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The Growing Popularity Of Settlement Funding: What It Is & How It Works

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Legal action is expensive and people often have a number of costs that are related to their lawsuit such as medical expenses, loss of wages, or other costs.

Settlement funding is a great solution that can help to alleviate the burden placed on individuals by mounting bills or debt. This option for financial assistance is made accessible to those who need it by settlement funding providers and allows people to access funds before they are paid to them.

It provides individuals with the ability to keep their heads above water while going through litigation by offering an advance on their potential settlement or judgment.

This article will look at what settlement funding entails, how it works, and why it is becoming increasingly popular.

Understanding Settlement Funding

As briefly described above, settlement funding is an agreement between an individual who is engaged in a legal battle and a company that provides funding. The purpose of this funding is to offer immediate financial relief to individuals involved in a lawsuit.

This is particularly useful in personal injury cases where there are medical bills to be paid or loss of wages due to time off work. Settlement funding does not operate in the same way as a traditional loan. Instead, it operates on a non-recourse basis, which means that the lender is only entitled to payment if they win or settle their case.

Understanding Settlement Funding

The Application Process

The individual will have to apply for settlement funding through a specialized funding company. Plaintiffs will typically have to provide the company with details about the case, including the nature of the lawsuit, damages sought, and any relevant evidence.

The funding company then assesses the merits of the case, considering factors such as liability, potential damages, and the likelihood of success. This type of funding is appealing to plaintiffs with a poor credit score because unlike with traditional loans, the plaintiff’s creditworthiness is not a primary consideration in the application process. 

Underwriting 

Once the application has been received, the funding company will conduct a thorough underwriting process. This involves a detailed analysis of the case’s strength and the risk involved in providing funding. The decision to approve is based mainly on the merits of the case and if it is deemed suitable for funding, the next step is the funding agreement. 

Funding agreement

The individual and the funding company will enter into a formal agreement regarding the provision of settlement funding. This document will outline all of the terms and conditions of the arrangement. This includes things like the amount of funding provided, the associated fees and costs, and the percentage of the positive judgment or settlement that the company will receive. It is of utmost importance that both parties understand what the agreement entails before proceeding.

Repayment

If the lawsuit results in a favorable judgment or settlement, the funding company is entitled to receive a percentage of the proceeds determined in the funding agreement. This would include both the amount funded as well as any fees specified in the agreement. What is important to note is that if the individual does not win the case or reach a settlement, they are typically not obligated to repay the funding, however, this is something to look out for in the funding agreement. 

Related: Fund Your Lawsuit: What Are The Top Litigation Funding Companies?

Fees 

Settlement funding typically does not involve interest rates but funding companies often charge fees for their services. The amount of these fees can vary and will most likely include some kind of origination cost, and perhaps a monthly fee as well. Again, this is something to look out for in the legal agreement. It is important to make sure that both sides understand the costs involved before moving forward. 

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Increasing popularity

There are several factors that contribute to the growing popularity of settlement funding including, financial relief during litigation, access to resources, decreased risk, no credit score impact, and increased awareness.

Legal proceedings are often lengthy and can stretch over months or even years. It is common for the individuals involved to face significant financial strain during this time. Settlement funding helps cover essential expenses and allows individuals to withstand the financial strain associated with legal engagements.

Furthermore, this kind of funding gives individuals with limited resources access to justice by enabling them to pay for a good lawyer among other things, it therefore levels the playing field for those with valid claims.

The result is that justice is no longer only for those who can afford the costs of litigation.It also minimizes the financial risk for individuals as they are only required to pay upon a successful outcome, meaning they are not obliged to pay if they do not win or reach a settlement. 

This risk-sharing arrangement makes it an attractive option for those who might otherwise struggle to secure financial assistance. And, unlike traditional loans, it is not based on the plaintiff’s creditworthiness. Therefore, applying for and receiving settlement funding does not impact the individual’s credit score. Ultimately, an increase in awareness of settlement funding means that more individuals are exploring this as an option when engaging in legal battles.

Settlement funding is therefore a valuable financial tool for individuals engaged in legal battles and its risk-free nature along with the relief it provides has contributed to its increasing popularity. However, as settlement funding gains traction, it remains essential for individuals to carefully consider the terms of settlement funding agreements, stay informed about relevant regulations, and seek professional advice to make informed decisions.

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