Consider your typical day for a moment. The products we use to help us wake up and get our day started, the car we use to get to the gym, work, or school. The sidewalks or paths we use to walk or bike to our favorite coffeeshop. The bus we depend on to bring ourselves to town or get our kids home from school. There are countless people, places, and products we interact with each day without thinking—until an accident forces us to.
The second an accident occurs, it shifts and complicates all our priorities. No where is this stark realignment clearer than around our health. When an accident causes injuries, our top priority should be recovery and our wellbeing. But many of us find our focus pulled toward the bills piling up after every treatment and doctor’s visit. To make no mention of the normally routine payments that are falling behind as you miss work.
When the insurers, negligent actors, or third parties withhold payment, the need for justice and financial help grows. You may know that hiring an attorney can provide the support you need to get the money you’re owed. But how do you afford bills and treatment as you pursue a settlement or trial? Enter: pre-settlement loans.
What Are Pre-Settlement Loans?
Pre-settlement loans in Georgia are a type of non-recourse cash advance to provide immediate funds to injured victims as they pursue a lawsuit for compensation. Victims pursuing a lawsuit against an insurance company or other negligent party who need immediate financial assistance can go to pre-settlement loan funders. The funder assesses the strength of the case and if they feel there’s a strong likelihood of success, they offer funding in the form of a percentage of the predicted final settlement.
If there’s a settlement or trial judgment award, the settlement funder collects what they advanced to the injured victim plus their fees. They receive their payment after the attorney’s fees are paid and before any amount is paid to the victim. Additionally, pre-settlement loans have fees attached which increase the longer the time between fund dispersal and the settlement award. The only cap on how high these fees can go is the settlement award itself.
If these terms don’t make a whole lot of sense at first—don’t worry — we’ll explain the basics in turn. These loans go by many names, including lawsuit loan, lawsuit advance, litigation funding, and lawsuit loan. Despite the name “loan” they are not in fact loans. As mentioned, they are a non-recourse cash advance that generally accrues interest as time goes on.
What is a Non-Recourse Cash Advance?
A non-recourse debt is a type of debt where the funding is allocated in exchange for collateral. To understand this, it helps to understand how most other debt obligations work. In many debt arrangements, like a student loan, a funder disburses the money in exchange for a promise from the borrower to pay back the money plus interest. The financial institution that issued the loan is allowed to pursue the debtor for the funding allocated and any applicable interest.
In a non-recourse debt, the funder provides the money in exchange for collateral. In some instances this is valuable property or real estate. In the case of pre-settlement loans, the collateral is the settlement or trial judgment. Essentially, the pre-settlement loan funder offers you immediate funding in exchange for some or all of the final settlement.
Recall that the pre-settlement loan funders can charge almost as much in fees as they wish, subject to few regulations. However, because it is a non-recourse debt, they cannot collect more than the settlement itself.
Let’s say you obtained $20,000 in a pre-settlement loan and received a net settlement of $70,000. However, the original loan amount and fees totaled $80,000 owed to the pre-settlement loan funder. In this case, you would only owe $70,000 from the settlement and not be forced to pay back the additional $10,000. For this reason, as attorneys we do not love loans as they take away your money from you. However, they can be helpful if you have an immediate need for cash and have no other solution to stay afloat while your case is pending.
Champerty & Maintenance vs. Pre-Settlement Loans
You may wonder whether pre-settlement loans in Georgia are legal. The answer is yes, though that wasn’t always so clear cut. English common law, the foundational law of many modern American jurisdictions, banned a practice similar to pre-settlement loans known as champerty.
Champerty Defined
Champerty was often seen as a vehicle for frivolous or protracted lawsuits. In the original formulation, champerty was a practice that allowed third-party funders to give money to a litigant in a lawsuit in exchange for consideration. The consideration was typically based on the outcome of the suit. The third-party gives money to a litigant, thereby enabling them to sue another party. If the funded litigant wins, they use the award to pay back the third-party funder.
In its most extreme form, champerty would be a way for rivals to fund lawsuits against one another without regard to the merits of the case and in exchange for financial gain. Wanting to prevent meritless claims from reaching courtrooms, English courts prohibited the practice.
Since that time, American courts have been wary of allowing anything approaching champerty from reaching their chambers. To some courts, pre-settlement loans whiffed of champerty. In 2003, the Ohio State Supreme Court banned pre-settlement loans on grounds that they were a form of champerty.
What is Maintenance?
But what about Maintenance? In a legal context, maintenance describes funding to litigants to help them sustain their pursuit of justice. The person providing maintenance does so without seeking to enrich themselves. Attorneys working on a contingency-fee basis are providing a form of maintenance to their clients. This arrangement is a vital means of allowing clients who would not be able to afford the upfront costs of representation to have their day in court.
Pre-settlement loans in Georgia are distinguished from maintenance and champerty because of changes in how people fund their lawsuits. The pre-settlement loan funding isn’t necessarily to support the lawsuit anymore. Funds from a third-party might have been the only way to pursue justice before attorneys operated on a contingency-fee basis.
That isn’t the case anymore, so pre-settlement loan funders are more likely to fund medical treatment or bills than the lawsuit itself. As a result, courts are less concerned that pre-settlement loan funders are creating frivolous or meritless lawsuits.
Limits of Pre-Settlement Loans in Georgia
What are some of the limits of pre-settlement loans? As mentioned, pre-settlement loans are not actually loans. This means they’re not subject to the same rules and regulations as other loan providers operating in Georgia and the United States. Limitations are instead created and enforced by the funders themselves, mostly to limit their risk.
The amount available in pre-settlement loans isn’t specifically limited. However, funders will only provide a percentage of the predicted settlement in a loan because there’s always the risk they end up with nothing if you lose the case. A recent Government Accountability Office (GAO) report found the amounts were typically between $1,000 to $10,000 or about 7% of the estimated final settlement. The funder can only recover the advance and their fees if the victim is awarded a settlement or judgment and only up to the limits of that settlement amount.
The funders feel more secure offering a smaller percentage of the final settlement as a way to protect themselves in the event the victim loses or settles for less than anticipated. In some cases, they may offer multiple smaller loans to the same injured victim as the case progresses. As the case goes on, the funder has more information to assess whether the victim will win and for how much, making them more willing to offer additional funding.
Another major limitation for pre-settlement loans in Georgia applies to who they allocate funding to. Pre-settlement loan companies will not lend out funds to a victim they believe will not win their case. Therefore, they will heavily scrutinize the case before making a decision to fund the victim.
There may also be limitations when it comes to how many pre-settlement loans you can obtain. Getting pre-settlement loans from multiple companies will require the second company to pay off the first pre-settlement loan from the original company. They do this to avoid a situation where the first lender’s fees are greater than the final settlement. In that scenario the second funder would receive no re-payment.
Pre-Settlement Loans in Georgia Charge Fees
A major consideration for pre-settlement loans are the fees the funding companies charge to injured victims seeking funding. When the pre-settlement loan funder offers an advance, new Georgia laws will require them to disclose all these fees upfront. These fees function like a form of interest, and are the primary means by which a litigation funder operates. If they only recovered what they loaned and were sometimes unable to recover, these companies would either go bankrupt or cease to exist. Instead, they charge fees to mitigate the risk they take on should a victim lose their case.
For example, some funders charge 50% of the loan amount for repayment within 6 months. In one case, a borrower was lent $9,150 and owed $23,588 when his case settled 18 months later. In the GAO report mentioned above, litigation funders reported charging 15 to 18% in interest every 6 months.
What are the Pros of Pre-Settlement Loans?
Now that we’ve established a working understanding of what pre-settlement loans in Georgia are and how they function, we can get into the pros and cons of this funding. The primary upsides to obtaining pre-settlement loans are the bridge they provide and the reduced risk to borrowers.
Pre-Settlement Loans Can Be a Bridge
People seek pre-settlement loans at challenging moments in their life. In the wake of an accident that caused injuries and unemployment, bills pile up. While a victim may have a strong case against a liable party, there are no guarantees. Sometimes it takes months, or even years, before a settlement or judgment is reached.
For victims, the extensive period of time between accident and settlement can stretch a budget so far it snaps. When that happens, a pre-settlement loan appears as an attractive offering to bridge the gap. The funds can be used for anything and are most often used to cover everyday living expenses. Additionally, some companies offer same day pre-settlement loans, allowing victims to quickly get caught up on bills.
Considering the versatility and speed of same day pre-settlement loans, these can help a family stay in their housing or put food on the table. The quick approval process can change a household’s financial situation in a single day and give them the flexibility to continue their pursuit of justice. For some, the funding they receive allows them to hold out for a better offer from the insurance company or take their case to trial.
Pre-Settlement Loans Are Non-Recourse Debts
Another positive aspect of pre-settlement loans is that they are a form of non-recourse debt. Regardless of the outcome of the case, the borrower will not have to repay more than the settlement amount. Even if the fees charged by the lender exceed the net settlement amount, they can only recover the maximum amount of the settlement.
Additionally, if a victim loses their case, they do not have to repay the debt. Access to funding that is limited in terms of the absolute maximum the debt can rise to can make victims more likely to use pre-settlement loans.
What Are the Cons of Pre-Settlement Loans?
While pre-settlement loans have potential benefits, they are not without some negative aspects. Despite the name, pre-settlement loans are not loans and not regulated like other loans. And, while they may be non-recourse debts, that doesn’t mean they don’t have high costs.
Pre-Settlement Loans in Georgia Are Largely Unregulated
Companies offering pre-settlement loans may try to cite applicable laws and regulations on their websites. Companies may cite O.C.G.A. § 7-4-2 or O.C.G.A. § 7-4-1, Georgia laws which set out the legal rate of interest and bans on usury. However, these laws do not apply to pre-settlement loans because they are not considered loans at all. As a result, there is no limit to the interest a company can charge on their offerings.
Pre-settlement loans in Georgia are not entirely unregulated. Starting on January 1st, 2026, SB 69 will take effect. This is Georgia’s first regulation targeted at pre-settlement loans and offers basic protections for borrowers. SB 69 stipulates:
- A funder cannot take more than the settlement amount
- A funder can’t offer lawyers commissions for sending clients to them
- The funder can’t be involved in the litigation or offer legal advice to the borrower
- Funders can’t partake in false advertising
- Funders can’t require borrowers to hire any person, including a specific attorney
- If the borrower can’t repay the full amount from their settlement, the funders are not allowed to report that to credit reporting agencies
- The funder must send the contract to the borrower and their legal representative
- Funders must provide all terms and conditions in a written contract and provide borrowers with an opportunity to cancel within 5 days of signing the contract.
Pre-Settlement Loans Can Swallow a Settlement
The new regulation impacting pre-settlement loan companies only prevents them from taking more than the settlement amount. It does not, however, prevent them from taking the remaining settlement amount. Nor does the new regulation state the maximum interest a company can charge, leaving the possibility for interest to consume the remainder of a settlement.
Pre-settlement loan companies understand that there might be months or years before a settlement and therefore know that their fees may eat into an entire settlement and they don’t mind the wait if it means they may make more money. This is especially true when the interest compounds monthly, as in many pre-settlement loans. When that happens, it can have real consequences for injured victims.
The settlement amount is not a random number—it’s calculated based on a victim’s damages. These are the costs a victim has had to pay or will have to pay as a result of the accident. They include medical expenses, lost wages, disability benefits, funeral benefits, and pain and suffering damages.
When a settlement is reached, money will first go to cover the attorney’s fees and court costs, then to reimburse any health insurance providers or healthcare, then to the victim. The remainder is to cover those other non-medical costs the victim may have incurred as a result of the accident. When there are pre-settlement loans involved, that money may instead go to cover the loan and fees instead of necessary expenses.
Turn to Montlick Before Pre-Settlement Loans
Pre-settlement loans offer an appealing bridge for households struggling to stay afloat in the aftermath of an accident. However, they can quickly deplete most or all of a settlement, creating further financial trouble after the case has ended. Before you consider pre-settlement loans, talk to us at Montlick. Our experienced personal injury attorneys are passionate about getting their clients the maximum compensation they’re owed after an accident. We know how pre-settlement loans operate, their terms, and their pitfalls. That’s why we help our clients explore alternatives to these loans while providing steadfast, determined advocacy to get maximum compensation.
Contact Montlick today to see how we make a difference in our clients’ lives. Your initial consultation is always free.
