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Should you borrow against a possible settlement?

Posted by Scott M. Peterson | Jan 30, 2018 | 0 Comments

A recent article in the New York Times, titled, "How the Finance Industry is Trying to Cash in on #MeToo", highlighted a little known but very lucrative business - lawsuit advance loans. 

Companies have been targeting potential plaintiffs in sexual harassment cases following the string of recent claims against Harvey Weinstein, Matt Lauer and many, many others.  

These "loans" - and we use that term in quotes because the companies who make them avoid regulation by calling them "advances" often come at a steep price.  In many cases the "rates" at which the money is advanced, are upwards of 100%.  That means that to receive an "advance" of $2,000 against an eventual settlement, the injured party must be willing to pay back $4,000 or more.

So what is a lawsuit "advance", and should you consider getting one?

When you file a lawsuit, whether because of a catastrophic personal injury, sexual harassment, or discrimination, you are seeking damages.  Depending upon the severity of your injury, the damages that you are seeking might be significant.  Unfortuantely, many people who bring lawsuits find themselves in a position of not being able to work, and quite often have a difficult time supporting themselves or their families.  Personal injury and employment discrimination lawsuits can take months or even years to resolve, and even if you have a strong case you may have to wait some time to get what you deserve.  So what do you do to support your family?

This is where legal advance companies come in.  These companies offer cash to injured parties in exchange for an agreement that they will be paid back when the lawsuit is resolved.  The upside is that, generally, if the case is not resolved favorable, and the injured party gets nothing, the company will not be paid back.  The downside, however, is steep.  

The High Price of Borrowing Against a Lawsuit

It's understandable that you would want to take an "advance" against a lawsuit - but before doing so you should consider your other options.  

First, if you have suffered severe injuries, whether as a result of a catastrophic accident, sexual harassment or discrimination at work, you should seriously consider working with an experienced lawyer.  The stress and fears associated with these types of injuries can take over your life - we know because we see this every day.  Things can often seem bleak, and it can be difficult to see any light at the end of the tunnel.  When you have no money and mortgage/college/food bills, paying 80% "interest" on a lawsuit advance may seem like the only option.

But there may be others.  Before taking a lawsuit advance consider whether you can borrow from family, against a retirement or life insurance policy, or even whether you can call the bank and defer payments because of your situation.  These options typically offer much lower effective rates of interest.  

If you truly believe that you have no choice, and need to borrow against your injury case, be sure you reach out to your lawyer to discuss your options.  As with most things, lawsuit advance companies are not created equally, and there are some with much better reputations within the legal community than others.  The decision of which lender to use can cost or save you a significant amount of money.

Finally, remember that your lawyer's job is to get you the best result, for you.  Sometimes this means pushing a case through to trial.  Other times this means pushing the case towards settlement given all of the available factors (including your needs).  Your lawyer should not discount your own concerns, and should speak with you about options.

If you have questions about a serious injury, sexual harassment or a lawsuit advance, contact us today.

About the Author

Scott M. Peterson

Scott M. Peterson is the founding partner of D'Orazio Peterson, having left a partnership at a large regional law firm to limit his practice and focus on exclusively representing individuals in a small number of employment and serious injury/medical malpractice matters. Scott's favorite part of practicing law is getting in front of a jury and standing up for an individual against a large company or institution.

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