What is pre-settlement funding?

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What is pre settlement funding

As the legal industry grows, an increasing amount of plaintiffs are recurring to pre-settlement funding with average funding amounts of $5,000 to $10,000, according to a study performed by the Baker Street Funding investigation team.

In fact, pre-settlement funding is the fastest-growing type of consumer plaintiffs’ pre-litigation funding. The most popular reason to get a pre-settlement advance is domestic debt, but it can be used for everything from unexpected expenses to medical bills, except to pay your attorney.

If you’ve ever thought of applying for a pre-settlement loan, it can help to know the ins and outs of this form of financing.

What is pre-settlement funding?

Pre-settlement funding also called a lawsuit loan, is the financing provided to victims involved in legal battles. Pre-settlement funding is non-recourse and based on the expected claimed proceeds from the lawsuit. 

Unlike conventional loans, pre-settlement funding is a relatively new mode of obtaining short-term financing from a lawsuit settlement or pre-litigation settlement. 

Pre-settlement funding started in Australia and is now prevalent in the US, Europe, and some parts of Asia. Financial institutions and other companies that utilize hedge funds to generate profits provide capital to plaintiffs and attorneys contesting strong personal injury lawsuits and commercial litigation. 

The advanced funds provided vary from hundreds of dollars to millions of dollars, depending on the value of the claim.

Where is the best place to get pre-settlement funding?

Trusting pre-settlement funding companies can be great places for acquiring a legal loan, and if your case is strong enough to win, you may find it easier to qualify for 10% of what your case is worth. However, some settlement loan companies aren’t the best option.

You can also find the best pre-settlement funding companies from online lenders with great reviews, no soliciting techniques, and a good owner reputation. 

Beware that some of these lenders have been involved in financial fraud, jail, and scams before. Always research the name of the owner with the words “department of justice”. This search will help you pick the best company and avoid being the target of predatory lending.

How does pre-settlement funding work?

To obtain advanced settlement funds, plaintiffs must first put their future compensation, either through an award of damages or settlement, as “collateral” with the litigation financing company

No matter how long the lawsuit is pending or when the claim resolves, the plaintiff only repays the money funded once their case successfully concludes. 

The repayment adds a pre-decided interest charged on it that the plaintiff signed on the funding agreement with his attorney.

Once the agreement is completed, the borrower gets the advance either through a direct deposit or a check.

Pre-settlement funding vs. loans.

Does borrowing money from a financing corporation and keeping your own lawsuit as alleged and hoping for future collateral indicate that pre-settlement funding might be a modified version of a conventional loan?

 In reality, the opposite is true. Since the outcome of a lawsuit is typically uncertain, lawsuits themselves cannot be kept as collateral. 

Instead, a portion of the future income from those lawsuits, expected by the plaintiffs, is what a legal funding company treats as its source of repayment. 

The plaintiff who obtains funding is supposed to utilize the financial assistance as and when he wishes but will have to repay whenever he receives the due monies from the successful resolution of the lawsuit. 

But then, what happens if the plaintiff loses? In such a case, unlike conventional loans where the borrowed money is to be repaid in all circumstances, the plaintiff can walk away without paying a dime to the litigation financing company. 

This is by far the most significant factor that makes pre-settlement funding stand apart from a conventional loan.

Legal funding companies provide nonrecourse funding that is explicitly based on the merit of the case. If that case does not settle favorably, the funder will lose the investment. 

Repayment of the legal funds

The legal funding structure and schedule of repayment are nowhere similar to that of a usual loan. 

The plaintiffs are not to make any repayments anywhere before receiving proceeds from the awarded damages or settlement money from the accused defendants. 

The plaintiffs need not be worried about any frequent installment at any time during the pendency of their case. 

Another distinct feature of pre-settlement funding is the absolute disregard by pre-settlement funding companies for plaintiffs’ credit scores. 

Plaintiffs cannot be denied financial assistance on the grounds of a bad credit score since no past debt or credit record is considered while assessing the application. 

Pre-settlement funding is less about borrowing and more about trade, being a mere exchange of present cash advance in return for a future settlement payment.

How are pre-settlement funding amounts valued?

Ascertaining what amount should ideally be awarded to an applicant depends on several factors. 

The strength of the claim, which encompasses the victims’ injuries and their ability to corroborate them with evidence, plays a significant role. 

The attorney looking after a victim’s case can also tell a lot about the case’s intricate details and possible outcomes. 

When the financing company is satisfied that the applicant’s case holds ground and can secure damages, funds are likely released.

Why use pre-settlement funding?

The proceedings of lawsuits don’t take days or weeks. It can take up to several months and even years for a case proceeding before the courts to reach a decisive outcome in a standard timeline. 

Moreover, not many people have ample resources to survive a lawsuit for a substantially extended period and at the same time be able to look after their own household expenses while injured. 

Hardships may further aggravate the victim when the case is a personal injury where the plaintiff is rendered unable to work or earn himself a living. 

Adding to their existing baggage of difficulties, victims of personal injuries would also definitely be receiving medical treatments. Medical assistance isn’t always affordable for all, whereas some injuries also require long-term or even permanent treatment and therapies. 

Meeting all these expenditures and arranging for future treatments and modifications to the present lifestyle of the victim is hard. 

With a lack of income, plaintiffs tend to face a severe financial crisis. Being financially frustrated for months and years and not putting food on the table brings sadness and stress. The plaintiffs may find themselves least motivated to pursue their lawsuit. 

It is for this reason that plaintiffs are highly advised to avail of legal funding programs.

And if medical assistance is needed, a medical lien funding program pays for the needed surgery as a result of the accident.

Legal cover and criticism

Despite the mass utility offered and prevalence accumulated by pre-settlement funding programs, the industry remains largely unregulated. Although good market practices and agreed covenants between financing companies generally govern the field, there still exist no laws in most states to protect plaintiffs from any possible wrongs. 

The skepticism also comes from the relatively new nature of lawsuit funding, given that not many people have had their experience with such financing. 

With such skepticism and doubts emanating from their novelty, it is clear that pre-settlement funding clearly and outrightly provides alleviation and relief to the plaintiffs during their most crucial times. 

Dedicated lawsuit funding companies, such as Baker Street Funding, aim to assist plaintiffs during their lawsuits by helping them meet their personal, household, and other routine expenses. 

After obtaining adequate funds, the plaintiffs can then focus their own resources exclusively on contesting the lawsuits. 

Plaintiffs can apply for funding simply by contacting (888) 711-3599 and qualifying the company’s criterion. 

Baker Street Funding provides financing based on simple interest floating around 3 percent per month for plaintiffs, which lies at a minimum if compared to other legal financing entities in the industry.

At Baker Street Funding, we give you the inside scoop on pre-settlement funding by covering a variety of ... financing and legal topics to help you made the best financial decision for you and for your case. Our experts break down complex ideas in a way that's easy to understand so you can stay informed on current trends as well as tips and fact checked information by the CEO and founder, Daniel Digiaimo. Furthermore, Despite its name, consumer legal funding is not a loan. If you don't win your case, no payment needs to be made back. To avoid confusion and simplify matters on, we'll use the word "loan" throughout this article.

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