How Do Pre-Settlement Funding Companies Analyze a Case?

Key Takeaways

• Lawsuit funding provides a cash advance that plaintiffs with pending lawsuits can use to relieve financial pressure.
• Personal injury and other types of claims may qualify for pre-settlement funding.
• Legal funding companies consider several factors when analyzing a case for lawsuit funding.
• Lawsuit loans get repaid from the settlement of a lawsuit and not directly from a borrower.

How Pre-Settlement Funding Works

Lawsuit funding companies provide money to plaintiffs as an advance against the settlement or judgment in a pending lawsuit. A borrower generally has free use of the money to pay household expenses, medical bills, or any purpose they choose.

In return for the money, plaintiffs give lawsuit loan companies the right to receive repayment of the cash advance plus interest earned for the time from funding to when the lawsuit ends with a settlement or judgment. Unlike a bank loan, which borrowers repay through monthly payments to the lender, lawsuit loans are non-recourse transactions.

Traditional loans are recourse transactions where the lender relies upon the income and assets of a borrower for repayment, which is why banks and other traditional lenders do credit checks and verify a borrower’s income to determine whether to lend money. A lawsuit funding company relies on the strength of the borrower’s lawsuit and the likelihood of it ending with an expected settlement or judgment in favor of the plaintiff.

Importance of the Underwriting Process in Lawsuit Funding

Analysis of your personal injury case or other pending lawsuit is more important to a pre-settlement funding company than your income, assets, or ability to repay the cash advance. This is because a lawsuit loan is a non-recourse loan, which means the company cannot seek repayment from your income or assets.

A lawsuit loan company’s sole source for repayment of the money it advances, and the interest earned on it, is the lawsuit settlement award or judgment. Neither a borrower’s assets nor income is at risk if the plaintiff loses or the amount awarded is insufficient to repay what is owed to the funding company. 

The reason is the non-recourse feature of the transaction. There is no credit check or negative effect on a plaintiff’s credit score because the plaintiff is not obligated to repay the debt.

Factors Considered When Lawsuit Loan Companies Evaluate Cases

Each pre-settlement funding company has its underwriting process and specific factors it considers when assessing whether to approve a lawsuit for a cash advance. Some of the factors generally in use within the industry include the following:

• Type of Case: Personal injuries, which include auto accidents, premises liability, medical malpractice, dog bites, and construction accidents, are some of the most common types of cases approved for legal funding. Other types of issues that may qualify for a lawsuit loan include employment discrimination, wrongful termination claims, civil rights violations, and mass tort or other class action lawsuits. A lawsuit must include a claim by the plaintiff to recover monetary compensation from the defendants.
• Severity of Injuries: The harm caused by the defendants in a lawsuit must be severe enough to result in a settlement award or verdict after a trial that will be enough to pay the legal fees owed to the plaintiff’s personal injury law firm and repay the cash advance and fees earned by the funding company based on the interest rate charged.
• Liability: There must be sufficient evidence proving the defendant in the lawsuit was responsible for causing the harm inflicted on the plaintiff. For example, the personal injury law firm representing the plaintiff injured in a car accident must have evidence that proves it was caused by the negligence of the person being sued.
• Insurance Coverage: Lawsuit funding companies want to know if the sued party had insurance coverage to pay the claim. Without a policy issued by an insurance company, there is no guarantee that a defendant has the financial resources to pay a judgment or settlement.
• Medical Treatment: When a person injured in an auto accident immediately seeks medical treatment, it documents the connection between the accident and the harm to the plaintiff. Medical records and statements from physicians and other medical professionals can be used as evidence to prove the validity of the plaintiff’s claim and encourage an insurance company to settle a lawsuit.
• Documentation and Evidence: The existence of police reports, photographs of an accident scene, employment records, medical records, and other forms of documentation and evidence support a plaintiff’s claim. If a pre-settlement funding company sees evidence and documentation favorable to the plaintiff, it indicates a strong likelihood that the case will result in a settlement or verdict in favor of the plaintiff.
• Potential Settlement or Verdict Amount: The analysis of a lawsuit must cause a pre-settlement legal funding company to conclude that a potential settlement or verdict amount will be enough to repay the lawsuit cash advance and the interest earned on it after payment of the legal fees payable to the law firm that represented the plaintiff in the lawsuit.
• Legal Representation: A person must have legal representation to be approved for a pre-settlement lawsuit loan. The lawsuit funding company works closely with the law firm handling your claim to obtain the information and documents needed to decide the strength of your lawsuit and the value of an anticipated settlement or verdict. A lawyer also has the experience and knowledge to negotiate with insurance companies to achieve a favorable settlement in the case.

If you have questions about the process used to determine whether a lawsuit qualifies for a pre-settlement loan, ask your lawyer. The following section looks at the actual process pre-settlement funding companies use.

Process of Analyzing a Case

The process from the initial application that you file until a settlement loan company issues a pre-settlement cash advance typically involves the following steps:

• Initial Application: Completion of a simple online application starts the process leading to a pre-settlement cash advance. The application asks for your name and contact information and the name and contact information of the law firm handling your personal injury lawsuit or other type of lawsuit. The pre-settlement funding company gets the information and any documentation it needs about the case by contacting and working closely with the law firm.
• Document Review: Copies of the complaint filed in the lawsuit, evidence proving fault on the part of the defendants, and documentation of the injuries you suffered and their severity will be gathered and reviewed by underwriters for the funding company. As part of the underwriting process, additional documentation may be collected and reviewed to evaluate your claim’s strength and value.
• Communication with the Plaintiff’s Attorney: Litigation funding companies heavily rely on the law firm representing you for the documentation, evidence, and information about the lawsuit that is needed to analyze your case.
• Decision-Making Process: The company funding the cash advance cannot look to you for repayment should the defendant win or the settlement award is not enough to repay what is owed to the company. How long the case will take to settle is an important consideration because it affects the amount of interest owed on the money advanced to you. Therefore, the funding company must decide whether there is a strong likelihood of a favorable settlement or verdict, how long it will take to get it, and how much will be awarded.
• Funding Approval: If your application is approved, a written contract is sent to you and the law firm representing you containing the terms of the pre-settlement lawsuit loan. Once you review the contract with your lawyer, sign it, and return the signed company to the funding company, you will be given access to the cash advance.

The entire process, from application completion to cash advance funding, can be accomplished within 24 hours. You can learn more by contacting a lawsuit funding company.