Pre-Settlement Funding and Medical Liens: Who Gets Paid First?

By Michael Shemtoub, trial attorney, Beverly Law. Updated November 2026.

How the money moves when a case settles

Settlement checks are normally paid to your lawyer’s client trust account, and your lawyer pays everyone from there under a written settlement statement. In California, every consumer funding contract must include the lawyer’s written promise that the proceeds will go through the trust account and be paid out as the funding contract says (Bus. & Prof. Code 6251(c)). Without that acknowledgment the contract is “null and void.” Other states with funding laws have similar rules, listed in the laws by state table.

The settlement statement is where the order shows up. It lists the fee, case costs, each lien and its final amount, the funder’s payoff, and what you take home. The page on how much of a $100,000 settlement you keep walks through that math, and how an advance is paid back covers the payoff step.

The attorney’s lien

Most contingency fee agreements give the lawyer a lien on the recovery. In California, that contractual lien follows the first-in-time rule. The California Supreme Court held in Cetenko v. United California Bank (1982) that an attorney’s earlier contractual lien beats a later judgment creditor’s lien: “the prior lien prevails.” Washington gives attorneys a lien by statute on money in the lawyer’s hands, on money held by the other side after notice, and on the case and its proceeds once the suit is filed (RCW 60.40.010).

Because a funding contract is almost always signed after the fee agreement, the same first-in-time logic would ordinarily put a funder behind the lawyer’s lien, though no case applies Cetenko to a consumer funder.

Hospital and provider liens in California, Texas and Washington

States give hospitals, and sometimes ambulances and doctors, a lien on an injury recovery.

Doctors who treat on a “lien” basis outside these statutes rely on a signed agreement with you; see medical liens after a car accident.

Medicare, Medicaid and health plans

Medicare has the strongest claim. Under 42 U.S.C. 1395y(b)(2)(B), any entity that receives a payment from a liability insurer must repay Medicare’s conditional payments, and the United States may sue to recover, with double damages available in some of those suits. The regulation says Medicare can recover from “any entity, including a beneficiary, provider, supplier, physician, attorney,” and that the beneficiary must repay within 60 days (42 C.F.R. 411.24(g)-(h)). Because the lawyer can be personally liable, Medicare is normally resolved before anyone else is paid.

Medicaid programs, including Medi-Cal, Apple Health and Texas Medicaid, can also recover from settlements. The Supreme Court held in Gallardo v. Marstiller (2022) that a state may seek reimbursement even from settlement money allocated to future medical care. The SSI and Medicaid page covers the benefit side.

Private health plans usually have a reimbursement right written into the policy. In California, Civil Code 3040 limits many of those liens to what the plan actually paid, and to one-third of the recovery when you have a lawyer (one-half without one), with further reductions for comparative fault and a share of fees. It does not cover Medi-Cal, workers’ comp or hospital liens, and it does not make an employer plan’s lien enforceable if federal law preempts it. See what a subrogation letter is.

Where the funder fits

A few funding statutes do rank the funder. Illinois says only liens related to the claim, including attorney’s liens, Medicare or other statutory liens, take priority over the funder’s lien (815 ILCS 121/40). Nevada gives that priority only to an attorney’s lien and a Medicare lien related to the claim, with other liens ranked by normal operation of law (NRS 604C.220). Outside statutes like these, we found no statute or court decision that ranks a consumer funder’s assignment against attorney’s liens, hospital liens, Medicare, Medicaid or health plan claims. An earlier version of AB 931 said that only attorney’s liens and Medicare or other statutory liens would take priority over the funder, but the author agreed to remove that provision, according to the Senate Judiciary Committee analysis for the July 1, 2025 hearing. The enacted law says only that the contingent right to proceeds “is assignable by a consumer” (Bus. & Prof. Code 6255). It does bar a funder from funding someone who already assigned part of the proceeds without paying off that earlier assignment (6254(a)(5)).

In practice, the funder is paid from what remains after fees, costs and the liens that have a statute or an earlier contract behind them. If liens take more than expected, your contract decides whether the funder’s payoff shrinks or comes out of your share. Read whether funding can hurt your settlement for that side of it. Child support liens are a separate issue covered in child support and lawsuit advances.

What to ask before you sign

• Give your lawyer a full list of everyone who treated you and every health plan, Medicare or Medicaid card you have. Ask for a rough estimate of the liens before you apply.
• Ask the funder, in writing, whether the contract limits repayment to what is left if fees, costs and liens leave less than the payoff.
• Ask whether the payoff keeps growing while your lawyer negotiates the liens down.
• If you are on Medicare, ask your lawyer whether a conditional payment amount has been requested yet.

For the full section on how funding works, see cash advances on a lawsuit.

Common questions

Related pages

Cash advance on a lawsuit · Laws by state · Injury law FAQs

Important: This page is general information, not legal or medical advice, and reading it does not create an attorney-client relationship. Every case is different; talk to a lawyer about yours. Texas cases are handled by the firm’s Texas-licensed attorneys, Joyce Ondich and John Efstathiou. Last reviewed: November 7, 2026.