Legal Funding: Post Settlement vs Pre Settlement
Imagine this scenario: You are driving to work in the morning with coffee in hand and your briefcase on the seat next to you. You've heard on the radio that traffic is a bit slow this morning so you pay extra attention to the road to make sure you aren't caught by surprise. Sure enough, you see a slow-down ahead, so you apply the brakes and reach down to take a sip of coffee.
Before you can process, a car slams into you from the rear. You aren't seriously injured, but there are sharp pains in your neck and back - common with whiplash and these types of accidents.
Getting treatment is costly. Pain medication is costly. Physical therapy is costly. The bills are adding up and insurance is not coming through. Knowing that this accident was clearly the other person's fault, you file a lawsuit to be compensated fairly for what happened.
This situation is all too common. What happens after we get to this part in the story often takes many years. All the while, you are still in pain (physically and mentally) and are still footing the bill.
So what do people do in these situations? Their bank account is shrinking and they simply don't know what to do next. A common solution is turning to credit. As you can imagine, this can easily lead to further financial issues. Rates can change and lenders often get nasty.
Another option that isn't considered as often, due to lack of knowledge or a misinterpretation of what the industry does, is legal funding. There are two main types of plaintiff lawsuit funding: pre settlement funding and post settlement funding.
Pre Settlement funding is the most common type of lawsuit financing. This means the plaintiff gets a cash advance before the lawsuit is settled. In many cases, there is no obligation to repay if the lawsuit is lost.
Post settlement funding is considerably less common but often makes the most sense assuming it's an available option. Even after a case is won, it often takes months or sometimes years before the physical receipt of payment. Reasons for this delay include slow paying defendants, court approvals, and administrative deferments.
The risk to the funding company with a pre-settlement advance is quite high. Hence the rates are generally quite expensive. With post-settlement funding, there is little investment risk for the financing company because the case has already been decided. So the rates are much more reasonable compared to pre-settlement rates.
Pre settlement advances generally don't exceed much more than 10% of the estimated case value. With post settlement funding, the vast majority of the legal fee can be advanced.
In addition, pre settlement companies usually focus on personal injury cases. Post settlement funding companies will generally fund a wider variety of lawsuits, such as:
- Medical malpractice
- Wage and hour disputes
- Wrongful death
- Infant injuries
- Court appointed fees
- Class actions
- Employment discrimination
If you are struggling with debt due to the delayed payment of a lawsuit award, legal funding (either pre settlement or post settlement) can help resolve your cash flow issues.