Hypothetical Lawsuit Loan Examples
If you're researching lawsuit loans and wondering how they work a hypothetical example may help you understand the process.
Case 1: Motor Vehicle Accident
A plaintiff was rear ended in a car accident where they suffered bulging and herniated discs of the neck from whiplash. The plaintiff will be out of work for a few months. The plaintiff’s rent and car payment is due at the end of the month. They have exhausted all their savings and due to poor credit are unable to borrow money from a bank. The lawyer thinks the client’s case is worth $50,000, but the insurance company has only offered $10,000. Because of the state court’s heavy caseload, the lawyer informs their client that the case will take approximately 12 months to settle.
Option A. The client decides to take the $10,000 offer in opposition to their attorney’s advice. After the attorney takes a third of the settlement in fees and the medical providers take another $2,000, the client is left with $4,700.
Option B: Client decides to wait it out, but doesn’t find an immediate source of cash, is evicted from their apartment and their car is repossessed.
Option C. The client decides to call a lawsuit funding company and is approved for a $3,000 advance, which would allow them to scrape by for the next 3 months until they are able to return to work. The case takes 12 months as predicted and settles for $50,000 like the attorney originally predicted. The attorney collects a third of the settlement in fees and the medical providers collect another $2,000. Before the client receives their settlement, the lawsuit funding company is paid back $4,700 and the client receives $26,800.
Case 2: Workers’ Compensation
A factory worker got their hand stuck in a conveyer belt and severely burned their hand. They are unable to return to work for a few months and may have permanent damage to their hand. While the plaintiff is receiving weekly workers’ compensation benefits, they only cover a portion of what they were making prior to being injured. The insurance company has offered the plaintiff $75,000. Based on the severity of the injury, the attorney believes the case will settle a year from now for $250,000. However, the plaintiff can’t afford to wait a year and needs money now to pay his bills.
Option A: The client decides to wait it out and ends up losing his home. They end up having to move in with their mother-in-law.
Option B: The client accepts the $75,000 settlement offer against their attorney’s advice out of desperation. The attorney receives a contingency fee of $24,750 and the client is left with $50,250.
Option C: The client calls a lawsuit funding company and is approved for $1,000 a month for the next 18 months. The $1,000 a month advance will make up the difference between his workers’ compensation benefits and his previous standard of living. They will keep their home and not have to move in with their mother-in-law. After 18 months the case settles for $200,000. The attorney receives $66,000 in fees and the medical bills are covered by workers’ compensation insurance. The lawsuit funding company is paid back their principal plus fees and the client ends up with $106,733.
*Disclosure: The examples given are purely hypothetical. While they may describe an ideal situation, many things can and do go wrong in personal injury lawsuits. The fees described are an approximation of what a funding company may charge, but are not an offer or guaranteed rate. Please consult with your attorney before taking lawsuit funding.