This is a terrible situation. I get lots of calls from people injured in accidents without any way to pay for their medical treatment or sometimes even for their rent or food.
Some lending companies offer them loans, but only if they will be paid back out of the cash generated by the settlement. Here is a quote from a New York Times article about this practice:
“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.”
New York Times, Lawsuit Loans Add New Risk for the Injured, January 16, 2011. The same article said the interest rates on such loans can exceed 100% per year. In 2002, The Ohio Supreme Court decided that such contracts are unenforceable in the case of Rancman v. Interim Funding Corporation, 99 Ohio St. 3d 121; but the Ohio legislature might have reversed that decision in 2008 by passing R.C. 1349.55, a law that appears to allow such agreements.
First, obviously, the person who signs such an agreement winds up paying a much higher rate of interest than he would ever have to pay any bank. In Mr. Kho’s case, the amount he owed tripled because of the loan.
And because the rate of interest is so high, many people become impatient to take the earliest offer they get, rather than waiting for the insurance company’s best offer. Even at an interest rate of “just” 50% (less than half that mentioned in the Times article), a $50,000 loan will become a $75,000 loan in a year, and a $117,500 loan in two years. (Like a bank, these companies charge interest on the interest.)
This hurts you, because it can take the insurance company as much as a year before it makes an make an acceptable offer. (Don’t get me started on insurance companies.)
Finally, in many of these cases the injured person loses any benefit from the lawsuit itself – in the example from the New York Times, allowing for a typical attorney fee of 1/3, Mr. Kho will not recover more than $14,000.00, at the most. That is not much money for being hurt, unable to work, and then being in a lawsuit.
It is important to be financially responsible for you and your family. But my advice is to avoid deals like this at almost all costs. Here are some possibilities:
• Talk to the people you owe money to. See if they can wait. Offer installment payments. It’s cold thinking, but if they don’t sue or repossess, payments beat a lawsuit loan.
• Most doctors and hospitals will wait for payment until the case is settled; in fact, I cannot remember any case where a doctor sued one of my clients. I talk to doctors and hospitals all the time; they call me to find out when they will be paid, and I tell them what is going on with the case. They usually wait until the case is over before insisting on their money, and even then they may give a discount.
• If the people you owe are pushing you hard, I can write them a letter guaranteeing to pay them in full at settlement. I don’t like doing this, because it means I have to give them the money when the case settles, and it makes it much harder to negotiate the amount they will accept.
• Talk to your bank. If you own property, see if the bank will give you a second mortgage.
• Cut spending (Sorry; I know you already thought of that.)
• Borrow the money from a friend or family member (This is the hardest one of all)
I have been a lawyer over 30 years. I am dedicated to doing everything I can to get my clients all the money they deserve, as soon as I can get it for them. If you want to know how much your case can settle for and when, speak with an experienced Lawyer – call me at 513-621-4775 for a free consultation.
Because all situations are different, and because there may be other facts pertaining to your case that I don’t know about, you should not rely on this answer for legal advice. I am not your attorney, and no lawyer client relationship has been formed.
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