Pre-settlement Loan

Written by Patricia Tunstall
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Pre-Settlement Loan and a Market Approach

A pre-settlement loan is legally incorrect, as pre-settlement funding is not a loan that must be repaid. Any legal advances are the plaintiff's to keep, and the third-party company making a pre-settlement loan only collects the fees spelled out in a financial agreement if the plaintiff wins the lawsuit. Should the plaintiff lose, the company receives no money whatsoever.

This is strictly a business arrangement that brings a market approach to claims and lawsuits out into the open. A market perspective already characterizes many aspects of the law and the attorney-client relationship, but the new-found candor of third-party relationships disturbs some traditional lawyers and business groups. Nevertheless, making clear-cut investments in plaintiffs' claims is a growing practice that is expanding the limits of third-party participation in lawsuits.

Outside Funding of Negligence Cases

One of the most common theories used in lawsuits is negligence; even laypeople know and use the term. A driver of a car can be negligent and injure or kill another. A doctor can be negligent and operate on the wrong foot of a patient. Anyone can be called negligent if they are careless or reckless in their conduct and injure someone else.

All too often, lawsuits based on negligence are not even filed, or are dropped because of the plaintiff's insufficient funds. A pre-settlement loan offers a reprieve and enables the injured plaintiff to proceed in court. Such outside funding has opened the discussion of the claim as asset, and raised the possibility of the plaintiff selling or auctioning off the claim entirely. There are all kinds of legal objections to this scenario, but it is interesting that the ideas are being seriously weighed.


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