A Pre- and-Post-Settlement Funding Primer

Farmington Hills, MIYou wouldn’t ask an electrician to fix your leaky faucet, just as you wouldn’t expect your neighborhood roofer to figure out what’s wrong with your car. Such is the case with any attempt to secure pre- or post-settlement funding from a traditional bank: they don’t understand what they’re advancing a loan for. To a bank, a successful lawsuit and forthcoming settlement is collateral they don’t recognize.

However, funding is vital and often means the difference between a plaintiff pursuing a worthwhile case, and backing off due to the expense. That’s one of the reasons why various funding entities, with an understanding and appreciation for the legal system, have stepped up with pre-settlement and post-settlement funding opportunities for plaintiffs.

So what is it and - specifically - how does pre-settlement funding differ from post-settlement funding? And while we’re on the subject, how does all that differ from an attorney or legal firm taking your case on spec, where no money is paid upfront and payment is due only when the case is resolved, and the compensation award comes in?

You, in fact may have a legal eagle lined up to take your case under the mantra, “we don’t get paid until YOU get paid!” That’s great. But how do you get by in the meantime - especially if you’ve sustained an injury that takes you away from your job and your source of revenue?

If you go to a bank for a loan, they’ll be looking for collateral to base the loan upon, such as equity in a car or your home.

However, with pre- and post-settlement funding, your collateral is the compensation award at the end of the process. You are approved for and advanced funds that will help you pay your bills - medical, mortgage, car payments, food and so on - while you wait for your case to be resolved. Yes, there will be fees and costs, with interest rates higher than that which a bank would normally charge.

However, there’s a reason for this. The company advancing the funds to you is taking all the risk here. The presettlement funding is based on the strength of your case and the expected settlement, with the funder assuming all the risk. If no settlement is forthcoming, the loan does not have to be repaid and you’re off the hook. However, assuming there is a settlement, the presettlement legal funding loan plus interest and costs are repaid from the proceeds of your compensation award. Whatever is left over is yours to keep.

So what is post-settlement funding then, how does it differ from a lawsuit advance, and why would you need it in the first place?

Compensation awards, unlike what you might see on television, are often not instantly available. There may be various legal delays involved, including the application of liens against the award by various service providers brought in to take care of you after your accident or injury. Until that all gets sorted out, you may be waiting weeks, months or even longer for your settlement money to come in.

That’s where post-settlement funding comes in - funds that will allow you to carry on, pay bills and get back on your feet while waiting for the compensation check, minus deductions, to arrive. Post-settlement funding is very similar to a lawsuit advance, but with one distinct difference: there’s a lot less risk for the funding provider, since your case has been settled, any appeals have been dealt with and therefore it’s just a matter of time before the settlement money arrives.

Less risk means a lower cost in terms of interest rate and structure of the lawsuit loan. Thus, it’s a different product. Chances are, however, your bank will continue to steer clear of such lending. Again, without a car in the driveway or bricks and mortar to serve as collateral, it can be tough to get a bank to play in your sandbox unless you have a very good relationship with them.

Pundits note that pre-settlement and post-settlement funding serves a definite need - but also advocate that you shop around to find the best terms. Your attorney can help you with this. Advocates also suggest that if you’re in need of a cash stream to see you through, approach family first. There may be some funding available to you, with terms that would be far less expensive.

That said, pre-settlement and post-settlement funding remains for many Americans the difference between pursuing justice through a meritorious case or just walking away, allowing the parties who may have caused your injury or accident to get off scot-free.

Shop around and ask lots of questions. But also be assured that there are funding opportunities out there that are quite fair and appropriate for what they are, the risks involved, and the opportunity to advance a meritorious case with settlement money for you at the end of the process.

Pre-settlement legal funding, and the related post-settlement funding, are options worth exploring.