Does Pre-Settlement Funding Affect Attorney Fees?

If you’re involved in a lawsuit, you’re probably juggling a bunch of financial worries. One option many people consider is pre-settlement funding—a cash advance to help cover expenses while waiting for a case to settle. But you might be wondering, “Will this affect my attorney’s fees?” The good news? It won’t.

What is Pre-Settlement Funding

Pre-settlement funding provides you with an advance on your expected settlement. This can help you manage costs like medical bills and living expenses while your case is ongoing. Importantly, it’s non-recourse, you only repay the advance if you win your case.

The Role of Your Attorney in Pre-Settlement Legal Funding

Attorneys are key players in the pre-settlement funding process. Here’s their role:

• Attorney Requirement. Pre-settlement funding companies need your attorney’s involvement to approve the funding. They provide essential case documents that help evaluate your case before approval.
• Agreement Signing. Both you and your attorney must sign the funding agreement. This guarantees the lender that your attorney is legally acknowledging this financial arrangement and agrees to repay the advance from the settlement proceeds after deducting contingency fees.
• Repayment. After you win, your attorney will repay the pre-settlement loan from the settlement money, covering the principal and any interest or other costs. Think of it as paying off a small loan with your settlement.

Does Pre-Settlement Funding Affect Attorney’s Fees?

The simple answer is no. Pre-settlement funding doesn’t change your agreement with your attorney. Those fees are calculated based on the total settlement or lawsuit judgment amount, not the pre-settlement funds you receive. Here’s how it works:

Contingency Fees And Pre-Settlement Loans

When you get a pre-settlement loan, it doesn’t change the percentage your attorney takes. However, it does affect the final amount you receive. Here’s why:

1. Attorney’s Fees. Once you win, your attorney’s fee is the first thing deducted from your settlement.
2. Loan Repayment. Next, you repay the pre-settlement loan, including any interest and fees.

What’s left for you?

After these deductions, the remaining amount is yours. So, while your attorney’s fee percentage stays the same, the pre-settlement loan impacts the net amount you take home.

For example, if you receive a $100,000 settlement, and your attorney’s fee is 30%, you’d typically pay your attorney $30,000. If you also took out pre-settlement funding, the amount to be repaid to the funding company will also come from the settlement amount, potentially reducing the net settlement you receive.

Can Pre-Settlement Loans Affect Legal Fees and Case Management?

Attorneys are often cautious about clients taking out pre-settlement advances because it can complicate the financial dynamics of the case. They need to make sure the settlement covers their fees and loan repayment.

Some think this might influence an attorney’s advice, encouraging clients to hold out for a higher settlement. But ethical attorneys prioritize fair settlements based on the case’s value.

Prolonging a case just for financial gain can increase costs, drag out negotiations, and lead to client dissatisfaction. If the insurance company finds out, they might push back harder, and jeopardize the settlement. Such behavior could be considered malpractice, as it violates ethical guidelines and undermines the client’s best interests.

What Ethical Guidelines Must Attorneys Follow?

Attorneys must follow strict ethical guidelines set by state bar associations and the American Bar Association (ABA), which prohibit mixing client funds with their own personal funds.

To comply, attorneys maintain client funds, such as settlement money, in separate trust accounts known as Interest on Lawyers’ Trust Accounts (IOLTA). These accounts are used exclusively for holding settlement proceeds until they are properly disbursed. Violating these guidelines can lead to severe disciplinary actions, including disbarment.

Importance of Contingency Agreements in Personal Injury Cases

Contingency agreements enable individuals to pursue legal action without upfront costs. These agreements mean that your attorney only gets paid if you obtain compensation.

Here’s why contingency agreements matter:

1. Access to Justice. You don’t need to pay any money upfront to hire an attorney. This is especially important if you don’t have a lot of money but need legal help. It allows you to hire a skilled attorney who’ll fight for your rights without worrying about repayment until you get your settlement.
2. Incentive for Attorneys. Since lawyers only get paid if you win your case, they’re highly motivated to work hard to pursue the best possible outcome. This means your lawyer will remain committed to your case because their payment depends on your success.
3. Aligned Interests. With a contingency agreement, both you and your attorney benefit from winning the case. This creates a strong partnership because your lawyer’s financial interests are directly tied to your success.

Considerations for Plaintiffs

When considering pre-settlement funding, keep the following in mind:

• Clear Communication: Discuss the funding option with your attorney to understand its impact on your case and potential settlement.
• Loan Terms: Make sure you understand the terms of the legal funding agreement, including interest rates and repayment conditions.
• Financial Planning. Think about how loan repayment will affect your final settlement amount. Plan for the deduction of attorney’s fees and loan repayment to know your net amount.

The Takeaway

Pre-settlement funding can give you the financial breathing room you need while waiting for your case to settle, without affecting your attorney’s fees. Chatting with your attorney about how these advances work will help you stay on top of your case. Discussing these advances with your attorney will help you stay informed and make decisions that benefit you.

At Baker Street Funding, we’re here to support you every step of the way. Curious about how pre-settlement funding can help you? Contact us today at (888) 711-3599 for a free consultation and let’s secure your financial peace of mind during litigation. No credit checks, no income verification and no risk: Only pay us if you win.

FAQ

Can my attorney refuse to work with a pre-settlement funding company?

While your attorney might advise against it if they believe it’s not in your best interest, the final decision is yours. A good attorney will respect your choice and help you understand all implications.

 Will pre-settlement funding reduce my final settlement amount?

Yes, because the repayment comes from your settlement. However, the immediate financial support can often outweigh the reduction, especially if it helps you avoid a lowball settlement.

Are there any risks?

As with any financial decision, there are risks. It’s crucial to understand the terms and choose a reputable funding company. At Baker Street Funding, we pride ourselves on transparency and competitive rates to support you through your lawsuit journey.

What are my attorney’s fees?

Your attorney’s fees are based on a contingency fee agreement, meaning he or she gets a fixed percentage of your settlement. This percentage (anywhere from 33% to 40%) remains the same, regardless of whether you receive pre-settlement funding.