Considering a Settlement Advance?
What You Need to Know

May 13, 2010

Sometimes, winning a lawsuit is only the beginning. Waiting for the settlement or judgment can take months, and in extreme cases, years, as legal maneuvering keeps the defendant from having to pay plaintiffs. This is a tactic that, while legal, makes it tremendously difficult for the average person to see a lawsuit through to completion. If this is the situation you find yourself in, should you consider a settlement advance?

In many instances, plaintiffs settle their suits for far less than merited by their cases because they simply need the money, any money, in order to pay current bills, keep food on the table and gas in the tank, and make the rent or mortgage payment. Those who have been injured or the victim of some sort of negligence often lose wages, the ability to work altogether, and accrue medical bills and other debts as a result of the defendants’ actions.  Defendants and their insurance companies know this and often pressure plaintiffs into accepting subpar settlements. The plaintiff will get the short term infusion of cash, and the insurance company will be rid of bothersome litigation. It is far from a win-win situation, though; not only are you accepting less than your case is worth, you may not be getting enough to cover all of your expenses now and in the future.

This is the “why” of settlement advances: people need money in order to meet pressing financial needs. What about the “how”? How does this work? A legal funding company analyzes your case and makes a determination as to the amount of money that can be advanced to you pending the settlement of your case. This will depend on the merits of your case, as well as the potential size of a settlement or judgment. They will propose an agreement through which you get this sum of money in the form of a check within days of your acceptance.

But what do funding companies get in return? These are not “free” money; lawsuit funding companies are not nonprofit organizations. They are businesses that stand to make a profit on your advance, just as a bank makes a profit on a loan or mortgage. Funding companies are not buying your settlement; instead, they are advancing you money against that settlement. If your case is successful, you will return the money with the agreed-upon payback. If unsuccessful, a no-recourse advance requires no repayment.

When considering a lawsuit advance, know that they are often the last resort. There are less expensive ways to finance a lawsuit, including getting a traditional loan. If these other routes are closed to you, though, you may not have to settle for less than your case is worth because of financial pressures. Know also that these are intended to be used to help you through the long and often very expensive process of fighting for your rights and fighting for fair redress of your grievances. Legal funding companies are not giving away free money, but they are providing a means to help you through until your settlement is reached.