One of the biggest concerns plaintiffs may have about pre-settlement funding is what happens if their lawsuit does not result in a settlement or favorable judgment. After all, traditional loans generally have to be repaid regardless of what happens in your personal or financial life.
Pre-settlement funding typically works differently. Because it is generally structured as non-recourse funding, repayment depends on the outcome of the legal claim. Understanding what that means can help plaintiffs evaluate the potential benefits and risks before accepting an advance.
Pre-settlement funding provides a plaintiff with an advance based on the anticipated value of a pending legal claim. Instead of approving funding primarily based on credit or employment income, the funding company evaluates the strength and potential value of the case.
Most importantly, pre-settlement funding is generally non-recourse. This means the funding company typically receives repayment from the proceeds of a successful settlement or judgment.
If the case does not produce a financial recovery, the plaintiff generally does not have to repay the advance from personal funds.
Suppose you receive $10,000 in pre-settlement funding while pursuing a personal injury lawsuit. The money helps you manage expenses while your case proceeds, but the lawsuit ultimately ends without a settlement or judgment in your favor.
With a typical non-recourse funding agreement, you would generally not be personally responsible for paying back that $10,000 from your wages, savings, or other assets.
The funding company assumes the risk that the case may not result in a recovery. This risk is one reason pre-settlement funding companies carefully evaluate claims before approving advances.
Since repayment depends on a successful outcome, funding providers have a strong incentive to evaluate cases before approving applications.
Underwriters may consider factors such as the strength of the evidence, liability, documented damages, available insurance coverage, expected settlement value, and the current stage of the lawsuit. They will also typically communicate with the plaintiff’s attorney to gather information needed to evaluate the claim.
A strong case does not guarantee a successful outcome, but this underwriting process helps the funding company determine whether the potential recovery justifies providing an advance.
Losing a lawsuit entirely is not the only potential concern. A case could also settle for significantly less than originally anticipated.
Depending on the terms of the funding agreement and applicable law, repayment is generally limited to proceeds from the legal recovery rather than becoming an ordinary personal debt. However, funding agreements can differ significantly, making it important to understand what happens if the eventual settlement is smaller than expected.
Before accepting funding, ask how the agreement handles situations in which the recovery is insufficient to cover the expected repayment amount.
The non-recourse nature of pre-settlement funding does not mean plaintiffs can ignore the terms of their agreements. Funding contracts may include requirements regarding cooperation, communication, settlement proceeds, and accurate disclosure of information.
Providing false information, concealing important facts about a case, or otherwise violating an agreement could potentially create complications. Plaintiffs should carefully read their contracts and discuss any questions with their attorneys before signing.
The possibility of losing a lawsuit is an important factor to consider when evaluating pre-settlement funding. The key distinction is that legitimate pre-settlement funding is generally tied to the success of the legal claim rather than a promise to repay regardless of the outcome.
Before accepting an advance, confirm that the funding is non-recourse and carefully review the repayment terms, fees, and other conditions. Understanding exactly what happens if your case succeeds, settles for less than expected, or produces no recovery can help you make a more informed financial decision.
Are you or a family member in need of financial assistance due to a lengthy legal battle? Are you preparing for a long-term legal battle to get the compensation you deserve? Cash Now Funding Group can be the financial lifeline you need while your case settles. Applying is free and confidential & no credit check is required.
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