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The TRUTH About Settlement Loans in Lawsuits

Lawsuit loans are alluring for victims of a serious car accident. Getting knocked out of work and a pile of medical bills can set you back. Lawsuit loans provide an immediate solution.

Our clients have gotten these loans over the years and we know some of the ins and outs of how they work. 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 these loans is often obscene. How do the lawsuit loan companies get around Maryland usury laws that limit the interest rate? Technically, a lawsuit advance is a non-recourse cash advance to the injury victim in exchange for a promise – that is binding on the client and the 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.

This creates a situation where these largely unregulated companiescan take advantage of people. Below, we provide some thoughts on how to avoid getting taken advantage of to the fullest extent possible.

Here is one more question near and dear to our hearts. You might ask why your lawyer can't advance the funds to you? That would solve everything. But that is illegal in many states, including Maryland.

Issues for Lawyers to Consider for Clients Looking for Lawsuit Loans

Let me tell you on thing point blank: attorneys generally dislike lawsuit loans. They make settlement more difficult and they interfere with the goal of getting the best possible recovery for the client. But, in the real world, some clients are going to have no alternative. If we are going to help people, we have to live in the real world.

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. We typically cross out the sections of the agreement that do not apply.

Advice We Give Our Clients

If you are strapped for money and you have a pending lawsuit, you want to explore every possible option other than getting a lawsuit backed loan. Go to family members, max out your credit cards... do anything and everything you can before applying to one of the lawsuit funding companies. Because even the very best of these companies offer deals that make credit card fees seem generous.

But, ultimately, you are an adult and you have decide what is best for you. If you have to get one of these awful loans, make sure you fully understand every fee and cost you will incur and shop around to get the very best price.

Related Information
  • Tennessee considers capping interest rates on lawsuit loans
  • States considering legislation in 2014 to regulate this industry
  • New York Times article that lays out the problem of lawsuit loans
Sample Demand LettersValues of Specific InjuriesGetting a Lawyer for Your Claim

We handle personal injury vehicle accident, malpractice and product liability claims. 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 a lawyer looking for co-counsel for your case, call us at 800-553-8082 or get a free Internet consultation.

Client Reviews
They quite literally worked as hard as if not harder than the doctors to save our lives. Terry Waldron
Ron helped me find a clear path that ended with my foot healing and a settlement that was much more than I hope for. Aaron Johnson
Hopefully I won't need it again but if I do, I have definitely found my lawyer for life and I would definitely recommend this office to anyone! Bridget Stevens
The last case I referred to them settled for $1.2 million. John Selinger
I am so grateful that I was lucky to pick Miller & Zois. Maggie Lauer
The entire team from the intake Samantha to the lawyer himself (Ron Miller) has been really approachable. Suzette Allen
The case settled and I got a lot more money than I expected. Ron even fought to reduce how much I owed in medical bills so I could get an even larger settlement. Nchedo Idahosa