How will the pre-settlement funding be repaid?

Pre-settlement funding is an option some personal injury litigants use to obtain funds while they wait for the case to be resolved. As with any loan, there needs to be a plan for repayment. How will the pre-settlement funding be repaid? The answer to this question depends on the type of pre-settlement funding obtained.

The two most common types of pre-settlement funding are non-recourse and recourse. Non-recourse pre-settlement funding allows a plaintiff to receive a cash advance from a lender in exchange for part of the future settlement. If the plaintiff does not win the case or does not receive a settlement, he or she does not pay back the funds. Recourse pre-settlement funding works the same way, but with one key difference: the plaintiff is fully responsible for repaying the advance in the event the case is lost or the settlement is not reached.

In the case of non-recourse funding, repayment is simple – the plaintiff does not make any payments if the case is unsuccessful or if the settlement is not reached. This makes non-recourse pre-settlement funding ideal for plaintiffs who cannot afford to pay back a loan if the case is unsuccessful. The only repayment made by the plaintiff is the portion of the settlement pledged to the lender, minus any fees associated with the pre-settlement funding arrangement.

Recourse pre-settlement funding works a bit differently. The plaintiffs are still required to make payments even if the case is unsuccessful or if no settlement is reached. Repayment of the funds is typically arranged between the lender and the plaintiff and can vary from lender to lender. Generally, the repayment is split into a series of fixed payments over an extended period of time. The payment amounts and duration of repayment depends on the size of the advance and the risks associated with the case. It is important to note that, in the event of a failed case or no settlement, the borrower is still responsible for repayment of the funds.

In some cases, a plaintiff may be able to negotiate a “reverse contingency fee” arrangement with their pre-settlement funding provider. In such a scenario, the lender’s repayment terms are relative to the settlement amount, allowing the plaintiff to make smaller payments relative to the success of the case. This type of arrangement is best suited for situations in which the plaintiff cannot afford to repay in full if the case fails.

Before opting for pre-settlement funding, it is important to research and understand the repayment terms and potential risks associated with the specific type of funding. Recourse funding carries the most risk and should only be pursued if the plaintiff is confident they will be able to meet the repayment terms in the event of a failed case or no settlement.

In closing, how will the pre-settlement funding be repaid depends on the type of funding received. Non-recourse funding requires repayment of the portion of the settlement pledged to the lender, minus any fees, in the event of a successful conclusion. Recourse funding, on the other hand, requires a series of fixed payments regardless of the case outcome. It is important to understand how and when the funds will be repaid before taking out pre-settlement funding.