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Demystifying Settlement Funding: Exploring the Different Types Available

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What Varieties of Settlement Funding Exist?

The financial situation of individuals seeking damages from an at-fault party through a civil lawsuit can often be uncertain. Determining how to pay bills while a case is pending may be challenging. Even if your case is strong and a large settlement is likely, this doesn’t help with current expenses. Some people may choose to take out traditional loans, use credit cards, or refinance their homes so they can withstand a lengthy court battle or survive until their settlement is paid. Others may agree to a lower initial settlement to end the case and move on with their lives.

While the appropriate financial decision for plaintiffs in this difficult situation may vary, settlement funding can provide another option for obtaining money. Settlement funding refers to several different methods of receiving funds from a pending lawsuit settlement award. Settlement funding applications can be completed and reviewed relatively quickly and do not require credit checks, as approval is based on the strength and value of your claim. Three main types of settlement funding are available to consumers: pre-settlement, post-settlement, and structured settlement funding.

Pre-Settlement Funding

Accident victims frequently face financial hardships in the months and years following the incident. The cost of medical treatment and therapy can be high, and many survivors must leave their employment temporarily or permanently due to their injuries. Even their loved ones’ careers may be impacted if they must suddenly devote more time to caring for children, the home, or the injured individual. In addition to costs related to the accident, day-to-day bills such as rent and utilities continue accumulating.

Unfortunately, personal injury lawsuits may require significant time to litigate and settle. Pre-settlement funding helps individuals bridge the gap between filing a lawsuit and receiving your settlement. This type of funding provides an advance on a portion of your anticipated settlement that you can use to pay for your current expenses. Pre-settlement funding can allow you to withstand a longer litigation process and recover the full compensation you deserve instead of having to settle for a quick, lowball offer to avoid financial complications.

What Are the Benefits of Pre-Settlement Funding?

Pre-settlement funding is an option if you are represented by a lawyer in a civil case where you anticipate receiving financial compensation for damages, such as a workers’ compensation claim or a personal injury case. Pre-settlement funding can be beneficial for individuals who require funds quickly and may be unable to secure other types of loans due to low credit scores or other circumstances, as your eligibility for the funding is based on the strength of your case.

If approved, your funding will be given in the form of a non-recourse loan, and you can use it for any expenses you may have. The loan and all applicable fees will only need to be repaid once you have received your settlement award. The lender takes on all the risk in this type of loan, and you will not be required to repay it if you are unsuccessful in recovering a settlement.

Post-Settlement Funding

The conclusion of a lawsuit doesn’t always mean the end of financial challenges for plaintiffs. Even if the court awards a substantial settlement, it can take time before those funds are paid. If you are owed compensation but are still waiting to receive payment, post-settlement funding may be one choice to help you afford your mortgage, treatment costs, and other expenses until payment occurs.

Post-settlement funding is very similar to pre-settlement funding. The funds are also non-recourse, so they will not have to be repaid if the defendant fails to fulfill their settlement obligations. One key difference between the two types is that funding companies may be more likely to approve your application and give you a higher portion of your proceeds upfront than with pre-settlement funding because your case has already concluded and your settlement amount is set.

Structured Settlement Funding

When you are awarded a settlement for car accident injuries, workers’ compensation, or another variety of claim, you must decide how you wish to receive the funds. While some people opt for a lump sum payment if their settlement award is small, this may not be the best choice for individuals receiving a large settlement. Lump sum payments can result in substantial tax liabilities, and you may run the risk of running through your settlement too quickly if you do not budget carefully.

Structured settlement funding allows you to receive smaller sums from your settlement over several years. This outcome is achieved by setting up a structured settlement annuity that makes periodic payments out of the funds. You can also assign a beneficiary who can continue to receive payments in the event of your death.

Under the IRS tax code, these annuity payments are tax-free, which can save money long-term. However, consumers should consult with a reputable structured settlement funding firm to fully understand the extent of any fees or additional costs that might be associated with the annuity. Once set, the terms of your structured settlement funding are very inflexible.

How Can an Experienced Settlement Funding Firm Assist You?

Settlement funding is a useful tool for plaintiffs who require money for living expenses, attorney fees, and other costs while waiting for their court case or settlement negotiations to conclude. It can also provide a convenient, tax-free method for receiving your funds over time after your settlement has been paid. However, settlement funding may not be suitable for everyone. It is critical to explore all your financial options so you can make a confident, well-informed decision.

Blue Fox Funding, LLC can provide resources and helpful answers to all your settlement funding-related inquiries. Contact our firm today to schedule your free funding evaluation: (618) 350-4581.

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