Lawsuit Loans: Explaining They Are Generally a Bad Idea

Information for Personal Injury Lawyers on Dealing with Clients Seeking Lawsuit Loan

    Lawsuit loans are alluring for victims of a serious car accident, particularly in this economy. Getting knocked out of work and having a pile of medical bills can really set you back.  Lawsuit loans provide an immediate solution.  This page discusses lawsuit loans and highlights some of the issues accident lawyers should consider when a client seeks a loan against the settlement a personal injury case.

Overview of Lawsuit Loans

The problem with lawsuit advances is the effective interest rate of the vast majority of these loans is often obscene.  How do the lawsuit loan companies get around usury laws that limit the interest rate?  Technically, a lawsuit advance is a non-recourse cash advance that is given to the injury victim in exchange for a promise – that is binding on the client and the settlementloans client’s lawyer - to pay back the money plus interest after a settlement or an award at trial.

“Non-recourse” means that the loan is contingent – like the lawyer’s fees in a typical personal injury case – on a successful outcome of the lawsuit.   This means that, theoretically, the lawsuit funding company is also taking a risk.  But these companies don’t make money investing in high risk cases.   They loan money only in cases where a settlement or a victory at trial is incredibly likely.   By and large, these loans go to victims where liability for the injury has already been admitted or the facts are such that an admission of liability is a mere formality.

Issues for Lawyers to Consider for Clients Looking for Lawsuit Loans

Personal injury lawyers in accident cases generally dislike lawsuit loans.   They make settlement more difficult and they interfere with the lawyer’s goal of getting the best possible recovery for the client.  But, in the real world, accident lawyers need to know that some clients are going to have no alternative. 

Keep in mind that like any amount owed, these lawsuit loans are negotiable at the time of settlement.  Typically, the lawsuit settlement lender is smart enough to cut their already obscene gains by taking a reduction in the amount owed.

With respect to the true cost of the loan – the interest rate and the fees – make sure the client shops the deal.  The effective rate of interest on lawsuit loans varies wildly.   There are also some decent lawsuit loan companies out there that we have occasionally directed our clients to when necessary. 

Also, smart lawyers who are required to acknowledge the lien read every line of the agreement.  Typically, the loan document will include some language that requires the lawyer to stipulate that liability is in dispute, largely because of concerns that a state will invalidate the document if liability is established (which a Michigan court once did).   Accident lawyers need to make sure they are not misrepresenting the facts of the case.  Our lawyers typically cross out the sections of the agreement that do not apply. 

More Settlement Advance Information

Sample Demand Letters

Values of Specific Injuries

Values Generally or by Type of Case

Specific Jurisdictions

Related Articles

Our personal injury lawyers handle personal injury vehicle accident, malpractice and product liability claims throughout the country. If you or a loved one has suffered a serious injury or death as the result of the negligence of someone else or you are lawyer looking for co-counsel for your case, call our lawyers at 800-553-8082 or get a free Internet consultation.