Applying for a lawsuit loan can provide essential support during litigation, but denials can happen. Common reasons include incomplete documentation, low treatment compliance, and other factors. Here are the most frequent reasons for pre-settlement funding denials.

Common Reasons Why Your Pre-Settlement Legal Funding Application Was Denied

Non-Cooperative Attorney

Legal funding involves placing a lien on the future settlement of your claim. Your attorney then pays the lien from the settlement proceeds once you win. If your attorney isn’t responsive or cooperative with the lender, the process can’t move forward. Consequently, your application gets rejected as funders not only rely on your attorney to assess your case, but also to facilitate repayment from the settlement.

Incomplete Documentation

Records like medical reports, police reports, and witness statements, help establish the strength of a case. When all your documents aren’t available, the funding company can’t properly evaluate your case. This lack of information often leads to either a denial or a much lower loan amount.

Insufficient Insurance Coverage

Limited insurance coverage indicates the defendant might not have the financial means to cover your damages. Because of this, funding might be declined, as there is little chance of recovering the loan amount.

Case Type Restrictions

Certain cases, like class action lawsuits or home insurance claims, are seen as too risky or ineligible for pre-settlement funding. If your case falls into one of these categories, it might not be considered. Nonetheless, some lenders might still take it on, depending on their risk appetite and your willingness to accept very high interest rates, often from smaller firms.

Partial Fault

If you are partially at fault in an injury case, your anticipated settlement amount may be reduced. In turn, funding may also be reduced or even denied due to the decreased likelihood of loan repayment.

The 1% Fault Rule

In states with a 1% fault rule, being just 1% at fault means you can’t recover damages. If your fault falls under this rule, your application for funding will be turned down because the case is unlikely to succeed.

Not Permitted in your State.

Some states have regulations that make pre-settlement funding difficult or impossible. This includes treating non-recourse funding like conventional loans or broad laws affecting litigation funding. As a result, lenders may choose not to operate in these states, which means you can’t get funding even if you otherwise qualify.

Low Treatment Compliance

When you skip required medical procedures, it lowers your medical bills, and in turn decreases the perceived severity of your injuries. This can prompt pre-settlement legal funding companies to deny your application, as it gives insurance companies a reason to offer lower settlements or deny the claim altogether.

Pending Liens

Every case has an estimated net value, and lawsuit loan companies will only provide funding up to a certain percentage of this value. Your application may be declined if existing liens exceed this threshold. Some of these liens include:

Unpaid medical bills
Child support liens
Bankruptcy
Tax liens

Maxed Out Lawsuit Loans

If you’ve already received pre-settlement loans, additional funding might be denied if you’ve reached the limit of what lenders are willing to offer, typically 10% of your potential settlement value. This limit is set to prevent the total borrowed amount from exceeding what can be realistically repaid from the settlement.

Case Maturity and Progress

Early-stage cases sometimes lack concrete evidence and definitive legal positions. Pre-settlement legal funding companies prefer to fund cases that are further along in the legal process, as they have more information, such as discovery results, expert testimonies, and established liability. If your case is in its early stages, the lack of these details might be why your application was temporarily denied.

Inconsistent Statements

Inconsistencies in your statements give the defense opportunities to question your credibility. Pre-settlement funding companies might disapprove your application if they notice contradictions in your account, as this can weaken your case and lead to a lower settlement offer or a verdict against you.

Pre-Existing Conditions

Pre-existing medical conditions can make it harder (but not impossible) to prove that the incident caused or exacerbated your injuries. Without strong evidence to counter this claim, the funding company might be skeptical of whether the accident was truly responsible for your injuries and decide your case is too weak to fund.

Expert Testimony Quality

If the expert testimony, like medical experts attesting to injury severity, accident reconstruction specialists explaining how the accident occurred and determining fault, or financial analysts calculating the economic impact of injuries, is considered unreliable, the lender may doubt your case merits and possibly deny your application.

Multiple Attorney Changes

Each time you switch law firms, it disrupts the continuity and consistency of your case. Your new attorney needs time to get up to speed, which can slow progress and delay settlement or trial dates. It also signals to the opposing party that your case might be problematic, making them less hesitant to settle. Settlement loan companies see this instability as a red flag and are unlikely to approve your application if you keep bouncing from one attorney to the next

Criminal Background

Some funding companies avoid funding plaintiffs with certain criminal backgrounds, such as convictions for violent crimes or financial fraud. This policy remains regardless of the legal merit of the lawsuit.

Litigious Plaintiffs

A history of filing numerous lawsuits can be indicative of a high-risk plaintiff. Lenders prefer to invest in cases that seem legitimate and less prone to litigious behavior, and tend to steer clear from those they perceive as excessively litigious.

Material Defense Evidence

Getting a low initial settlement offer doesn’t disqualify you out of pre-settlement funding. But if there’s strong defense evidence, like surveillance footage showing you engaging in physical activities despite your injury claims, it can seriously damage your case. This evidence makes it impossible to secure funding.

Plaintiff is a Minor or has a Mental Disability

In most cases, legal funding isn’t available to minors or individuals with mental disabilities, as they often have legal guardians appointed by a probate court. These guardians control financial decisions, and they may prioritize other expenses or decide against repaying the loan, making it difficult for lenders to recover their funds.

Compensation Caps

Some states have laws that limit how much you can receive from certain lawsuits. For example, if a state limits non-economic damages to $250,000 and you have to pay $100,000 in legal fees and $125,000 in medical liens, you’ll be left with a $25,000 settlement. Since this amount is below the lender’s minimum threshold of $50,000, they might deny your loan application because the remaining settlement funds are too low.

Medical Prognosis

A medical prognosis is a doctor’s prediction about the course and outcome of your illness or injury, including how well you’re expected to recover. If the prognosis is poor or unclear, it could mean either a minor injury (with unpredictable complications), or a serious injury (with an unclear recovery). Depending on the eventual medical findings and costs, your final settlement could be anything from a minimal sum of a few thousand dollars to millions of dollars. Because of this unforeseen nature, funders might be cautious or avoid these cases altogether.

Low Settlement Cases

Many lawsuit funding companies deny cases that have already settled for $50,000 or less. With such a low settlement amount, there may not be enough funds left to repay the loan after legal fees and other expenses. This financial limitation makes it unfeasible for lenders to provide funding.

Four Tips to Strengthen Your Pre-Settlement Loan Application

Enhance Evidence Quality. Gather detailed medical records, accident reports, and credible expert testimonies to solidify your case.
Make Sure Your Attorney Cooperates. Communicate with your attorney to make sure he or she is responsive and provide all required information to the funding company.
Address Financial Liabilities. Resolve outstanding liens and be mindful of previous loans to avoid exceeding the permissible funding limits.
Follow Medical Recommendations. Adhere to recommended medical treatments to demonstrate the severity of your injuries and increase the value of your lawsuit.

The Takeaway

Having your application for pre-settlement legal funding denied can be frustrating and limit your financial options. Often, this happens because your case is too early for a lender to accurately assess its strength or because potential liability issues create uncertainty.

However, even if you are initially declined, don’t give up. Consider applying with Baker Street Funding first. Our team can determine your eligibility and guide you in the right direction. Apply for lawsuit financing today.

Learn more about how a lawsuit loan from Baker Street Funding can help you cope with day-to-day expenses. Apply for lawsuit financing today.