Perhaps you have seen the commercials on TV with the people yelling “It’s my money and I want it NOW.” The ads are targeted towards people who are involved in personal injury lawsuits who are expecting settlements. They also apply to people who have what are called structured settlements – basically meaning that your settlement is paid out over time like an annuity.
Why Lawsuit or Judgment Settlement Loans are a Bad Idea
If you are tight for money, these loans can seem very appealing. You may be able to get some money for your claim before you have even reached a settlement. Sometimes the companies promise that if you do not reach a settlement, you will not have to repay anything. If you have a structured settlement with a long term payment plan, it can also be tempting to take money up front and trade your long term interest.
Stop! Don’t do it!
Here’s an example from a prior client: she took a dangerous medication that caused her to have a dangerous blood clot. She filed a claim against the drug manufacturer. Shortly after she filed the claim, she got a loan from one of these companies for $9,000. The loan was based on her expected settlement. Two years later we reached a settlement with the drug company for $75,000. The loan company gave us an amount our client owed on that $9,000 loan from two years earlier — $32,000!!! The amount of her debt had more than tripled because of how they calculated the interest on the loan. After repaying the debt along with attorney’s fees and expenses, our client received very little money.
What about a structured settlement? You receive pennies on the dollar for the value of your settlement. The loan company gives you a reduced value for your settlement and then it receives the full value of the annuity.
Work with a Lawyer you Trust
If you have a personal injury claim, contact a lawyer you trust. They will help you through the process and negotiate a settlement to meet your needs – or go to trial. It is important that you trust your lawyer to advise you not only about your claim, but also about any settlement or its terms. Most lawyers can help direct you towards financial planners that can help you with settlement terms. They will not encourage you to take any sort of loan on your settlement.