Will a Lawsuit Advance Affect SSI or Medicaid?

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

What SSA’s loan rules say

For SSI, borrowed money is usually not income. SSA’s manual, POMS SI 00815.350, says “proceeds of a loan are not income to the borrower because of the borrower’s obligation to repay.” The same section adds that if a loan is not bona fide, “the cash provided by the lender is the borrower’s unearned income in the month received.”

Under POMS SI 01120.220, a bona fide loan must be legally binding under state law and in place when the cash is handed over, with a feasible repayment plan the borrower intends to follow. A note in that section says: “The obligation to repay cannot be contingent on future income that might be paid.” A typical lawsuit advance is repaid only if your case brings in money, and many contracts say you owe nothing if you lose. That is why there is a real risk SSA would not treat the advance as a loan. We found no POMS section, ruling or SSA notice that addresses these advances. What we describe here is a reading of the loan rules, and SSA could see your contract differently.

How SSI counts income and resources

If SSA counts the advance as unearned income, it lowers your check: SSA’s income page says the more countable income you have, “the less your SSI benefit will be.” A large enough amount can stop the payment for that month. Money you still hold the next month can count as a resource, and the SSI resource limit is $2,000 for an individual and $3,000 for a couple. Cash and bank accounts count toward it.

The settlement raises its own SSI questions. Under POMS SI 00830.515, an award or settlement is unearned income, but SSA may subtract medical, legal or other essential expenses connected with the accident. What remains becomes a resource starting the month after you receive it. That section does not say whether paying off a funder counts as one of those expenses.

You have to tell SSA. SSI recipients must report changes in income and resources “no later than the 10th day of the month after the change occurs,” according to SSA’s reporting guidance. An unreported advance can lead to an overpayment that SSA later asks you to pay back.

Medicaid, Medi-Cal, Apple Health and Texas Medicaid

Medicaid has two broad sets of rules. Coverage for children, pregnant people and many adults under 65 uses tax-based income rules (MAGI). Under 42 C.F.R. 435.603(e)(1), “an amount received as a lump sum is counted as income only in the month received.” We found no federal guidance on whether an advance counts as MAGI income at all.

Coverage for people who are 65 or older, blind or disabled usually adds a resource test, and the limits vary by state:

Medi-Cal started counting assets on January 1, 2026, for people 65 and older, people with a disability, nursing home residents and some families over the tax-based income limit. Advance money in a bank account can count toward these limits. The state law table covers funding laws, not benefit limits, so ask your state Medicaid agency about its numbers.

Medicaid can also be repaid out of the settlement. The Supreme Court held in Gallardo v. Marstiller (2022) that the Medicaid Act permits a state to seek reimbursement from settlement payments allocated for future medical care. How that claim lines up against a funder’s payoff is covered in funding and medical liens.

SNAP and SSDI

Federal SNAP rules exclude “all loans, including loans from private individuals as well as commercial institutions” from income, and treat nonrecurring lump sums as resources instead of income (7 C.F.R. 273.9(c)(4) and (c)(8)). USDA has not said whether a lawsuit advance is a “loan” for SNAP, so your state agency would decide.

SSDI works on a separate basis. SSA’s Red Book explains that SSDI depends on insured status earned through work and Social Security taxes, while SSI depends on financial need. An advance or a settlement does not reduce SSDI the way it can reduce SSI. Beverly Law’s page on disability benefits after a brain injury explains the two programs in more detail.

Trusts and ABLE accounts for the settlement

POMS SI 00830.515 says settlement money paid directly into a special needs trust or pooled trust that is not a countable resource is not income. SSA’s trust spotlight describes these trusts as exceptions to the SSI trust rules and warns that some of them can still affect Medicaid. For ABLE accounts, the disability must have begun before age 46 starting in 2026, and SSI does not count the first $100,000, according to SSA’s ABLE spotlight. Both tools are built for settlements and savings; an advance is normally paid straight to you, so ask a benefits planner whether either could help.

What to ask before you sign

• Ask SSA, your Medicaid agency or a benefits planner how they would treat the advance before you take it. Bring the contract.
• Ask the funding company whether the contract creates any obligation to repay if you lose. That affects the loan question under SI 01120.220.
• Ask your lawyer how a settlement could be structured to protect your benefits, and whether a trust or ABLE account fits.
• Think about other ways to cover bills first. The page on alternatives to pre-settlement funding lists some.

Tax rules are separate from benefit rules; see whether a lawsuit advance is taxable and the section overview on 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.