Professional ethics prohibit your personal injury attorney to give you a loan against your lawsuit. It makes sense.
If they provide you with a loan against your case, they now have a personal stake in the case which can lead to a conflict of interests.
The most important part of having a personal injury attorney is that your interests are both aligned.
The moment they are not, bad things can happen for you and your case.
For example, your attorney needs the cashback that they loaned you against your case.
They may decide to settle your case early so that he can get his money back. As a result, they may take less money for your case so that they can get their money back from the lawsuit loan.
This is why companies like Delta Lawsuit Loans exist. When we provide a lawsuit loan to our clients, we never have a say in the case.
We have no control over when you settle your case, for how much or when you will pay back your lawsuit loan.
We put that term in the loan lawsuits agreement so that it is clear that we do not get involved. In fact, that is the law.
However, your injury attorney obviously needs to be involved in your case so there is automatically a conflict of interest when he provides you with a lawsuit loan.
Is it Ethical for Lawyers to Get Cash Advance from their Clients?
There are times that it is both ethical and reasonable for your attorney to advance money for their clients.
However, it is not really a lawsuit loan but rather a lawsuit advance.
Most reputable attorneys will do this. They will advance any hard costs associated with your case and you will pay them back from your lawsuit proceeds.
Some examples are court fees, overnight packages like FedEx, expert witness fees, depositions, and costs associated with investigations.
There are advances and not really a lawsuit loan.
Although similar to a lawsuit loan in the sense that if you don’t win your case, you don’t need to pay us back, there is no interest associated with these lawsuit advances.
Although ethically and morally your attorney is not allowed to nor should they give you a lawsuit loan, they do need to cooperate with both you and the lawsuit loan company to secure the money for your lawsuit loan.
If you cannot secure their cooperation, rarely if ever would a lawsuit loan company provide you with an advance.
Because the lawsuit loan company ultimately gets paid through your attorney’s office, they will require then to sign a “Lien acknowledgment”
What the lien acknowledgment essentially says is that they are aware that there is a lawsuit loan on this case and when the funds come in, they will make sure that it is paid back once you win your case.
Here is how it works:
- When you win your case, the insurance company does not send you the money directly. They first send it to your attorney who should put it into an “Escrow account”.
- They then take their agreed-upon fee (Usually somewhere between 30% and 40%), their case expenses for some items discussed previously, pay any medical liens, our lawsuit loan, and then sends the balance to the client to keep.
Given that your attorney does not get paid extra to deal with your lawsuit loan and sometimes it is considered just another “headache”, quite often they will try to convince the client not to pursue a lawsuit loan.
And they often have some very compelling reasons for why you should not take a lawsuit loan.
For example, they might tell you that a lawsuit loan is an expensive money. In fact, they are correct that it is. However, there are good reasons for it being expensive.
A Loan for Lawsuit is Just That: A Money You Borrow
The money provided to you is not actually a lawsuit loan. It is a lawsuit advance that you will only pay back if you prevail in your lawsuit and win your case.
You also need to win enough money to pay the lawsuit loan company back. If for any reason you do not win your case, you get to keep the money and do now owe it back.
Let us say we give you an advance of $10,000 for your case. If you don’t win your case, you keep the $10,000.
However, let’s say you do win your case but for less than expected, we may not be able to recover the principal, let alone the interest.
In the same example where they advance you $10,000 and you owe at this point, $14,500 and you win $20,000. Here is how the match might look.
Your attorney keeps 35% of your winning for a total of $7,000.00.
They then have case expenses of $3,000.00 and you have the medical liens of $7,000.00
You are left with only $3,000.00 to pay back a loan of $10,000.00 and an outstanding balance of $14,5000.
This is the reason the rates are high.
The simple math is that not all cases win and not all cases win enough money to pay off your lawsuit loan.
However, it is important that you shop for different lawsuit loan companies as rates vary widely.
As a rule, most reputable lawsuit loan companies will charge you a rate between 2.5% a month to 3.5%.
Often the rates may change based on the underwriter’s confidence in a particular claim.
The more confident he or she is in a particular case to prevail, the lower the rate they will charge on the lawsuit loan.
There are “layup cases” in their eyes that they really want to own.
For example, if someone was rear ended by a commercial vehicle with high policy limits, they required a lot of medical attention, that is a case they would want to invest in with a lawsuit loan.
However, if it’s a sideswipe accident with disputed liability and soft tissue injuries, that is one that they would consider to be less appealing to provide a lawsuit loan at a low rate.
Therefore, whenever shopping for a lawsuit loan, it is imperative that you shop your case to multiple lawsuit loan companies.
As the saying goes, beauty is in the eye of the beholder.
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