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Can I Take a Loan Out in Advance of Settling my Case?
After suffering from a life-altering injury you will need substantial time to recovery and you may be unable to work and receive your usual paycheck. As you are recovering, you might see bills begin to pile up and experience a sense of panic as to how you are going to pay them. Personal injury cases may take years to settle and within that time the bills will continue to mount. Your workers’ compensation benefits might be delayed or might be insufficient to sustain your daily cost of living. It might come as an initial shock to see that you won’t be able to pay your monthly bills and will need a loan to bridge the gap. No matter the case (slip and fall, construction accident, auto accident, medical malpractice) a loan may be the only route to help you stay afloat until the end of your case. In New York State, funding companies provide lawsuit loans or pre-settlement loans. This is a loan given to plaintiffs as they wait for their case to resolve.
Lawsuit loans are vastly different than personal loans. Generally, when you take a pre-settlement loan in a personal injury case, the lender will not seek repayment in the event that you lose your case, just as the personal injury attorney will not seek repayment of their expenses if you lose your case. This means that it is extremely risky for a funding company to lend money to you. As a result, the funding company will charge extremely high interest rates. Some interest rates may reach 27%-60%. Be certain to read the terms of your contracts to know exactly what you are signing. Because the interest rates are so high, if and when you get a settlement, you may notice a large deduction from your gross recovery. The funding company will be paid back directly from your settlement proceeds. The good thing is the funding companies will not need to evaluate your credit history when offering you a loan because their determination whether to extend you a loan will be solely based upon the merits and value of your case.
How do I Know if I Need to Take Out a Loan?
The decision to seek a pre-settlement loan is a very serious one that can have major implications on your future financial recovery. Before you decide you need the loan, look at all your fixed costs and make a budget for yourself. Look to see if there are adjustments that can be made to your budget that might eliminate your need to take the loan. If friends or family can loan you money instead, you would be well advised to borrow from them instead of a funding company. Friends and family do not charge extremely high interest rates.
If you think a loan might be absolutely necessary, reach out to your attorneys to get their advice as to whether you should get such a loan. Your attorney may be able to advise you of the legal implications of the loan, and if you decide to proceed with the loan, advise you of the companies that may offer you the best terms. Never sign anything before carefully reading a funding loan agreement and speaking with your attorney. If you do proceed with the loan, you must understand that the interest owed to the funding company will grow exponentially over the life of your case.
If you recover money in your case, the funding company will have an enforceable lien on your funds. You will only receive your settlement check after the attorney is paid, the disbursements on the case are repaid to the attorney and all liens including loans, Medicare, Medicaid, doctors’ bills and public assistance repayments are paid. The amount you owe the funding company will come out of the settlement before you receive your check. So, it is important that you understand what you are getting yourself into before you rush into taking out a loan. Lawsuit loans are also not regulated in the manner of a personal loan such as a mortgage or car loan, which is why it is crucial you deal with a reputable company. Some might characterize the transaction, not as a loan, but as a high-risk investment in your case.
Medical bills, lost wages, and daily living expenses may collectively cause a great burden for you as you try to recover from a catastrophic injury. Your well-being is paramount as you await the settlement of your case. A loan may empower you financially and put you back on your feet as everything gets sorted out. Unfortunately, the loan may cost you a significant amount of your recovery from your case. Before you rush to borrow from a funding company, contact your attorneys to alert them to your financial situation so they may advise you of the best plan to secure your future.