In many situations, an injured party may have a significant claim against another person or company, but cannot pay their day-to-day bills while litigation is pending. It is well known that personal injury litigation can take months and even years to settle or go to court.
During this time, an injured party may be facing rising medical costs and rehabilitative expenses above and beyond normal living expenses. Worse yet, the injuries may have resulted in reduced wages because of absence and even loss of employment. As litigation drags on, bills continue to pile up and earning power may be down or non-existent. This may leave the injured party with very few choices.
While an attorney may advance litigation costs, it would be improper for an attorney representing a party to loan that party money for living or any other expenses.
The New Mexico Rules of Professional Conduct for Attorneys expressly prohibit an attorney from providing a client any type of loan or financial assistance in connection with pending or contemplated litigation.
Under NMSA § 16-108, the only loan that an attorney can make to a client in connection with litigation is advancing court and litigation costs. The repayment of this advance can be contingent on the outcome of the case, meaning that the client will only have to pay the attorney back if the client wins. Any other loan, payment, or advance in connection with litigation is expressly forbidden by the New Mexico Rules.
Certain lenders offer different kinds of pre-settlement funding or pending lawsuit cash advances. These are hardly ever a good idea. A lawsuit loan is a cash advance given by “investors” to a person with a pending lawsuit, taken out against the lawsuit award. In most cases the loan will not be due unless the plaintiff wins the case. Citing the risk of not getting paid unless the lawsuit is successful, pre-settlement funding companies justify charging interest rates of over to 100% per year. However, in truth these “investors” meticulously and carefully screen cases, only accepting those that have a very high probability of success and/or pre-trial settlement.
Since it is technically called an investment rather than a loan, these “investors” and the cash advances are unregulated as loans and not subject to predatory lending laws. These so-called investments are not subject to interest rate caps and do not have to clearly disclose pricing information. While lawsuit loan companies advertise their speedy 24 hour approval process, their interest rates and pricing is often lost in the fine print.
There are several avenues that a personal injury victim can pursue to cover personal living expenses while their lawsuit is pending without having to resort to the predatory lending practices of pre-settlement funding companies. In some cases, doctors and hospitals may be willing to defer payment until the lawsuit is resolved. It is important to communicate early and often with doctors and hospital administrators about this possibility and the pending litigation. In other cases, the victim or defendant‘s insurance company may pay certain medical bills.
An experienced personal injury law attorney can help to explain and guide you through what can be a long and difficult process.
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