Pre-settlement funding is a funding method by way of lawsuit settlement. On the basis of a person’s pending case for compensation he or she can get non-recourse loan from the settlement company. This holds true even if the verdict or the settlement amount is lesser than the anticipated amount.
The verdict amount for the injured person’s share is always less than the amount to be repaid. The pre-settlement company finances an on-going litigation, rather than buying a settlement’s legal fees.
The risk of pre-settlement funding is higher than post settlement funding; this allows pre-settlement companies to earn higher returns on settlement.
How does it work?
A person or plaintiff in need of money consults a pre-settlement company, in most cases on the suggestion of his or her attorney. The settlement company in turn gets in consultation with the lawyer handling the case and discusses the details about the case.
After getting all the required information, the pre-settlement company ascertains the value of the verdict or the settlement funding and makes an advance cash offer to the injured person.
The associated fees and the loan amount are paid to the finance company as and when the case is settled. The advance cash offer is judged on the basis of the number of years it may take for the case to get settled.
In case the pre-settlement company is not convinced that the plaintiff case is strong enough to justify substantial awards then they may even turn down the proposal.
As per laws, the Settlement funding from the company is not termed as loans, but as investments, cash advance or venture capital.
Benefits of Pre-settlement Funding
In majority of the instances the court case continues for several months if not for years. Such delay may cause more harm to the injured person’s who may not have enough money to pay for their medical care or who have lost their earning due to temporary or permanent disability.
The applicant is asked to pay a certain amount of fees for the borrowed money, just like as is the case with payday loan. At times the fees may be more than pre-settlement funding amount. The financing fees are directly proportional to duration of the case.
