Do Lawyers Give Advances on Settlements?

Introduction

Lawyers help their clients in many ways. They give sound legal advice to help clients make informed decisions. They prepare legal documents, such as wills and contracts, and they provide skilled representation in court fighting for the rights of injured clients to receive compensation for their losses from the party whose negligence caused them. Giving money to clients, even to help them out when they experience financial hardship is something that lawyers are generally prohibited, with only a few exceptions, from doing.

If you need financial assistance, your lawyer can advise you about pre-settlement funding, which is also called “consumer legal funding.” The money advanced against the settlement of your case comes from a settlement funding company and not from your lawyer, but you need the consent and guidance of your lawyer to make it happen.

Key Takeaways

Some of the key takeaways about borrowing against the value of the settlement in a traffic accident or other type of negligence case include:

• Rules of professional conduct adopted in every state generally prohibit lawyers from offering financial assistance to their clients.
• Settlement loans or settlement advances may provide a source of money to relieve financial pressure until you receive settlement funds from a pending personal injury lawsuit.
• As helpful as a settlement advance might be for paying bills and providing relief during a time of financial hardship, there are costs and risks that you need to discuss with your attorney and understand before agreeing to accept one.
• Shopping for a settlement funding and comparing the rates and terms offered by several funding companies is the best way to know you are making the right choice and getting the best deal.

Do Lawyers Give Advances On Settlements?

The simple answer to the question is that lawyers cannot, as a general rule, give a client financial assistance even with the expectation of getting repaid when a case is settled. There are a couple of exceptions to the general rule that are allowed under the code of conduct that attorneys are sworn to follow as a condition of practicing law in a particular state.

Attorneys must follow strict rules of conduct to remain in good standing with the states in which they are authorized to practice law. If someone violates the rules of conduct, officially known in most states as the “Code of Professional Responsibility,” the state may discipline them, which may include an official reprimand, temporary suspension of their right to practice law, or another form of punishment.

The American Bar Association adopts rules of conduct for the legal profession that it publishes as the “Model Code of Professional Responsibility.” State officials have the option to either adopt the rules of conduct as published by the ABA or enact their own rules for attorneys in their state to follow.

Rule 1.8 of the ABA model code prohibits attorneys from providing financial assistance to a client in connection with a lawsuit that is pending or contemplated, so an advance on a settlement by an attorney to a client would be a violation of this rule. For example, it would be a violation of this rule for an attorney that you consult about injuries that you sustained in a car accident, to promise financial assistance in exchange for retaining the law firm to handle your case.

The ABA adopted a couple of exceptions that it now includes in its model rule. One of them allows the lawyer handling your personal injury case to advance court costs and other expenses instead of asking you to pay them as they are incurred. The way personal injury law firms typically handle litigation costs is to include in the retainer agreement that you sign when the firm is hired.

Medical malpractice and other types of negligence cases are handled usually under a contingency fee agreement with your attorney being paid a legal fee only if and when you win either by settlement or jury award. The typical contingency fee agreement typically includes mention of costs and expenses of the lawsuit being advanced by the law firm. It may make their repayment contingent on the claim settling in your favor, or it may include other arrangements for you paying all or some of the lawsuit’s costs. ABA Rule 1.8 permits an attorney handling a lawsuit for a client who is poor to pay the lawsuit expenses without being repaid even if the case ends with a settlement or judgment in favor of the plaintiff.

If a law firm represents a poor client “pro bono,” which means without charging a fee for its services, it may pay modest amounts to the client for the following:

• Food
• shelter
• transportation
• medicine
• other basic living expenses

While allowing attorneys to assist financial distress clients in this way, ABA Rule 1.8 prohibits them from asking for or accepting reimbursement either directly from a client or from relatives, friends or anyone else acting on behalf of the client.

Can I Borrow Money From A Pending Lawsuit, At All?

Your attorney may not be allowed to advance money to you against the value of a settlement, but that does leave you without other options when you need cash to pay household expenses and other bills. Lawsuit funding companies provide a resource to obtain a cash advance against the value of a pending settlement worked out with the defendant’s insurance company or the jury award in your case.

Lawsuit advances go by many names depending on the legal funding company offering them. Some of the names you may encounter when shopping for an advance on the value of a legal case include:

• Pre-settlement funding
• Settlement funding
• Lawsuit loan
• Pre-settlement loans
• Personal injury loans
• Lawsuit funding

Companies offering to lend money to people with pending lawsuits charge interest on the cash advance computed from the day that you get the money until it is paid from the settlement money you get from the lawsuit.

How Does A Settlement Advance Work?

Although you frequently see them referred to as “loans,” the financial product offered by a settlement funding company is very different from the loan you get from your local bank or credit union. The most important distinction is that a lawsuit loan is a type of non-recourse loan, which means the lender cannot come after you or your personal assets for repayment of the money it advances to you. A lawsuit funding company may only recover the money it advances plus interest and fees from the settlement paid by insurance companies when you win.

The way settlement funding works starts with your submission of an application to a litigation funding company. The company contacts your personal injury attorney to get details about your case, including the stage it is at in the legal process, and obtain any documents needed for it to evaluate the case.

Funding companies want to know the following in order to decide if you lawsuit qualifies for legal funding:

• A lawsuit must be pending in court.
• You must be represented by a personal injury attorney.
• You have a strong claim for damages that is likely to result in a negotiated settlement agreement or jury award in your favor.
• The value of the settlement or award is anticipated to be sufficient to pay attorney fees and litigation costs to the law firm representing you and liens filed for medical treatment that you received with enough remaining to repay the cash advance, interest and fees charged by the funding company.

To give you an idea of how a typical lawsuit cash advance works, assume that your lawyer anticipates an expected settlement of your claim against a negligent defendant of $100,000. If you apply for a lawsuit loan of $10,000 with a lawsuit loan company, such as LawsuitLoans.io, that offers simple interest rates as low 2.5%, it would cost $250 a month in interest until it is repaid when the case settles.

The advantage of a lawsuit loan over traditional loans is the non-recourse feature which means the funding company assumes the risk of loss if you do not win the lawsuit. Your personal assets are not at risk and a lawsuit loan does not appear on your credit report.

Can I Get A Settlement Advance Without My Attorney’s Signature?

No, you need the cooperation and consent of the lawyer representing you in your lawsuit against the party whose fault caused you to be injured to be approved for a settlement cash advance. The funding company relies on your attorney to provide details of your case, including documents, for it to evaluate the claim and make a decision whether to approve your application.

Getting your personal injury attorney involved in the process offers another benefit by allowing you to rely on the lawyer’s experience and knowledge about these types of financial products. The legal advice your lawyer can provide about settlement advances helps you choose a company offering the best interest rates and terms. A review of the funding agreement prepared by the settlement funding company ensures that you get best terms at the cost that you were promised.

Where Do I Get Pre-Settlement Funding?

Several companies, including LawsuitLoans.io, offer pre-settlement loans. Go to their websites to find the ones that do business in your state, and contact a few of them to ask for information about the loans they offer, including:

• The amount you can borrow.
• Interest and fees charged for the loan.
• Turnaround time from approval to funding.

For example, LawsuitLoans.io offers legal funding at simple interest rates as low as 2.5% per month. They fund up to 50% of the settlement value depending on how far along in the lawsuit process the case has progressed.

Conclusion

Although your lawyer cannot advance money to provide you with financial assistance pending the settlement of a lawsuit, there are companies that offer lawsuit loans that may be able to help. Pre-settlement funding can provide you with the money needed to stop foreclosure, pay bills, or for whatever purpose you need it.

Settlement funding involves costs in the form of interest and fees the companies offering it charge for their services. Learn more about pre-settlement loans to find out if they are right for you by calling LawsuitLoans.io at (800) 340-4973, or you can apply online.