What is pre-settlement funding?
Pre-settlement funding is money a company gives you while your injury claim is still open, in exchange for a share of the settlement or judgment if you win. If you lose, you usually owe nothing. Vermont defines it as a nonrecourse transaction buying a contingent right to part of a settlement or judgment. People also call it a lawsuit loan.
Last checked November 9, 2026 · Official sources (5)
How does pre-settlement funding work? An example
Example: your crash claim is expected to settle, but you are out of work and behind on rent. A funding company advances $3,000. The contract says that if the case settles within a year you repay $4,500, and within two years $6,000. The case settles after 20 months for $40,000. Before you see anything, the lawyer's fee, costs and medical repayments come out, and then the funder takes its $6,000. Every number here is invented to show the math.
Why should you understand pre-settlement funding before signing?
It can help you hold out for a fair offer instead of taking the first one because the bills are due. But it is expensive money. Ask for the payoff amount at several dates, in writing, and compare it with other options such as a payment plan with your landlord or medical providers.
Look at every fee, not only the rate. Vermont's law counts administrative, origination, underwriting and processing fees, and any other fee regardless of its name, as charges.
Do states regulate pre-settlement funding?
Some do, with different rules. Two examples:
| State | Rule |
|---|---|
| Vermont | If no proceeds are obtained, the consumer does not repay the funded amount. |
| Maine | Contracts must let the consumer cancel within 5 business days of receiving funds, without penalty. |
We did not find a law specific to these contracts in Arizona or Texas when we checked, so read the contract closely and ask your lawyer to review it.
Pre-settlement funding vs. a lawyer advancing costs
A funding company is a third party taking a cut of your recovery. A lawyer advancing case costs is different. Texas, for example, lets a lawyer advance court costs and reasonably necessary medical and living expenses, with repayment contingent on the outcome. Rules on what a lawyer may advance vary by state.
Questions
Do I have to pay back pre-settlement funding if I lose?
Usually not, if the contract is nonrecourse. Vermont's law says no repayment is owed if no proceeds are obtained.
Does pre-settlement funding affect my settlement?
It does not change what the other side owes, but the funder is paid out of your share, so you take home less.
Find out if you are owed money.
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See if I’m owed moneySources (5)
- 8 V.S.A. § 2251(3), checked 2026-11-09. “"Consumer litigation funding" or "funding" means a nonrecourse transaction in which a company purchases and a consumer assigns to the company a contingent right to receive an amount of the potential net proceeds of a settlement or judgment”
- 8 V.S.A. § 2251(3), checked 2026-11-09. “If no proceeds or net proceeds are obtained, the consumer is not required to repay the company the funded amount”
- Me. Rev. Stat. tit. 9-A, § 12-104(3), checked 2026-11-09. “All contracts must provide that the consumer may cancel the contract within 5 business days following the consumer's receipt of funds without penalty or further obligation.”
- 8 V.S.A. § 2251(1), checked 2026-11-09. “"Charges" means the amount a consumer owes to a company in addition to the funded amount and includes an administrative fee, origination fee, underwriting fee, processing fee, and any other fee regardless of how the fee is denominated”
- Texas Disciplinary Rules of Professional Conduct, Rule 1.08(d), checked 2026-11-09. “a lawyer may advance or guarantee court costs, expenses of litigation or administrative proceedings, and reasonably necessary medical and living expenses, the repayment of which may be contingent on the outcome of the matter”