Legal Funding

As anyone who has been involved in a personal injury lawsuit knows, once a lawsuit is filed, it can be a long time before a settlement is reached and any award is paid. As a result, some people turn to lawsuit funding. Plaintiffs usually have ongoing expenses to cover while waiting for their lawsuits to work their way through the legal process—including medical care and cost-of-living expenses. Legal funding companies offer pre-settlement funding and post-settlement funding to help plaintiffs survive financially while they wait for their awards.

Pre-Settlement Funding

Pre-settlement funding is money given by a firm to a plaintiff in anticipation that the plaintiff will receive a settlement in her lawsuit. A lawsuit can take years to settle, during which time a plaintiff may have financial needs that must be taken care of immediately, for things such as medical care or to cover living expenses while the plaintiff is unable to work.

By obtaining pre-settlement legal funding, the plaintiff has immediate access to money and is not required to pay the firm until a settlement is reached in her lawsuit. Pre-settlement funding companies offer up to $500,000 for plaintiffs in lawsuits. Pre-settlement funding is offered as non-recourse funding, which means that plaintiffs only pay the money back if they win their lawsuit or obtain a settlement. Furthermore, they only pay back up to their portion of the settlement if their settlement is less than anticipated.

Lawsuits eligible for such funding typically involve personal injury or wrongful death. Companies that offer pre-settlement funding often charge fixed fees, monthly fees or a combination of both.

Pre-settlement funding is not currently legal in all states. In some situations, pre-settlement legal funding may eat up all proceeds from a settlement. Some companies charge high fees for funding and some put limitations on how the money can be spent.

Post-Settlement Funding

Post-settlement funding occurs after an award has been made or a settlement reached in a lawsuit but before the award or settlement is paid out. Some plaintiffs find that they require post-settlement legal funding because even when an award or settlement is given, it can still take time for the payment to be made. In the case of an award, the defendant could appeal the court's ruling, resulting in a long time before the award is paid out.

Meanwhile, the plaintiff may need access to money during that time to pay for ongoing medical care or cost of living expenses.

Post-settlement lawsuit funding is legal in all states. It is considered non-recourse funding, meaning that if the plaintiff does not receive the award money—for example if the defense is successful in appealing the award—then the money is not paid back to the funding company.

Structured Settlement

A structured settlement is a financial arrangement in which a claimant in a personal injury or wrongful death lawsuit accepts periodic payments to resolve a claim rather than a lump sum settlement. Often, structured settlements involve the use of annuities, which guarantee that future payments will occur. Structured settlements can involve any schedule that the parties agree to, including monthly or yearly payments or even payments every few years.

Structured settlements can be beneficial to the claimant because they can reduce his tax obligations. Furthermore, they provide long-term finances for people who may require future care but are worried about managing a lump sum payment. Finally, structured settlements are guaranteed and their rate of return is not affected by changes in the market. However, for people who want to invest or need the money right away—for example, they want to purchase a new home—structured settlements may leave them without the finances they need.

Selling Structured Settlements

There are companies willing to purchase structured settlements from plaintiffs. They pay a lump sum amount to purchase the structured settlement from the plaintiff, which provides the plaintiff with accessible money.

Companies who buy structured settlements make their money by purchasing the structured settlement at a discounted rate—less than what the plaintiff would have received if she kept the structured settlement for the full term. While selling a structured settlement may be a good option for a plaintiff who needs readily available cash, consumers should take caution. Because companies that buy structured settlements do so to make a profit, consumers need to completely understand the terms involved in selling a structured settlement to ensure they are making the best financial decision for their situation.

However, some states have laws that restrict the sale of structured settlements. Furthermore, tax-free structured settlements face federal restrictions on their sale. Finally, not all insurance companies will assign or transfer annuities to a third party.