One of the most common reasons people file bankruptcy in Las Vegas is that they’ve suffered some kind of injury that is expensive to treat and prevents them from working. Medical debt and lost income are a nasty combination that can wipe out savings and pressure people into additional debt and bankruptcy. In some instances, the injury is caused by someone who can be held liable in a civil suit. However, the civil justice system often runs slowly, with much document gathering required. One way plaintiffs can sometimes prevent immediate loss is by taking out a lawsuit loan. What are these? A lawsuit loan is a loan made between a lawsuit lending company and a plaintiff. The plaintiff contacts the lender, sometimes via his or her attorney, to see if the case will reach a substantial settlement or verdict. The lender then loans the plaintiff money on the condition that the plaintiff repay the lender once the lawsuit is concluded.
Because lawsuit loans occur at a time when people might be near bankruptcy, there are some things debtors might want to think about before taking them out.
1. Most lawsuit loans are “non-recourse” loans, which means that plaintiffs who lose their cases do not pay anything back to the lender. Plaintiffs who recover less than what lenders loan them need only pay what they received and not anything more. Non-recourse loans discourage lawsuit lenders from loaning money to plaintiffs with poor prospects and underestimating the recoveries plaintiffs receive.
2. Nevertheless, lawsuit loans aren’t free. The lender will want to make money on them and will do so by either charging a flat fee or by charging on a monthly basis, sometimes as high as 15 percent per month.
3. Often, the fees are so high that plaintiffs are better off taking on a second mortgage, taking out personal loans, or borrowing from family than taking out a lawsuit loan.
4. Although lawsuit loans are more like cash advances than loans, they can run afoul of state usury laws. Lawsuit lenders should also be listed as creditors in a bankruptcy petition.
5. Money from a lawsuit loan will count as income when filing in Chapter 7 bankruptcy.
6. As lawsuit lenders are creditors, loans made by them are dischargeable in bankruptcy, even if the civil case hasn’t reached verdict or settlement yet.
An injury and bills to pay are daunting prospects, but adding a lawsuit lender to the mix can create either its own benefits or problems. By the time you’re considering bankruptcy on top of a civil suit, chances are you have bigger problems than a lawsuit lender, and talking to an experienced Las Vegas bankruptcy lawyer is a wise move.
For more questions about bankruptcy in Las Vegas, please feel free to contact an experienced Freedom Law Firm Las Vegas bankruptcy attorney for a free initial consultation. Call us at 1-702-830-7784 to set up your free consultation.