Are Pre-Settlement Legal Funds Subject to Taxation?

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Pre-settlement legal funds can be lifesaving in case of a personal accident. Lawsuits that follow such accidents sometimes take too long to complete. This makes it difficult for one to pay their bills while attending court cases and working on their physical recovery if severely injured.

It is critical to understand everything about this funding. This includes what it is, how to find it, and how to qualify. This article will discuss all these to help you know what to do when you need funding. It’ll also look at whether pre-settlement funds are subject to tax.

Here’s everything you need to know about pre-settlement legal funding.

Understanding No-Risk Pre-Settlement Legal Funding

What happens when you suffer a personal injury and cannot go to work? Well, your income will be affected, but your bills might not. This means you’ll need an alternative source of income to help you cater to your expenses. And one of the options you might consider is taking a loan.

But taking a loan might not be viable for various reasons. One, because loans sometimes attract high-interest rates. You might struggle to repay them once you get back to work. Pre-settlement funding is the best option to consider if you need an alternative source of funds.

Pre-settlement legal funding will help you pay your bills until there’s a determination for your lawsuit. Plus, you do not repay this funding from your income after resuming work. Instead, you repay it from the amount of money awarded to you as compensation for your injury.

There are various pre-settlement funding companies in the market. You only need to find the best company and apply for legal funding. The best way to do this is by researching companies offering lawsuit settlement loans. You can narrow the search by looking for pre-settlement loan companies near you.

Is Pre-Settlement Funding Taxable?

We first need to get this out of the way before discussing more on pre-settlement funding. It is a question many people have not asked themselves about before applying for this funding. So, do you have to pay taxes on law cash pre-settlement funding? If yes, how does it work?

Well, different accidents can get classified as personal injury cases. But in general, personal injury refers to bodily injuries or property damage resulting from another person’s negligence. If you suffer a personal injury, you qualify for pre-settlement legal funding.

Examples of personal injuries include:

  • Car accident injuries
  • Workplace accidents
  • Medical malpractice
  • Construction accidents
  • Dog bites
  • Wrongful death
  • Defect in drugs
  • Slip and fall accidents

You might wonder if your settlement funds will get taxed in case of these accidents. Well, pre-settlement funding doesn’t get taxed. This is so, mainly if it caters to bodily injuries and physical damages. The funds taxed are for non-physical damage compensation.

In short, pre-settlement funding is an advance for your physical damages. You won’t be taxed for it except for special considerations. For instance, using these funds for investments will attract taxes. This means you’ll enjoy the total funding sent to your account.

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Non-Taxed Expenses With Pre-Settlement Funds

Pre-settlement legal funding is usually not meant for investment purposes. Instead, it would be best to use it for your well-being to ensure your life remains afloat. It will help to know some expenses that won’t get taxed. This will help you spend the funds wisely to avoid getting taxed.

Here are some of the ways to spend your pre-settlement legal funds:

  • You can use it to pay your daily bills.
  • It can help you pay for gas.
  • Use it to settle any new medical bills.
  • You can pay monthly rent and mortgages with it.
  • Buy food and groceries for your family.
  • It can also help you repair your damaged property.

These are the proper uses you can put lawsuit pre-settlement loans into. You won’t get taxed if you use the funds for any of these bills because they’re all necessary. As said before, the issue is when you use these funds for investment to make profits and not to keep your life going.

How to Get Your Pre-Settlement Legal Funding?

Many people also wonder how to get pre-settlement funding after suffering a personal injury. As said before, there are various pre-settlement funding companies. All the companies that offer this funding operate within specific cities, countries, or regions, so you should find one near you.

The internet can be a great place to begin your search. You can type “pre-settlement funding near me” on Google. Various companies will appear on the result pages, and you can choose one that fits your needs. You’ll need to know what to look for in a settlement loan company.

It would be best to start by looking at the terms of the funding you’ll get from the company. Some pre-settlement loan companies have friendly terms. For instance, they do not require you to repay the funds if you don’t get compensation. So, you’ll need to read their terms and conditions.

It’ll be better to choose a company that won’t expect repayment if you lose your suit. The period after the claim might be difficult. You may not have recovered fully, and the company will withdraw funding because your case is determined. Having to repay again will stress you out.


We have discussed everything you should know about pre-settlement funding. There’s no doubt that these funds will make life more bearable after a personal injury. But then, you also need to research enough before applying for funding. Ensure you understand the terms of the financing.

If you cannot do enough research, your attorney should help you. They can research online and then shortlist at least three companies they can visit. Once you are sure, you can apply for funding from one or two companies and wait for the approval.

The good news about pre-settlement funding companies is that they won’t keep you waiting for long. Your application will get approved within hours of sending it. Also, you won’t have a lot of paperwork to do. There’s no need to present proof of employment or anything else.




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