Pre-settlement funding can be a lifeline when you’re going through a lengthy legal battle. It provides you with the financial support to cover essential expenses like medical bills, rent, or even day-to-day costs while you wait for your case to settle. But what happens if you lose your case after receiving pre-settlement funding? It’s a common concern and one worth understanding fully.

What is Pre-Settlement Funding?

Before diving into the potential outcomes of losing your case, let’s first clarify what pre-settlement funding is. Pre-settlement funding (also known as a lawsuit loan or legal funding) is not technically a loan. Instead, it’s a cash advance given to plaintiffs in exchange for a portion of their potential settlement or jury award. Unlike traditional loans, there is no requirement to pay back the funds unless you win your case.

Companies that offer pre-settlement funding evaluate the merits of your case before agreeing to provide you with the advance. They’re essentially betting that you will win or settle favorably and, when you do, they will recoup their advance with interest or fees.

What Happens if You Lose?

One of the main benefits of pre-settlement funding is that it is non-recourse. This means that if you lose your case, you do not owe the pre-settlement funding company any money. In other words, if there is no settlement or jury award, you are not required to pay back the advance.

This “no-win, no-pay” structure provides a significant level of security for plaintiffs. Here’s what typically happens:

• No Obligation to Repay the Advance: Since pre-settlement funding is contingent on the success of your case, losing means that the funding company takes the loss, not you. They cannot pursue you for repayment, and your financial standing remains unaffected by the advance.
• No Impact on Your Credit: Because pre-settlement funding is not a loan, it does not appear on your credit report. Losing your case will not damage your credit score, and there are no collections or legal actions against you as a result of the funding.
• No Additional Financial Burden: After losing your case, you can focus on moving forward without the added stress of owing a large sum of money to the funding company. The financial burden you feared won’t materialize, allowing you to focus on the next steps, whether it’s continuing with other legal options or simply returning to your daily life.

Why Would a Pre-Settlement Funding Company Take This Risk?

It may seem surprising that pre-settlement funding companies are willing to take the risk of not being repaid. However, they are highly selective about the cases they choose to fund. They assess the likelihood of success based on the strength of your case, the type of lawsuit, and potential settlement value.

By carefully vetting cases, they minimize their risk, but they also understand that some cases will be lost. In exchange for assuming that risk, they charge higher fees and interest rates than traditional lending institutions. But again, if your case does not resolve in your favor, they absorb the loss.