What Is Pre-Settlement Funding?
Pre-settlement funding is a cash advance provided to plaintiffs involved in ongoing legal cases. Unlike traditional loans, litigation funding is determined by the strength of your legal case, not your credit history or income. The most significant advantage of legal funding is that it is non-recourse, meaning you only repay the advance if you win your case. If you lose, you owe nothing.
How Does Pre-Settlement Funding Compare To Other Alternatives?
Personal Loans
Personal loans can be a viable option for plaintiffs with good credit and the financial means to secure a loan. Personal loans often come with lower interest rates and fees than pre-settlement funding, making them an attractive choice for some individuals. However, there are a few key reasons why pre-settlement funding may be a better option:
Approval Process
Securing a personal loan typically requires a strong credit history and proof of steady income. For plaintiffs who have been out of work due to their injury or legal case, qualifying for a personal loan can be challenging. Pre-settlement funding, on the other hand, does not require a credit check or income verification. Approval is based solely on the merits of your case, making it more accessible to those with limited financial resources.
Risk Of Debt
Personal loans are recourse loans, meaning you are personally liable for repaying the loan, regardless of the outcome of your lawsuit. If your case doesn't result in a favorable settlement, you're still obligated to repay the loan. With litigation funding, repayment is contingent on the success of your case - if you don't win, you don't owe anything.
Monthly Payments
Personal loans come with monthly payments, which can add financial strain during an already challenging time. Pre-settlement funding requires no monthly fees, allowing you to focus on your recovery and legal case without worrying about making loan payments.
Borrowing From Friends & Family
Borrowing from friends or family can be a cost-effective alternative to pre-settlement funding, as there are typically no interest rates or fees associated with this option. However, relying on personal relationships for financial support comes with its own set of challenges:
Strained Relationships
Mixing personal relationships with financial transactions can strain friendships or family ties. If you're unable to repay the money within the agreed-upon time frame, it can lead to tension and hurt feelings. Litigation funding, on the other hand, is a professional arrangement that doesn't involve personal relationships, protecting your bonds with friends and family.
Limited Budget
Borrowing from friends or family may not provide the total amount you need to cover your expenses. With pre-settlement funding, you can receive a cash advance based on the projected value of your settlement, ensuring that you have enough money to cover your immediate financial needs.
Repayment Obligations
Even if you borrow money from friends or family, you'll still need to repay the loan, regardless of whether or not your case is successful. Litigation funding eliminates this risk, as repayment is only required if you win your case.
Negotiating Payment Plans With Creditors
Negotiating a payment plan with creditors can be a practical solution if your financial difficulties are tied to specific expenses, such as medical bills, rent, or utilities. Many creditors are willing to work with plaintiffs awaiting a settlement by offering reduced payments or extended payment terms. However, there are some limitations to this option:
Limited Scope
Payment plans typically only address one or two specific expenses, such as medical bills or rent. They don't provide the cash to cover other obligations like groceries, transportation, or general living costs. Pre-settlement funding provides you with a lump sum of money that you can use to any expense.
Negotiation Process
Negotiating with creditors can be time-consuming and stressful. Some creditors may be unwilling to offer flexible terms, leaving you with ongoing financial burdens. Litigation funding provides a straightforward solution, giving you access to the money you need without the hassle of negotiations.
Continued Debt
Even with a payment plan, you'll still need to repay the money you owe. Pre-settlement funding, on the other hand, is contingent on the outcome of your case - if you don't win, you don't have to repay.
Using Savings Or Retirement Funds
Using savings or retirement funds is another option for plaintiffs who have built up financial reserves over the years. While it may seem logical to dip into your savings or retirement accounts to cover your expenses, there are significant downsides to this approach:
Depleting Long-Term Savings
Using your savings or retirement funds to cover immediate costs can deplete the financial resources you've worked hard to build for your future. This could jeopardize your long-term financial stability, especially if your case takes longer than expected to settle. Pre-settlement funding allows you to preserve your savings and retirement funds for future use, providing you with the cash you need without sacrificing your financial future.
Tax Penalties
If you withdraw money from retirement accounts like a 401(k) or IRA before the eligible age, you may face early withdrawal penalties and tax consequences. These additional costs can eat into the money you need for expenses. With litigation funding, there are no tax penalties or early withdrawal fees.
Uncertainty
While using savings or retirement funds can provide immediate relief, you may not know how long your case will take to settle. If the litigation process is prolonged, you may run out of savings before your case concludes. Pre-settlement funding ensures you have enough money to cover your expenses throughout the legal process.
Is Pre-Settlement Funding The Right Choice For You?
To decide if pre-settlement funding is the best option for you, consider these advantages over other financial alternatives:
Immediate Access To Cash
Pre-settlement funding provides fast, immediate access to cash that can be used for a wide range of expenses. Whether you need to pay legal fees, medical bills, or everyday living costs, legal funding allows you to focus on your case without the stress of uncertainty.
Non-Recourse Funding
Litigation funding is risk-free, as you only repay the advance if you win your case. This eliminates the risk of taking on debt and ensures you won't be financially burdened if your case is unsuccessful.
No Credit Checks & Monthly Payments
Unlike personal loans, pre-settlement funding does not require a strong credit score or monthly payments. This makes it an ideal option for plaintiffs who are temporarily unable to work or don't have the financial history needed to qualify for traditional loans.
An Optimal Choice
While there are several alternatives to litigation funding, each comes with its challenges. Pre-settlement funding is an outstanding option because it offers risk-free, non-recourse financing that provides immediate monetary relief without the burden of debt or monthly payments. With legal funding, you can focus on your lawsuit and recovery, knowing you have the support you need.