Pre Settlement Funding
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Pre settlement funding provides quick cash for people with established court cases. Basically, they are classified as a non-recourse cash advance. Funds are distributed only to people with pending lawsuits to help them meet financial obligations until the case is settled in court and cash from the settlement starts coming in. Finance companies will make cash advances based on lawsuits of just about any sort: slip and fall, product liability, motor vehicle accident, construction accidents, medical malpractice, false imprisonment, and commercial litigation. Pre settlement funding is low risk for the plaintiff, but may not be all that easy to obtain.
Non-recourse means that the person receiving the cash advance is not required to repay the money, if the case is not won. If the case is won, and the settlement or award is less than anticipated, adjustments are made to the amount taken directly from the settlement. Although the funding may be difficult to obtain, the actual process is really quite simple. If a person wins their case, the amount of the advance along with fees are paid directly to the finance company out of the settlement, judgment, or award. But, if a person doesn't win in court, he or she doesn't pay. That's the catch. It's unlikely that a finance company will be willing to advance cash to a plaintiff with a weak case.
In order to obtain pre settlement funding, a person must be a plaintiff and he or she must be represented by an attorney. After the initial paperwork is submitted, a finance company will contact the attorney. Sometimes an attorney may recommend that the plaintiff seek hardship funding to keep afloat while the case works through the legal system. The attorney and the financial institution will discuss the case and the probability of victory. An estimate the value of the settlement or award is also discussed. If the financial provider determines that the case can be won, funds will usually be distributed to the plaintiff within twenty-four to forty-eight hours. Occasionally pre settlement funding will be referred to as loans. But, these types of financial transactions are not legally classified as loans. Credit is not extended to the plaintiff and the business transaction will not go on a person's credit report. In a sense, the finance company is speculating on the outcome of the court case. Juries can be unpredictable. It's not uncommon for strong cases to be lost. As a result, lawsuit funding is considered high risk for the financial institution, so the transaction fees can be significant. Basically, the charge may be a either a single flat fee or a monthly fee.
The finance company may charge a fee each month the pre settlement funding is outstanding. This type of fee may not be the best way to go because some court cases can take years to settle. Monthly fees accrue and are taken from the settlement or award. Finance companies may charge the fee each month beginning when the funds are issued and continue until the money is finally recouped. And, fees may be as high as 15 percent per month. As a result, once the case is settled the fees can be quite significant. All cases vary, and the amount of money a person may be advanced will vary as well. Advances generally range anywhere from under $1,000 going up to $75,000. But some finance companies will advance up to $100,000 under certain circumstances. Keep in mind, lawsuit funding may seem to be a good choice during times of hardship. Some accidents prevent a person from working at all. Other times he or she may be able to work less hours, so income is significantly reduced. Funding can help pay health-care expenses. But, investigate and gain wisdom because there may be better opportunities. Quick funds may turn out to be folly and not as desirable in the long run as they first appear. If nothing else, a little knowledge will save money. "Happy is the man that findeth wisdom, and the man that getteth understanding. For the merchandise of it is better than the merchandise of silver, and the gain thereof than fine gold. She is more precious than rubies: and all the things thou canst desire are not to be compared unto her." (Proverbs 3:13-15)
Understandably, many legal experts believe pre settlement funding should be considered a last resort. Take a long close look at the hardship and determine if this course of action is desirable. Other funding options should be sought first. Financial and legal experts suggest that a person should shop around first before deciding on this type of funding. If a person does decide to pursue settlement funds, they should investigate several companies. There is basically one reason that pre settlement funding is a non-recourse cash advance and not classified as a loan. Most states have adopted usury laws to prevent lenders from charging exorbitant interest rates and fees. So, calling them loans would prevent the finance company from charging the fees required to offset the risks. Basically, under usury laws, if the interest rate exceeds a set percentage for certain types of loans, then it is considered to be an illegal contract and cannot be enforced. For the most part, pre settlement funding is also referred to as a cash advance, investment, or venture capital. According to an online legal website, financial groups can get around the usury laws because the contract is set up so the person being provided the funds does not repay the amount received. He or she will pay only a portion of any settlement received.
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