Lawsuit Loans: Lifesaver or a Total Scam? – Part 2
Litigation Funding and Lawsuit Loans: An Important Resource, or a Total Scam? – Part 2
This article is part 2 of our series on litigation financing and lawsuit loans. We hope that this material is helpful to you in understanding the pros and cons of these loans if you are considering obtaining one in your Bronx personal injury lawsuit.
What are the Possible Benefits of a “Lawsuit Loan”?
The benefits of a “lawsuit loan” are, primarily, that the injured person and their family can obtain much-needed cash to pay for important living expenses if they are disabled from working due to injury. These loans allow an injured person immediate access to money that is rightfully theirs, but which may otherwise take many years to be repaid to them through a settlement or a judgment. Even in cases in which an injured person may be entitled to receive other benefits such as workers’ compensation or disability benefits that involve cash payments to compensate for lost wages incurred because of injury, such benefits often do not compensate an injured person for the full amount of their lost wages or employee benefits; these loans can help make up the difference between the injured person’s pre-injury wages and benefits and whatever is provided to them by workers’ compensation or disability insurance programs.
Because they can help an injured person sustain their standard of living while a personal injury or medical malpractice case is pending, these loans can also allow a person to reject low settlement offers and allow their lawyer to fight their case to the end to make sure that they receive the full compensation that they deserve, whether in a settlement or a judgment rendered in court. Insurance companies who represent defendants know that injured people cannot always wait for a higher settlement, let alone wait the many years that it takes to obtain a jury verdict and see the appeals process through to its conclusion; so they will attempt to bait an injured person, who is desperate for money because they cannot work, to accept a low-ball settlement. “Lawsuit loans” can help a plaintiff fend off these tempting, but predatory, low settlement offers and hold out for a settlement or final judgment that will fully compensate them for their injuries and disability.
What are the Potential Problems with “Lawsuit Loans”?
The most common problem with “lawsuit loans” is tied to the astronomical interest rates that are charged, which cause the repayment amount of the loans to balloon and consume large percentages of the total recovery of a personal injury or medical malpractice lawsuit. This problem is especially prevalent in cases in which there is limited insurance coverage from which a settlement or judgment can be paid because, although there is only a fixed amount of money that can ever be collected in most cases where insurance coverage is limited, there is no guaranty that such cases will be resolved quickly and the interest on the loans continues to accrue – and the repayment amount of the loan continues to grow at an exponential rate – no matter how long the case takes to come to a conclusion.
In such a case, when it comes time to finally settle, or when judgment is finally entered, the repayment amount of the loan may consume most or all of the amount of money that the plaintiff is entitled to from the case, leaving the plaintiff empty-handed (aside from the money originally advanced to them through the “lawsuit loan”) when all is said and done. This can make even complicated and difficult cases (wherein lawyers would otherwise advise their clients to accept a smaller settlement to mitigate the risk of losing the entire case at trial) impossible to settle, as the loan company wants to be repaid, but the injured plaintiff also wants some money in their pocket as compensation for their injuries. These loans can force trials in cases that should be settled, and can result in everybody – the injured client, the lawyer and the loan company – losing everything in a case.
In situations like these, lawyers must aggressively negotiate with the loan companies to ensure that their clients, and not just the loan company, benefits from a settlement, which can be very difficult or impossible to do if the loan company is unwilling to reduce its claims to interest and fees. These situations cause grave problems not only for injured clients, but also for their lawyers; and can create conflicts of interest that can distort the attorney-client relationship by creating incentives for lawyers to be concerned more with obtaining their own legal fees than with ensuring that their clients obtain the maximum compensation to which they are entitled. To avoid these situations, it is incumbent upon the lawyers to properly advise their clients as to the limits of “lawsuit loans”, and also to ensure that they only do business with loan companies with which they are familiar and that are willing to provide relatively-reasonable interest rates and terms, and that are willing to negotiate for the benefit of all involved if circumstances require it.
So, are “Lawsuit Loans” a Scam or an Important Resource for Injured Clients?
The answer to this question is, as with most things in life, dependent upon the circumstances. To say that “lawsuit loans” are a scam, wholesale, fails to recognize the benefits that they can provide to injured people who have been disabled from working. While there are pitfalls to these loans, skilled personal injury lawyers with experience in setting up loan agreements for their injured clients can make sure that “lawsuit loans” work for the benefit of their clients, rather than as a hindrance to success. All in all, these loans are an important resource if used judiciously and effectively, with all of the risks considered and properly explained to the client. Lawyers must counsel their clients not to use these “lawsuit loans” to line their pockets with extra money to be spent frivolously, but only to use such funds if absolutely necessary to pay for essential living expenses, child care and other such necessary and important things.
If you need money while your Bronx accident lawsuit or medical malpractice case is pending, contact our team of Bronx accident lawyers to discuss whether a lawsuit loan is right for you. We will explain the risks and benefits to your Bronx personal injury case and make sure that you understand the terms of any lawsuit loan that another Bronx accident lawyer may have obtained for you. Contact our expert Bronx medical malpractice and personal injury lawyers at (718) 354-8000 for a free consultation today.