding to help cover your expenses while your case winds its way through the legal system. We get it. Personal injury lawsuits can be unpredictable, and unforeseen accidents can quickly put you into a hole if the extra money needed to survive isn’t available.

Whether you’re considering a lawsuit loan or have already settled your case, you’re probably wondering: what are your exact obligations if you win your case? Let’s break it down.

How Does Pre-Settlement Funding Work?

Before diving into the repayment obligations, let’s briefly touch on how this type of funding works. Pre-settlement funding is a type of cash advance for plaintiffs involved in lawsuits, typically personal injury cases. Once you’re approved, you and your attorney enter into a non-recourse funding agreement, secured by a lien on your expected lawsuit proceeds.

Think of this agreement as similar to a contingency fee with your attorney or a medical lien. You have a clear responsibility: repay the advance from your settlement if you win or settle your case. This means you must pay back the principal amount plus any agreed-upon interest and fees after you receive a settlement or lawsuit award. If you lose, you are not obligated to repay anything.

Your Pre-Settlement Funding Obligations in Your Loan Agreement

The legal funding agreement is a legally binding contract that you and your attorney sign with the funding company. It outlines several key financial obligations you must meet if you win or settle your case. Here are the main components:

Funding Amount. The principal amount you receive upfront, which is a small percentage of the estimated value of your case.
Repayment Conditions. Details on when and how you must repay the loan from your settlement proceeds. Repayment is required only if you win or settle your case.
Lien on Settlement. The funding company places a claim on your future settlement money to secure payment before you receive your funds.
Interest Rate. The cost of borrowing the money, expressed as a percentage. The rate can be either simple or compound interest, as specified in your loan contract.
Fees. Additional charges that the funding company may include, such as administrative or processing fees. These financial obligations should be explicitly listed in your loan agreement.
Cap. Some lenders offer a cap on the interest rate, which limits how much the interest can increase over time. This cap protects you from excessively high interest costs if your case takes a long time to settle.
Prepayment Terms. Conditions under which you can pay off the pre-settlement loan early, including whether there are any penalties or fees for doing so.
Default Penalties. Consequences for defaulting on repayment after receiving the settlement, which can include higher interest rates, additional fees, or legal action.

Beyond Financial Obligations

In addition to these financial terms, the funding agreement may also outline other obligations such as:

Accurate Information. You must provide truthful and complete information about your case to the funding company.
Cooperation. You and your attorney need to cooperate with the funding company, providing the periodic updates about the case’s progress.
Notification of Settlement. Your attorney must inform the funding company promptly once a settlement is reached.

Winning Your Case and Your Legal Responsibilities

So, you’ve won your case and your attorney got your settlement check. Congratulations! But what’s next? Your obligations to repay kick in.

First, your attorney deducts his or her fees (between 33% and 40%, as specified in your attorney-client contract) and any case-related costs from the settlement recovery.
Next, your attorney contacts the lienholders to confirm the amounts owed, including the legal funding firm. All medical liens and other priority liens must be reimbursed before any other disbursements.
After the liens are settled, you and your attorney must pay back the principal amount advanced by the pre-settlement funding company, plus any applicable interest rates or fees. You’ll then receive the remaining portion of the settlement compensation.

What if I Don’t Meet My Repayment Obligations for a Settlement Advance?

One of the significant advantages of pre-settlement legal funding is that if you lose your case, you do not have to repay the advance. Nonetheless, if you win your lawsuit but your attorney fails to repay the lender, it can have serious legal repercussions.

Legal Complications of Not Paying a Legal Funding Company After Receiving a Settlement

In most legal systems, the repayment of litigation funding is considered a non-recourse debt, which means it must be repaid when the proceeds of the case come in. Failure to do so can result in wage garnishment, property repossession, potential disbarment of your attorney, and even being sued by the funding company. Let’s break down the implications:

Lien Enforcement

As mentioned, lawsuit financing creates a lien on the future financial compensation of your personal injury lawsuit. If the lien isn’t paid after receiving your payout, the legal funding company has every right to take action and recover their funds.

Potential Legal Actions

The legal funding company can also sue you and your attorney for breach of contract if you don’t pay them back after winning your case. You could face court judgments and additional legal fees, making your financial situation even worse. Your attorney’s professional reputation may also suffer.

Ethical Obligations and Violations

Attorneys must honor liens, including those from pre-settlement legal funding. If they don’t, they can face disciplinary action from the state bar association. This could mean fines, suspension, or even losing their license to practice law.

Financial Impact

Although pre-settlement funding itself does not directly affect your credit score or income, a refusal to repay if you win can still hurt you. If the funding company wins a judgment against you, they can garnish your wages or even repossess your property. These actions have the potential to damage your financial standing and appear on your credit report, making it harder to get loans or credit in the future.

Stopping Future Funding

If you or your attorney don’t repay the legal advance, both of you might be “blacklisted” from getting more funding in the future. In other words, other funding companies will know you didn’t pay back a previous loan and might refuse to provide services if another case pops up.

What If the Settlement Amount Is Less Than Expected?

Sometimes, the settlement might be less than expected. If it doesn’t cover the full repayment, what should you do? Talk to your attorney and the funding company. Often, some lenders, like Baker Street Funding, can renegotiate the terms or find a solution that works for everyone.

If you can’t fulfill your financial obligations due to unforeseen circumstances in the outcome of your case, your attorney will share the settlement statement, showing all deductions and the net amount available. From here, we can consider:

A reduction or waiver of accrued interest and fees.
Or immediate partial payment of the funding amount from the available settlement funds.

The Takeaway

Winning a personal injury lawsuit brings a moment of relief and vindication. After the often long and stressful legal battle, knowing the legal system has recognized your claim is a major milestone. However, if you’ve used pre-settlement funding to manage essential finances during your case, knowing your repayment responsibilities after winning can help you avoid any major headaches.

For instance, not repaying can result in wage garnishment, property repossession, and even damage to your attorney’s reputation. These actions can drastically worsen your financial situation and make it difficult to secure funding later.

To prevent these pitfalls, it’s important that you stay proactive. If you face challenges in meeting your repayment obligations due to your case settling for less, discuss potential solutions with your attorney and a funding company, like Baker Street Funding, to find a mutually agreeable path forward.

Remember, the total you owe can increase considerably if there are higher interest rates or if your case takes longer to resolve. Baker Street Funding offers low interest rates, and we stop charging interest once your case is resolved or after three years, whichever comes first.

Fund smarter with Baker Street Legal Funding and save cash on your settlement; no credit checks, no income verification, and a no-win no-pay policy. Apply for a non-recourse lawsuit loan in minutes.

FAQ

What are the conditions for repayment?

You only need to repay your pre-settlement funding if you win or settle your case. Here are the conditions for repayment:

If You Win or Settle. The repayment comes directly from your settlement amount. Once your case is resolved, your attorney will use the settlement funds to repay the funding company. This repayment includes the principal amount, any added interest, and fees. Your attorney handles this before you receive the residual.
If You Lose: If you do not win or settle your case, you owe nothing. The funding is non-recourse, meaning there is no obligation to repay the advance if your case is unsuccessful.

How long does my attorney have to pay the legal funds back?

Typically, funding companies expect repayment within 3 business days from when the monetary recovery is received, while other lenders may offer a 14-business-day limit.

What can I use legal funding for?

Some of the costs you can cover are living expenses, transportation, utilities, rent, credit card bills, medical expenses, or even owed child support. If used wisely, lawsuit financing can help you avoid financial pressures during settlement negotiations and potentially achieve a fair resolution.