Debt Management

Lawsuit Finance – A Financial Trap or a Lifesaver

There are few who would have missed high-decibel advertising promising easy loans for people involved in litigation.People who have instituted legal proceedings to get compensation for injuries arising out of motor vehicle accidents or in the workplace and are watching their medical and household bills mounting up can be especially susceptible to the promise of easy cash that can bail them out of financial difficulties.

While lawsuit financing definitely has its own place and utility, it is necessary to take a very close look into your personal circumstances before availing of one. These loans, being completely unsecured and highly speculative, carry very high interest rates and associated fees that may not always represent the best option. It is best to consider such lawsuit finance until there is absolutely no alternative for you. Consequently, you should examine all the factors before your opt for such mode of finance.

What Is Litigation Finance?

When a litigant claims for compensation in a court for personal accident or perceived employment discrimination, which has led to a loss of employment, the case can drag on for much longer, than originally anticipated. In this period, due to loss or severely diminished employment opportunities, the litigant may face extreme financial difficulties and may not be in a position to pay his day to day bills, and costs of medical care.

Under these circumstances, and if the lawsuit has good potential, he may be eligible for a cash loan from a finance company. If and when the case is settled in the client’s favor, the finance company gets paid from the settlement amount. Besides which, it is entitled to take interest and fees as per the terms of the contract signed. If the client loses the case, then he does not have to pay the loan company back anything. If the settlement is less than expected, it may be possible for the client to negotiate lower fees.

Beware Of the Terms of the Contract

Irrespective of the potential of the case for a favorable settlement and the amount expected, lawsuit finance companies do not finance you the whole amount. Typically, personal injury cases yield about only a third of the settlement to the client after allowing for lawyer fees and other associated costs. The finance company takes a call on the figure and advances a loan. The principal drawback of this type of financing is not only the high interest rate but a plethora of fees that are often tacked on. Since there is no regulation of the rates, the companies are free to set their own rates and compounding intervals that could result in a client paying back anywhere between 30% to more than double his loan amount upon settlement. 

Check Out Other Available Options If Any

Litigation finance should be your last option. Examine carefully all other options such as liquidating assets, breaking your deposits, asking relatives or friends, finding a job or even getting a second job, to reduce financial stress enough so that you can pay your bills. If declaring a bankruptcy or selling off your only house is the only option, approach a loan company by all means but find out all about fees, interest rates, and other fine print. Take the assistance of your attorney to help you negotiate better terms. 

Vital Issues to Consider Before Taking on a Lawsuit Loan

Before settling on a loan company, find out if they are an ALFA- member and if there are any interest conflicts, funding caps, compounding rates and applicable terms for renegotiation in case of material difference to the expected settlement amount.The anticipated time for settlement of the law suit is crucial; the longer a case drags on, the more the outgo on the interest. Typically funding for more than two years is not worth the expense. Before signing the contract, ensure that you read through top consumer reviews to satisfy yourself about the intent and credibility of the company.

Author bio: James Donnelly is a senior attorney specializing in personal injury litigation. He is an avid blogger and writes on personal injury litigation issues. His contributions regularly feature in top consumer reviews in various print and online media.

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