In my law practice, I have always advised clients not to obtain a “lawsuit loan” unless they have absolutely no financial alternative. For those not familiar with the concept, there are companies which will loan plaintiffs money against an anticipated settlement or judgment. The good thing about these loans is that should you lose your lawsuit, you do not have to repay the loan (at least this is the case with all the companies with which I am familiar). The bad news is that you will be charged an extremely high interest rate for this loan. I’m talking “worse than credit card cash advance” interest rates.
Why Would Someone Take Out a Lawsuit Loan?
Personal injury plaintiffs often miss work, and sometimes lose their jobs entirely, due to their injuries. Their bills don’t stop coming just because they’re hurt. And let’s face it — lawsuits can take a long time to resolve, sometimes years. When a plaintiff has exhausted all other means of borrowing, a lawsuit loan may be the only way to pay his mortgage/rent or put food on the table. If this is your circumstance, then a lawsuit loan may be your only option. On the other hand, if you are merely impatient or you want some money for Christmas or birthday presents, you would be a fool to take out a loan at such a high interest rate. Your short-term pleasure will be more than offset by your long-term pain when the time to repay the loan comes around.
Your Lawyer Will Not Be Happy
Aside from a lawyer’s general misgivings about the wisdom of a client taking out a lawsuit loan, he will be unhappy for another reason: the companies that issue these loans require lawyers to fill out a bunch of forms and provide supporting documentation about your case before they will consider lending you money. Basically, you just made a lot of extra work for your lawyer — and this extra work is to help you do something he already considers to be a bad idea.
While you may consider the handling of this loan paperwork to be part of your lawyer’s job, he most certainly will not. His job is to extract as much compensation from the defendant that hurt you as possible. Helping you with a loan application is going above and beyond. More work for no extra pay doesn’t make any lawyer happy.
If your lawyer has never dealt with one of these types of loans before (these are not routine) there will be ethical questions he will need to research before filling out the loan paperwork. These companies don’t care if they have questions on their forms which would violate legal ethics to answer. Be patient if your attorney can’t turn around the paperwork in a day.
Keep in Mind that the Loan Money You Get Now Will Reduce What You Get From Your Settlement Later
It may seem obvious to point this out, but many clients who take out these loans seem to discount them when it comes time to settle their case. This is probably because the loan money is long gone months before a good settlement offer comes in. Plaintiffs tend to have a dollar amount in mind as to their final “take” on a lawsuit, and it is all to common for that number to remain unchanged even after a loan is taken out.
This is another reason lawyers don’t like dealing with these kinds of loans. They make cases harder to settle. Now, in addition to your attorney’s fees, costs, and medical bills being deducted from your gross settlement, you have a loan plus interest to deduct as well. Some plaintiffs will try to offset their loan expense by holding out for an unreasonably high settlement offer. Don’t be one of those people. Realize that you got paid in part a while ago (through your loan) and adjust your expectations for recovery downwards accordingly.
Who to Use for Your Lawsuit Loan?
Before I make my recommendation, know that I have absolutely no affiliation with any lawsuit loan company and I make no money from referring you to any particular one of them (some of these companies may appear in the Google ads on my site, but I don’t pick them — Google does). Go with whoever offers you the best deal. That being said, I would use Peachtree. In my experience, they have the lowest rates for this type of loan (mind you, these are not low rates) and are fairly painless to work with as a lawyer. I would definitely include them in a short list of lenders if you want to shop around.
Parting Advice About Lawsuit Loans
If you absolutely need a lawsuit loan, only borrow as much as you need. The lender may offer more, but resist that temptation. You can always go back to them and ask for more if you need it later. I had one client who took out three consecutive loans in a case involving multiple defendants who were all dragging the case out.
Keep in mind that given the current economy, your loan application may be denied. This is not necessarily a reflection on how strong or weak your case is. Some lenders are wary of lending money unless the defendant in your case is insured by an A+ rated insurance company. Even if your defendant is a self-insured Fortune 500 company, you can get denied because the lender’s underwriting guidelines require an A+ rating, which self-insurers won’t have. Your lawyer’s opinion as to the merits of your case is much more important than a lender’s.