Lawsuit Loans – Use Only if You Absolutely Have To

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.

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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.

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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.

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7 Responses to Lawsuit Loans – Use Only if You Absolutely Have To

  1. mike says:

    if i have already received a lawsuit loan , can i sue because i felt they over charged me?

    • fl_litig8r says:

      If the loan company violated the written agreement by charging you more than the contract provides, it is a possibility (though it may not be worth enough for a lawyer to want to take the case). If they charged the amount the contract specified and you just think that it too much, you likely can’t sue, due to the gutting of most state usury laws during the Reagan years.

  2. disabledfool says:

    I fired my first lawyer after he did partial discovery in my case because he assumed the case would settle. He did no deposition, He did not get the survellience video. The Walmart attorneys where just buying time for discovery to run out. I had no idea my case was in discovery mode and scrambled for another attorney. Its hard to find another attorney. I have serious long lasting injuries. Most attorneys are saying the cost to fight the case with expert to trial run $40,000. I was wandering if I could do a fundraiser telling my story and that I was injured at Walmart without the core details. Can I mention where I was hurt.

    • fl_litig8r says:

      I’m not sure how well a fundraiser to pay for a personal injury suit’s costs would go over, and what you would do if you win — will you pay the donors back if your costs are reimbursed by Walmart? I’ve just never seen this type of thing being done, and I doubt it will work, but I never thought someone could raise any money on Kickstarter for making potato salad either.

      If you want to tell your story, I don’t see a lot of risk in it. There’s always the chance (albeit small) that Walmart could sue you for libel if you name them in a public statement about your case, but to win that case it would need to prove that your story is false. If you’ve already filed a lawsuit describing the facts of how you got injured, I can’t really see Walmart doing anything if you repeat this information as part of a fundraiser. The facts are already in the public record.

      With respect to firing your lawyer, it’s a hard lesson for clients to learn, but finding a lawyer to take over a case from another is very difficult. You really need to think long and hard before firing a lawyer, because, as you discovered, you may be left with no representation at all. Even a bad lawyer is usually better than no lawyer.

      If your case is as strong as you say, I’m surprised you haven’t been able to find a lawyer who would be willing to front the costs out of pocket and just deduct those from any settlement or judgment. Many, if not most, personal injury lawyers do this, even on expensive cases. It could be that they are not as confident as you are that you’d win in front of a jury, and because they know that Walmart has a reputation for not settling even the good cases, they are only willing to risk their time, and not their own money, representing you.

  3. disabled and hopeless says:

    Hi Thanks for publishing an informative site for people like me who need advise and don’t want to bother their paralegal with every little thing. I have a complex case I was injured at work because of third party stalking harassment, threatening my life etc. I became nervous, hypervigilant, terrified… you get the point. I also started to have physical effects from extreme amounts of stress. Back pain, headaches, stomach issues etc. Try to make a long story short I filed work comp they fought me for a year and a half and then accepted the psych portion of my claim but still today (3 1/2 years after filing) have not accepted responsibility of my back injury. As a result of the trauma(s) and the continuing trauma (them fighting me every step of the way, being fired while out on leave, loss of my trusted psychiatrist and psychologist because they took my benefits away, fear for my safety, financial hardship, complete break down of the person I used to be and no hope for my future) I have acquired fibromyalgia as if ptsd, daily panic attacks, hopelessness, grieving the loss of myself, depression, worrying about bills, trying to take care of three kids and a husband (with his own set of issues for me to stress about) and constant back pain were not enough now I have constant pain everywhere, zero energy, IBS, the list goes on and on. I am battling myself for myself and its the most emotionally painful and exhausting thing to go through. All the while they are still not acknowledging that this is their fault. I hardly leave my bedroom and thats on a good day. It doesn’t feel as though I am getting adequate help that I need. I am only seeing a psychiatrist no psychotherapist and my orthopedic dumped me because he was treating on a lien. Not that he was doing much for me anyway. I have been seeking out my own medical treatment through state funded health insurance but specialist that accept the coverage I have are non existent.Thankfully I have a pain management doctor that I see for medications and spinal injections but I want to get better not just medicated. My lawyer made a comment the last time that I saw him that my case was not worth that much. I am worried about that. Does that mean that he is not fighting for me? I have gone through hell and taken my family with me. I will never be the same healthy confident happy person I used to be. I am disabled and I feel pathetic. I dont understand why all of these things keep happening to me but everytime i think it cant get any worse it does. I have bills around $4000 a month and no income because my ppd just ran out which I think is BS because its a number that a doctor gave me such a long time ago and her report didn’t even make sense. Should I take out a loan against my settlement? And why would my lawyer say that? I have heard some lawyers get bought out by the insurance co. Is that true? Im drowning here.

    • fl_litig8r says:

      Your lawyer was not “bought out” by the insurance company. Whoever told you that happens probably also wears a tinfoil hat. He probably told you that he doesn’t think your case is worth much because that’s his actual opinion, and he’s trying to keep your expectations in check. You didn’t say if this was just a worker’s comp case or whether there were other claims involved — and I’m not implying that there are other claims available, just to be clear. If it’s just worker’s comp, then you need to understand that emotional distress damages aren’t even a possibility. All you’re really looking at is work-incident-related medical bills and a certain percentage of your lost wages. None of the stress and resulting disability caused by getting the runaround on your claim counts towards your damages — only the amount caused by the original workplace incident. Again, I’m assuming that this is just a worker’s comp claim because that’s the only one you mentioned.

      With respect to the lawsuit loan idea, as I say in the article, it is really only to be used as a last resort. The interest rates are obscene, especially if you carry it for more than just a few months. I’m sure your lawyer won’t like the idea, either, in part because he isn’t putting a high value on your case and probably suspects that any lawsuit loan you get will eat up a large portion, if not all, of your share of a settlement. Even when clients say that they understand that when asking the lawyer to help them get a loan, they are still pissed come settlement time (usually well after the loan money is spent and at a time when they were praying for another cash injection) because of how little money is left for them.

      I don’t mean to add to your stress by telling you all this, but I’d be doing you a greater disservice by not honestly telling you what I think is going on.

  4. disabled and hopeless says:

    Thank you for your honesty

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