SETTLEMENT LOANS…A GOOD IDEA OR SOMETHING I MAY REGRET?
Hoffspiegel Law Blog
One of the many negatives that you may experience if you are badly injured is that you may be unable to return to work. If you are not covered by workers’ compensation (which may not be sufficient even if you are) or a disability policy, you are understandable concerned about paying your bills. Over the past several years, many companies that provide loans to injured persons have popped up to service this need.
There are several benefits to using a funding company. There are also a number of downsides. Think carefully before you act.
As to the positives, the application process is fairly simple. And you are likely to receive your funds within a matter of days. You can pay off some bills and attend to urgent needs. And the loans are typically non-recourse. What that means is that if you try your case and lose, you will not have to pay back the loan out of your own pocket. The payment will come from settlement of your case or a judgment after trial.
But…not so fast. First, the case has to have some real value to get any sort of meaningful funds. And you can go back again if you need more money at a later date. But the cost of borrowing is very steep.
First, the funding company will charge you an origination fee for the transaction. Recently a client got a $5,400 advance. He was charged a $375 origination fee. There was a $25 fee for delivery of the check. He therefore was charged a total of $5,400 less expenses. So right out of the box he was given a check for $5,000 but now owed $5,400. The funding agreement stated that after 3 months he would owe them $6,750. After one year he would owe them $10,800. He ended up taking several advances. And close to $100,000 came out of his pocket to pay back the funding company when his case was resolved. Our rough rule of thumb is that you will pay back twice what you initially put into your pocket. If you are not able to resolve your case for a long time, it may be worse.
We have had several cases where our clients’ funding fees were so steep that they ended up with nothing in their pocket at the end of the case. They had significant regret about having taken the money in the first place. It is tempting. Quick cash in a time of need is always helpful. But you need to be certain that you have no other options. Sometimes, if you can, tightening your belt is a better option. Borrowing money from a friend or family member, while not generally a good idea, is certainly superior to paying exorbitant fees. The money you earmarked for home improvements or a new vehicle once your bodily injury claim was resolved may turn out to be a pipe dream.
Your attorney will have to represent to the funding company that the value of the case will support the loan. That cannot always be done. And your attorney will have a contractual obligation to repay the money. In other words, it has to be repaid from your settlement. And at the end, when you see the large bill that comes directly from your pocket, you may have remorse. If you have another option, you will be better served to take advantage of it. Funding companies are a last resort means of getting cash…only use a funding company if you have absolutely no other options.
Contact an Atlanta Car Accident Attorney Today
If you were involved in an Atlanta car crash and your own negligence contributed to the accident, do not hesitate to speak with an attorney. Contact our Atlanta car accident attorneys Lloyd and Alex Hoffspiegel to discuss your particular case. Call (404) 760-8600 to schedule a consultation with our lawyers at Hoffspiegel Law.