When a person can’t work because of an injury and a claim is initiated, it could take months or years before the injured individual is compensated for the loss of income and incurred medical expenses. How can someone pay basic living expenses and medical bills if they are not able to work? Disability insurance may help to the extent it applies, but it’s often insufficient.
Many plaintiffs who find themselves in this position dig into their emergency fund (if they have one) or may seek cash from friends and family or possible apply for a bank loan to hold them over.
Another monetary option while waiting for the completion of a case is arranging for a pre-settlement advance. A pre-settlement advance is not a loan. An advance on a personal injury claim is only repaid by case proceeds if the plaintiff wins. If the case does not succeed, the advance does not need to be repaid.
In contrast, a loan is a debt that has to be repaid to the lender, typically in monthly installments, regardless of case outcome. This places the injured plaintiff in a financially vulnerable position because of the burden of high monthly debt payments and the need to pay back the loan even if the case is lost. If the plaintiff defaults, depending on the type of loan, the lender could seize the plaintiff’s assets (such as a home or automobile) or take other legal action. Any default would also be recorded on the borrower’s credit report.
Of course, the pre-settlement funding company works closely with the plaintiff’s attorney to determine the strength of the case, the likelihood of settlement and an advance amount that would be adequate for the plaintiff.
Unlike a loan obligation, no collateral is necessary to qualify for an advance. Additionally, credit profiles are not even reviewed because the advance is based on the merits of the case. Hence, bad credit is never an issue.
With a loan, the borrower incurs fees and interest charges. With a pre-settlement advance, the plaintiff pays a previously determined amount upon settlement.