What is Pre-Settlement Funding?
Injured victims often face financial burdens, sometimes stemming from outstanding medical bills and other times from an inability to work. This often results in clients requesting loans through their lawyers, also known as pre-settlement funding. Rule 1.8(e) of the New York Rules of Professional Conduct prohibits attorneys from loaning money to their clients: “While representing a client in connection with contemplated or pending litigation, a lawyer shall not advance or guarantee financial assistance to the client.” This rule is justified and appropriate; if attorneys were permitted to loan money to their clients they would in effect be paying for, or at the very least encouraging, clients to pursue lawsuits and have the attorneys represent them in such lawsuits that would not otherwise be pursued. It could also result in a severe conflict of interest if the attorney becomes more concerned with getting reimbursed for the money loaned, rather than advocating for the best possible result for the client.
When utilized properly, pre-settlement funding allows an injured person to pay their bills and provide for their families while the lawsuit moves through the court system in an honest and equitable manner. It further instills patience in the injured victim which leads to a full and fair recovery, rather than settling too early because they are in need of money.
When utilized improperly, pre-settlement funding can cause enormous debt and leave the injured person with little or no money if their lawsuit is settled hastily and prematurely.
If you are considering pre-settlement funding it is important that you consult an attorney that understands the strengths and weaknesses of the loan process so it is done in your best interest.