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What Does it Mean to Live Paycheck to Paycheck?

July 9, 2019

What Does it Mean to Live Paycheck to Paycheck?

The following was contributed by Eric Schuller, President of the Alliance for Responsible Consumer Legal Funding (ARC).  According to Investopedia: “Paycheck to paycheck is an expression used to describe an individual who would be unable to meet financial obligations if unemployed because his or her salary is predominantly devoted to expenses. Persons subsisting paycheck to paycheck have limited or no savings and are at greater financial risk if suddenly unemployed than individuals who have amassed a cushion of savings.” According to Forbes, 78% of workers are living paycheck to paycheck. That statistic encapsulates more than just hourly workers. Investopedia states that 25% of American families making $150,000 or more a year live paycheck to paycheck. So what happens when that paycheck gets interrupted and bills don’t get paid? Answer: consumers fall behind on their mortgage, rent, and credit card payments. As a result, credit scores suffer and the financial spiral grows more severe. A recent article published by The Center for the New Middle Class classified ‘loss of income’ as the number one reason credit scores go down. For consumers who have suffered a loss of income due to a car accident or other personal injury legal claim, a solution exists: Consumer Legal Funding. Consumer Legal Funding acts as a bridge for consumers to solve their financial dilemmas while waiting for their legal claim to make its way through the system. There are no credit checks, there are no periodic payments while the case makes its way through the legal system. Consumers only have to meet their obligation to the funding company when and if their case settles and only if there is sufficient funds to meet the commitment. Consumer Legal Funding is not a loan, as it does not have an absolute certainty of repayment. Consumers only have to meet their financial commitment to the funding company when and if they are successful in their legal claim. Therefore, the product is not a loan. It is an opportunity for consumers to sell off a portion of their legal claim (a future asset) as an investment. Like any investment, when consumers look to take advantage of Consumer Legal Funding, they should be fully aware of the cost associated, and the terms and conditions of the contract. Consumer Legal Funding is a financial transaction that is designed to fill in the gap due to the loss of one’s paycheck as a result of circumstances beyond their control. It is designed to help consumers get the fair and just settlement they deserve, and not be forced into accepting a low-ball settlement offer just because they are living paycheck to paycheck.

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Independence Day Op-Ed Frames Consumer Legal Funding as the Freedom to Pursue Justice

In an Independence Day editorial, the Alliance for Responsible Consumer Legal Funding (ARC) argues that meaningful freedom includes the ability of injured Americans to pursue their legal claims without financial desperation forcing them into unfair settlements. The piece positions consumer legal funding as a practical tool for keeping the outcome of a case tied to its facts rather than to a plaintiff's bank balance.

Writing in the National Law Review, ARC president Eric Schuller contends that "justice delayed can quickly become justice denied when mounting bills force individuals into decisions they otherwise would never make." Defendants, he argues, understand this dynamic and can use the length of the civil justice process to pressure vulnerable plaintiffs into accepting less than their claims are worth.

Schuller distinguishes consumer legal funding from commercial litigation finance and traditional lending. These are typically small, non-recourse advances — often $3,000 to $5,000 — used for everyday necessities such as rent, groceries, and medical bills while a claim proceeds. Because the funding is non-recourse, a consumer who loses the underlying case owes nothing. ARC's guiding principle, he writes, is "Funding Lives, Not Litigation."

The editorial also makes the case for responsible oversight, endorsing disclosure requirements, attorney acknowledgment, and prohibitions on funders influencing litigation strategy — safeguards intended to protect consumers while preserving their access to the tool.

Consumer

In Jackson Hospital Bankruptcy, Funders and Lawyers Sit Ahead of the Hospital in Settlement Waterfall

A court filing in the bankruptcy of Montgomery-based Jackson Hospital reveals that, under a joint prosecution and funding agreement, litigation funders and lawyers would be paid ahead of the hospital itself if its lawsuit against Blue Cross and Blue Shield of Alabama produces a settlement. The arrangement offers an unusually clear public window into how a funded litigation recovery can be distributed.

As reported by Alabama Daily News, Jackson Hospital filed for bankruptcy and sued Blue Cross, arguing that only higher insurance reimbursement rates can keep the facility open. Its current operations are financed through a debtor-in-possession loan from Jackson Investment Group (JIG).

According to the agreement, any settlement proceeds would follow a strict waterfall: first, JIG's legal expenses; second, repayment of JIG's investment, including accrued and unpaid interest; and only then a split of what remains, with 70% directed to Jackson Hospital Corporation for its obligations to JIG and 30% to a nonprofit of JIG's choosing. The hospital itself effectively ranks third in the payment hierarchy.

The structure highlights a recurring tension in litigation finance: a courtroom victory does not always translate into the outcome a funded party most needs — here, the survival of the hospital. U.S. Bankruptcy Judge Christopher Hawkins has scheduled a status hearing for June 30, leaving the ultimate distribution, and the hospital's future, unresolved.

Consumer

As New York’s Litigation Lending Law Takes Effect, a Nonprofit Funder Pushes an Alternative Model

As New York's new consumer litigation lending law takes effect, a Buffalo-based nonprofit is positioning itself as an alternative to the traditional, for-profit funding model the legislation is designed to rein in. The Milestone Foundation, backed by a newly formed advisory council and a client base of roughly 1,000, says its approach is built around reshaping how plaintiffs access funds while their cases are pending.

As reported by Law.com, the foundation is seeking to differentiate itself from conventional consumer litigation lenders, which advance cash to plaintiffs in personal injury and other cases in exchange for a share of any eventual recovery. Critics of that model have long argued that compounding fees can consume an outsized portion of a plaintiff's award, a concern that helped drive New York's move toward tighter regulation.

The timing is notable. New York's law arrives amid a broader national reckoning over consumer legal funding, with several states weighing disclosure requirements, rate caps, and other guardrails on the practice. By advancing a nonprofit alternative as the regulatory landscape shifts, the Milestone Foundation is testing whether a mission-driven structure can coexist with — and compete against — established commercial funders.

The development underscores how regulation and market innovation are increasingly moving in tandem within consumer legal funding. For plaintiffs, lawyers, and funders alike, New York's experience may offer an early indication of how alternative models perform once stricter rules are in place.