The dangers of law suit loans

In the personal injury cases that I handle, often times clients ask about lawsuit loans. It's not surprising because in many instances people are out of work due to their injuries and let's face it, most people live pay to pay check. Once that pay check has stopped due to an auto accident injury, and there's no other disability insurance, then people become desperate to pay their bills during the time it takes to move the lawsuit through the courts-- which could take years.

The New York Times has published an article on the dangers of these types of loans. I try to discourage clients from going this route, but sometimes it's the only way to survive, to put a roof over their heads and food on the table. It certainly is proverbial "double edged sword."

The business of lending to plaintiffs arose over the last decade, part of a trend in which banks, hedge funds and private investors are putting money into other people’s lawsuits. But the industry, which now lends plaintiffs more than $100 million a year, remains unregulated in most states, free to ignore laws that protect people who borrow from most other kinds of lenders.

Ernesto Kho had pressing needs of his own. Medical bills had piled up after he was injured in a 2004 car accident. So he borrowed $10,500 from Cambridge Management Group, another company that lends money to plaintiffs in personal-injury lawsuits. Two years later, Mr. Kho, a New Jersey resident, got a $75,000 settlement — and a bill from Cambridge for $35,939.

But if you're considering a law suit loan, read the article carefully and consult your lawyer for a clear understanding of the implications.