Is Pre-Settlement Funding Legal? Champerty, Maintenance, and What State Law Allows

Third-party litigation funding is permitted in most states, with rules that vary by state. Champerty doctrine has been reformed in most jurisdictions. Here is what you need to know.

Pre-settlement funding is legal in most states. A minority of states maintain champerty, maintenance, or barratry statutes that restrict or prohibit third-party litigation funding. Champerty is an English common law doctrine that historically barred third parties from funding litigation in exchange for a share of proceeds, a rule designed to prevent abuse of the court system.

In most US states, champerty doctrine has been reformed through statute or judicial decision. The non-recourse structure is the key distinguishing feature: because the funder receives nothing if the case is lost, modern courts and legislatures have generally treated pre-settlement funding as distinct from historic champerty. Non-recourse advances are not a wagering arrangement — they provide access to capital against a valid legal claim.

Several states have enacted specific legislation governing pre-settlement funding, including mandatory disclosure requirements, caps on funder recovery as a percentage of settlement, and prohibitions against funders influencing case strategy. Montana, Wisconsin, Oklahoma, and Colorado are among the states with enacted frameworks. These statutes generally validate the product while imposing consumer protection requirements.

States where champerty restrictions remain active include Alabama, Arkansas, Kentucky, Louisiana, Maryland, Mississippi, Nebraska, North Carolina, and West Virginia, among others. Criterica Capital monitors state regulatory developments so that requests are prepared with current state rules in mind. See our State Rules page for current state-law information.

Sources: "Litigation Finance: A Guide for Consumers" (ALFA). Note: champerty restrictions remain in some states. See the State Rules page for current state-law information.

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