What Is A Lawsuit Settlement Loan?
When a plaintiff files a civil lawsuit against another person or organization, there can be 3 types of compensation he could seek. One is a settlement in form of cash or kind; the second is imprisonment of the defendant and third is a combination of both. In case the plaintiff wins his case and is awarded a settlement, the money or kind compensation is given to him after the verdict. This might take months or may be years. Many a times, the plaintiff is in a financially insecure position and is in dire need of cash while the case is in hearing in the court. At this point of time, a lawsuit settlement loan is the answer to solve his financial problems.
A lawsuit settlement loan is provided by a litigation financing company. Banks or other financing companies do not offer this type of financing as they consider it a high risk area. Once approached by the plaintiff, a litigation settlement company will take the details of the case and get the risk level evaluated by their panel of lawyers. If they find that there are reasonable to good chances of the plaintiff winning the case, they would offer cash advance against the settlement amount claimed in the lawsuit. As in any other form of financing, the risk assessment undertaken by the loan provider is the key to whether the applicant's loan would be approved.
A lawsuit settlement loan is non resource by nature. That means that it is a secured loan with the proposed settlement amount taken as collateral. Usually 5% - 10% of the settlement amount is loaned to the plaintiff. In case, plaintiff wins the case, the loaned amount is taken off the settlement compensation received. However, as the loan is non recourse in nature, if the plaintiff loses and the case and is not awarded any settlement compensation, he does not need to pay back the loan provider. Also if the settlement amount is lesser than the loan provided, the plaintiff does not need to pay back the excess amount.
The loan applicant can request the financing company to structure the loan amount disbursement according to his individual needs. For example, if the plaintiff wants he can ask a part of the loan amount to be given to his attorney for the legal fees or for medical purposes as required. Alternatively, he can ask for the entire amount to be given as cash to him. Usually lawsuit settlement loans agreement does not specify the purpose on which the money can be spent. In this matter, it works like a personal loan. The loan applicant can spend the money on whatever he wishes to. It could be legal fees for the case, medical bills, and utility bills or if he wants he can use the money received for investment.