A pre-settlement loan is a fund that is offered to an accuser or plaintiff before the end of a case. The essence of this loan is to assist the party involved clear the fees accrued during the legal process.
The laws governing this funding are not precise. That means a lot of care should be taken when making such deals or arrangements.
Before the money is handed to the plaintiff, the firm issuing the loan requires certain documents, such as health records and other information about the case.
Acquiring Financial Help Before a Pre-Settlement Loan
The process of filing legal complaints and taking legal action is a costly undertaking that consumes a lot of time and money. Even after the case has been concluded and a verdict has been made, the mandated settlement takes time to actualize.
There are various ways of paying the fees before the settlement arrives. These forms of pre-settlement funding include lawsuit advances, settlement loans, and third-party litigation funds among others.
If the said case is won the fund is returned to the company including the agreed-on interest rate. However, if the case is lost, the plaintiff is not required to pay a dime. Therefore, the plaintiff does not worry about having to pay other parties in case of a loss.
The United States Chamber Institute for Legal Reform admits that these deals are usually conducted by big firms such as hedge funds to get a cut of the final settlement. The reform greatly disapproves of such means in the court of law.
Process of Acquiring a Pre-Settlement Loan
There are four key steps involved in acquiring a pre-settlement loan.
Hire a Lawyer and File a Lawsuit
The first step involves filing a complaint or lawsuit. This can only be achieved with the use of a qualified lawyer who will file the complaint on behalf of the plaintiff in either a federal or a state court.
Such lawyers working under these circumstances operate based on a contingency arrangement. This means that the lawyer will get a percentage of the possible payout after the court procedures have concluded.
This percentage ranges from 20 to 40 percent depending on the agreed-upon terms and the complexity or type of case.
Apply for a Settlement Loan
This stage only occurs after the plaintiff has secured legal representation and has filed a complaint in a court of law.
After the matter has been settled, the firm can then assist the plaintiff to handle any pending expense during the court proceedings.
The first step is for a representative of the funding firm to assess the legal claim from the plaintiff. They will estimate the strength of the case and finally the approximate amount of financial gain that the plaintiff will receive.
This information will help in calculating the amount of money that will be allocated to the plaintiff. Also, the interest rate that will have accrued from the loan will be estimated and given to the plaintiff after the completion of the case.
Review of Proposed Funding Agreement
At this stage, the plaintiff and lawyer receive a formal document that details the key terms and conditions for the potential pre-settlement loan.
The lawyer is supposed to critically analyze this document to ensure that everything is in order. The plaintiff only receives the net pay after the lawyer fees and loan is paid back to the firm.
This means that by agreeing to the terms of the loan contract, the firm has a stake on the conclusion of the case and the mandated settlement that is ordered to compensate the plaintiff.
Plaintiff’s Decision on the Terms
Below are some of the factors that are normally considered:
- The duration of the court process — the lawyer would have an estimate of how long the court battle will take.
- Whether the interest accrued will be worth the loan being given
These factors are to be interrogated and considered with a lawyer before signing the contract. After the deal has been made, the plaintiff gets the money and only pays it back if the case is won.