What Is A Lawsuit Loan?

What Is A Lawsuit Loan?

What Is A Lawsuit Loan?

Unless you record all of your favorite TV shows and skip through all of the commercials, you have heard the rather annoying (but memorable) jingle telling you whom to call if you “need cash now.” What exactly are they selling, and is it legitimate? The ads you hear on television are for a company that will give you a lump sum in exchange for the right to collect payments on your structured settlement in the future.

It is similar to the cash option when you win the lottery. You can take the entire amount in payments, or you can receive a smaller amount right away. For people who are not good at managing money, it is probably not a good idea to give up a guaranteed income for life in exchange for even a large amount of immediate money.

Lawsuit Loans Are Different

A lawsuit loan is not the same as a structured settlement payout. In fact, a lawsuit loan is technically not a loan at all, but an advance against a future payment. If you have a pending lawsuit with a good chance of resulting in a significant verdict in your favor, you may borrow against your future payment. The difference is, while the loan is paid back out of the proceeds of your settlement, you do not forfeit your rights completely. Depending on the amount of the loan, you will pay a portion, not the entirety, of your final settlement after your case is completed.

If you borrow $10,000, for example, and your final settlement is $50,000, your $10,000 loan, plus interest, will be deducted from your $50,000 payout. If you ultimately lose your case, you are not required to make any payment. The lender assumes the risk of an unsuccessful case. Fair Rate Funding in New Jersey is one example of a lawsuit lender. Before considering whether a lawsuit loan is right for you, read the information on their site, and check out several others.

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What Happens If You Don’t Win Your Case?

Lawsuit lenders will loan money in several situations:

  • You have a case pending and need money for medical bills or other expenses.
  • You have been awarded a verdict or settlement, and you need money until your check arrives.
  • You won your case, but it is under appeal.

Obviously, the risk for the lender is the greatest when your case is still pending. Therefore, interest rates will be higher on loans made under those circumstances.

How Much Control Does The Lender have Over Your Case?

Lawsuit lenders have no control over how your case proceeds. All decisions regarding your case remain with you and your attorney.

Tax Consequences

Your lawsuit proceeds may or may not be taxable. If it is taxable, the cost of the loan may be deducted as an expense. Talk to an experienced accountant like De Leon Accounting PLLC before deciding on whether a lawsuit loan is appropriate. If your case ultimately fails, the amount you received may be considered taxable income.

The Bottom Line

Lawsuit loans are not for everyone, and should be researched thoroughly. Talk to your attorney and tax preparer before making a decision, and know all of the potential advantages and consequences before making a decision.