Getting Your Settlement in Advance
If you’ve seen the commercials, you may be aware that some companies offer to pay you early for your personal injury settlement. For people who need money quickly, this can be really tempting. You may be wondering, “Should I get an advance on my personal injury settlement?”
As a Memphis personal injury attorney, I strongly discourage our clients from getting their settlements in advance. Here’s what you should consider about the pros and cons.
What Are Pre-Settlement Loans?
Pre-settlement loans, also known as lawsuit loans or litigation funding, provide cash advances to people who are awaiting an outcome on pending legal cases.
Pre-settlement loans offer a portion of your expected settlement or judgment amount before the case is resolved. You repay the loan out of your future settlement or judgment proceeds.
The Pros of Pre-Settlement Loans
The only real pro of a pre-settlement loan is that it tides people over when they’re desperate for cash.
They can be extremely tempting. If you’re already pursuing a personal injury case, you’ve probably experienced financial strain from the mounting medical bills and other living expenses resulting from your injury.
However, they come with high interest and can easily cut into how much you make from your claim.
The Cons of Pre-Settlement Loans
Pre-settlement loans come with exorbitant, even abusive, interest rates. As you wait for your case to settle, whatever they offered you at the beginning grows in interest so that by the time you get a settlement, you may owe the entire thing back to someone else.
This means you could take out a $500 loan, then win a settlement a few months later for thousands of dollars. And instead of getting to keep the money, you’ll owe it all to the loan company as interest.
A Lack of Regulation
These types of loans aren’t regulated by the federal government. That means you don’t have a lot of options if they don’t go your way.
It also means the companies are allowed to get away with rules that really could hurt people.
Makes Settlement Difficult
Imagine you take out a loan for $1000 on a settlement that’s going to be worth $5000. But it takes some time to get that settlement, and over the course of those months your interest accrues to $3000.
In that situation, you owe so much of your settlement back to this loan company that you may become frustrated and want to settle for a higher number.
The problem is, the insurance company doesn’t care that you took out that loan. They’re only going to settle with you for the amount your case is actually worth. They won’t add money to the pot to cover your debt.
By the end, you may get nothing from your settlement at all. And no one wants that to happen. I’ve seen this happen time and again, and clients always end up unsatisfied and frustrated.
Legal Help for When You Need an Advance on Your Personal Injury Settlement
In order to get an advance on your personal injury settlement, you need your lawyer’s signature. In general, we strongly advise against it, because we don’t encourage people to lose money through debt.
Instead, we help folks deal with their financial struggles in a healthier and safer way long-term. In an ideal world, you’ll get the right kind of help so you don’t need a dangerous loan that could cause you to lose everything.
Our Memphis bankruptcy attorneys have helped thousands of people get out of debt over the years. If you’re struggling financially, let us know. We’ll talk with you about your situation at no charge and let you know what options you might have.