Your Loan against a Lawsuit Was Denied: What Now?

You may not be able to get a loan against a lawsuit if a lender determines your lawsuit does not qualify. Lawsuit loans are distributed using the potential settlement as collateral. If the settlement is not secured, most lawsuit loans are forgiven. A lender has to be careful when making these loans because of this provision. If your lawsuit loan is denied, you should proceed cautiously, because this may be a sign you should not be taking the loan. If you feel you need the funding and have a good chance of recovery, you may consider these options.

Ask your Lawyer about Payment Plans

If you can afford court fees but not lawyer costs, consider using a payment plan with your legal counsel. Some lawyers will even accept a portion of the settlement as payment. In this case, all payment is deferred until the case is won. Cases that qualify for this structure are usually simple and require little litigation. If you have a more detailed case that could be in court for years, you may not be eligible for this structure. Lawyers will typically require at least a minimum payment to continue working.

Consider Other Sources of Collateral

Your lawsuit loan was likely denied because the lawsuit settlement itself could not be used as collateral. If your credit is high, you can consider other sources of collateral instead. A home equity loan or auto title loan can be used to pay for a lawsuit. Similarly, you can use stock certificates or savings accounts as collateral on a debt. Using some type of collateral will typically make securing the loan easier and keep your loan rates lower. Any asset you own can be used as collateral for a loan. The lender may not need to know what the loan will be used for if your credit and income are high enough.

Consider a Personal Loan

Even without an asset, if you have high credit, a stable income and an otherwise solid application, you will be able to secure a modest personal loan. Personal loan limits are set based on your income instead of the value of your collateral. You can use the loans for any expense. Unsecured loans will generally have higher interest rates than loans secured with collateral. However, nearly any lender will consider extending at least a modest funding amount to a qualified borrower.

Borrow from your 401(k)

If you have a corporate 401(k) account, you can typically temporarily borrow from that account depending on your company's policies. This should be used only as an option of last resort. If you fail to repay the loan in time, you will have to pay taxes on the loan in addition to a 10 percent penalty for the withdrawal. To ensure you will repay the debt in time, only use this choice if you do have emergency funds reserved that could replace the borrowed sum in an extreme situation. If you fail to repay the debt, you will significantly compromise your retirement savings. If you would like to consider a 401(k) loan, contact the plan administrator at your company.


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