What is Pre-Settlement Lawsuit Funding?

Pre-settlement funding for lawsuits involves the cash advance of a set amount -- usually ranging from $1,000 to $30,000 -- to help a plaintiff in a personal injury lawsuit pay bills and otherwise get by while his or her case is in progress. After the case is settled successfully, the pre-settlement funder or venture capital company will then reclaim the monies invested from the plaintiff's settlement award.

A pre-settlement funding arrangement is a so-called non-recourse arrangement. In other words, if the plaintiff fails to win his or her case, the funding entity has no recourse to get money form him or her. Thus, pre-settlement arrangements cannot be classified as loans under the law -- and they are thus exempt from certain usury laws, as well. Your personal injury attorney may recommend a pre-settlement funder to you directly, or you may locate and interview a number of funders on your own.

Be aware that you may not borrow money for living expanses from your personal injury attorney, even if your personal injury attorney is fronting the legal expenses for your case in hopes of retaining a large settlement. This will make your personal injury attorney a creditor and thus create a legally unacceptable conflict of interest between you and your counselor.

Your funder may charge an upfront fee to lend out the money, or he or she may charge a monthly fee, similar to a creditor's financing fee, for the right to the money. In some cases, pre-settlement funding can “eat up” any and all settlement proceeds, and thus, some argue that this kind of funding creates a potential for dragging lawsuits to a standstill. The ethical and legal concerns associated with advanced lawsuit funding are myriad, and while your personal injury attorney may be able to shine some light on the most appropriate actions for you, it will definitely help to investigate other, “non-last resort” finance options.

For instance, you might take out a loan from a friend or relative, work part-time to create at least a moderate income stream to tide you over during the trial, or budget with a financial adviser to reduce your expenses during the execution of the lawsuit.