Is pre-settlement funding worth it, and is it safe?

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

What an advance can give you

The main benefit is cash while you wait. The U.S. Government Accountability Office reported that consumer funding goes to plaintiffs who use it for living expenses, and that clients of the funders it spoke with used the money for things like rent and medical bills (GAO-23-105210).

The second benefit is where the risk sits. Statutes describe the deal as nonrecourse. Illinois defines it as “a nonrecourse transaction in which a company purchases and a consumer transfers to the company” a contingent interest in the potential net proceeds (815 ILCS 121/5), and Oklahoma uses nearly the same words (14A O.S. 3-801). If the case recovers nothing, you generally owe nothing, with exceptions for fraud or breaking the contract that our page on losing your case explains.

GAO heard views on both sides here: funding can let plaintiffs “sustain litigation longer and avoid accepting a low settlement offer,” while plaintiffs who use it “may be inclined to reject a fair settlement offer” (GAO-23-105210, pp. 19-20). Whether to accept an offer is a separate question; see should I accept the first settlement offer.

What it costs you

The cost comes out of your share, after fees, costs and liens, as our page on funding and attorney fees shows. It usually grows month by month, so the length of the case drives the price.

Researchers Ronen Avraham and Anthony Sebok, who studied one large funder’s records, described the pricing as “complex and opaque.” They found that the annual cost to consumers they measured, 43%, was “higher than most forms of borrowing” available to consumers, though less expensive than payday lending (104 Cornell L. Rev. 1133, 1142, 1160 (2019)). That figure is a median from one company’s completed cases, not a prediction of your price. Our page on what pre-settlement funding costs shows how charges build.

Is it safe? What regulators have said

“Safe” here means two things: whether the company plays by the rules, and whether the deal leaves you better off. Government reviews point to risks on both.

• GAO found that the industry “is not specifically regulated under federal law,” so protection comes mostly from state law. Stakeholders GAO interviewed raised concerns about “consumers not being fully aware of its cost” and about “funders taking advantage of vulnerable consumers in dire need of financial assistance.”
• The Consumer Financial Protection Bureau and the New York Attorney General sued a funder over cash advances on payouts from victim-compensation funds, alleging misrepresentations and abusive practices. A 2022 stipulated judgment provided over $600,000 in debt relief (CFPB).
• Maryland’s Attorney General’s Consumer Protection Division told legislators in March 2026 that it and the Commissioner of Financial Regulation “have viewed these products as loans for many decades” (testimony on HB 1298).

The protections you have depend on your state. Some states license or register funders, cap charges or give you days to cancel, and many have no specific law. Check our state law table.

What courts have found

Courts have reached different results, and the label on the contract does not settle the question.

• A federal appeals court held Kentucky funding agreements void as champerty and their rates usurious (Boling v. Prospect Funding Holdings, 6th Cir. 2019).
• The Minnesota Supreme Court abolished the state’s common-law ban on champerty, so these contracts are no longer void on that ground alone, but warned that “courts should carefully review uncounseled agreements, particularly between parties of unequal bargaining power,” and that plaintiffs keep the defense of unconscionability (Maslowski v. Prospect Funding Partners, 2020).
• A New York appeals court held that a funding deal in a divorce case, labeled “THIS IS NOT A LOAN,” was a loan in substance and void as usurious (Denemark v. New Chapter Capital, 2026).

These cases show that a contract’s terms can be challenged. They also show that the fight happens in court, after the money is spent, which is why reading the contract first matters more. Our contract red flags page lists terms to check.

What this means for you

These questions do not have right or wrong answers. They help you see whether the trade fits your situation.

1. What is the money for, and what is the smallest amount that covers it?
2. Have you tried the alternatives, such as disability benefits, MedPay or a hardship plan with a landlord?
3. How long does your lawyer think the case will take, in a realistic range?
4. What would you owe at each six-month step, in dollars, and what would that leave you after fees, costs and liens?
5. Would losing that share of the settlement cause a bigger problem later than the one you face now?
6. Do you receive SSI or Medicaid? See lawsuit advances and SSI before you sign.
7. Is the company licensed or registered if your state requires it, and how many days do you have to cancel?

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.