Your lawyer generally cannot loan you money for rent, groceries, car payments, medical bills, or other personal living expenses simply because you have a lawsuit pending, although the exact rule depends on the state where the lawyer practices. Lawyers are commonly allowed to advance court costs and litigation expenses, and a few states provide broader exceptions for certain client loans or financial assistance.
The basic concern is that a lawyer who financially supports a client could obtain too much financial influence over the client or develop a personal stake in keeping the lawsuit alive. ABA Model Rule 1.8 therefore places significant restrictions on financial assistance between lawyers and clients.
Why Are Lawyers Usually Not Allowed to Loan Clients Money?
ABA Model Rule 1.8(e) generally prohibits a lawyer from providing financial assistance to a client in connection with pending or contemplated litigation, subject to specific exceptions.
The ABA explains that lawyers ordinarily cannot make or guarantee loans to litigation clients for living expenses because doing so could encourage lawsuits that might otherwise not continue and could give the lawyer too great a financial stake in the case.
For example, imagine a personal injury client who cannot work after an accident and asks the lawyer for $5,000 to cover:
- Apartment rent
- Utility bills
- Groceries
- Car payments
- Credit-card bills
Under the ABA Model Rule followed in many jurisdictions, the attorney generally cannot simply give the client a personal loan connected with the pending injury claim.
State ethics rules ultimately control, however, and they are not identical everywhere.
Can a Lawyer Pay the Costs of Your Lawsuit?
A lawyer can generally advance legitimate court costs and litigation expenses without violating the financial-assistance rule.
These expenses may include:
- Court filing fees
- Deposition expenses
- Expert-witness fees
- Investigation expenses
- Medical examinations needed for the case
- Costs of obtaining evidence
- Court-reporting expenses
- Certain records and document costs
ABA guidance specifically distinguishes litigation expenses from ordinary living expenses. A lawyer may advance court costs and expenses of litigation, and repayment can generally be made contingent upon the outcome of the case.
This arrangement is particularly common in personal injury cases handled on a contingency-fee basis.
A law firm might spend thousands of dollars developing a case before a settlement or verdict is obtained. The fee agreement should explain whether those expenses will ultimately be deducted from the client’s recovery.
Can My Lawyer Give Me an Advance on My Expected Settlement?
Under the general ABA rule, a lawyer normally should not personally advance settlement money to a client before the settlement funds have actually been received.
The fact that everyone expects an insurance company to pay soon does not mean the lawyer already possesses the client’s money.
ABA guidance concerning settlement distributions notes that advancing anticipated settlement proceeds can violate Rule 1.8(e) when the advance is not a legitimate litigation expense. A lawyer also cannot use money belonging to other clients in a trust account to provide an early settlement payment.
For example, suppose your case has settled for $100,000 but the insurer says the settlement check will arrive in two weeks.
You ask your lawyer to give you $10,000 immediately and deduct it later from the settlement.
In many jurisdictions, the lawyer cannot personally make that advance merely because payment appears certain.
Once the actual settlement funds arrive, clear the banking process, and become available for distribution, the lawyer can distribute your portion after resolving authorized fees, expenses, liens, and other legitimate claims.
Are the Rules Different in California?
California provides an important example of why the answer cannot be reduced to one nationwide rule.
California Rule of Professional Conduct 1.8.5 generally prohibits lawyers from paying or promising to pay a client’s personal or business expenses, but it contains several exceptions.
After the attorney has been retained, a California lawyer may agree to lend money to the client based on the client’s written promise to repay, provided the attorney also complies with California’s conflict-of-interest and business-transaction rules.
California therefore permits certain lawyer-to-client loans that would be prohibited under the general ABA litigation-financing rule.
The arrangement is still highly regulated. It is not simply a matter of the lawyer handing a client cash.
Where applicable, the transaction must satisfy rules designed to protect the client from unfair financial arrangements and conflicts between the attorney’s personal financial interests and professional duties.
What If the Loan Has Nothing to Do With My Lawsuit?
A lawyer-client loan that is unrelated to pending litigation raises a different ethical issue.
The ABA commentary to Rule 1.8 gives the example of a lawyer preparing a client’s will who learns that the client needs money for unrelated expenses and offers the client a loan. Such a transaction may be possible, but it must comply with the strict rules governing business transactions between lawyers and clients.
Under ABA Model Rule 1.8(a), the transaction generally must:
- Be fair and reasonable to the client.
- Have its important terms fully disclosed in understandable writing.
- Advise the client in writing that obtaining independent legal advice is desirable.
- Give the client a reasonable opportunity to consult another lawyer.
- Receive the client’s informed written consent to the transaction and the lawyer’s role in it.
These protections exist because a lawyer occupies a position of trust and may have significantly greater legal knowledge than the client.
Can a Lawyer Charge Interest on a Loan to a Client?
Whether interest can legally be charged depends on the state rules, the purpose of the loan, and the structure of the transaction.
When a lawyer is permitted to enter a financial transaction with a client, ABA Rule 1.8(a) requires the terms to be fair and reasonable, fully disclosed in writing, and accompanied by an opportunity for the client to seek independent legal advice.
State lending laws, usury limits, conflict rules, and attorney-ethics requirements can add further restrictions.
A lawyer who structures a loan so that personal profit from the loan conflicts with advice about whether the client should settle could create a serious ethical problem.
For example, a lawyer should not be financially motivated to pressure a client into accepting or rejecting a settlement merely because repayment of the lawyer’s personal loan depends on it.
Can a Lawyer Give Money to an Indigent Client?
The ABA Model Rules contain a narrow exception for certain indigent clients receiving free legal services.
A lawyer representing an indigent client without a fee, or through certain nonprofit, public-interest, law-school clinical, or pro bono programs, may provide modest gifts for basic necessities such as:
- Food
- Rent
- Transportation
- Medicine
- Similar essential living expenses
The exception applies to modest gifts rather than repayable loans, and the lawyer cannot promise the assistance before being retained as an incentive to hire or continue using the lawyer. The lawyer also cannot advertise that financial gifts are available to attract clients.
This exception generally does not allow a contingency-fee personal injury lawyer to begin financing a paying client’s ordinary living expenses.
Can My Personal Injury Lawyer Pay My Medical Bills?
A lawyer may often advance medical expenses when they qualify as legitimate litigation expenses, but that does not mean the attorney can simply pay every medical bill or living expense generated after an accident.
ABA commentary specifically recognizes expenses for medical examinations and obtaining evidence as permissible litigation expenses.
New York’s current professional-conduct commentary similarly explains that permitted litigation expenses can include medical diagnostic work connected to the lawsuit and treatment necessary for that diagnosis, while ordinary medical and living expenses generally remain outside the permitted categories except under a specific exception.
Whether a particular medical expense qualifies therefore depends on its relationship to the legal matter and the state’s rules.
What About Lawsuit Settlement Loans From Outside Companies?
A client may sometimes obtain funding from a third-party litigation finance or settlement-advance company rather than from the attorney.
These companies are separate from the law firm and may offer money based on an expected settlement or judgment.
The terms can be expensive, and the amount ultimately owed may increase significantly while the lawsuit remains pending.
A lawyer may be asked to acknowledge the financing arrangement or pay the funding company from settlement proceeds when legally required, but the lawyer does not ordinarily become the lender simply because the attorney is handling the lawsuit.
Anyone considering such funding should carefully understand the repayment formula and how much will be deducted from a future settlement.
Can My Lawyer Refuse to Give Me a Loan Even If State Rules Allow It?
A lawyer does not become obligated to lend a client money simply because a state’s ethics rules would permit the transaction.
The attorney can refuse the request.
Lawyers may avoid client loans because they can complicate the professional relationship, create collection problems, produce conflicts of interest, or affect decisions about settlement.
Even in California, where certain post-retention client loans are expressly permitted, the lawyer must satisfy additional professional rules before making the loan.
Frequently Asked Questions
Q1. Can my lawyer give me money for rent while my personal injury case is pending?
In many states, a contingency-fee lawyer generally cannot provide a personal loan for rent or other ordinary living expenses connected with pending litigation. ABA Rule 1.8 treats such financial assistance differently from legitimate court costs and litigation expenses. State-specific exceptions can change the answer.
Q2. Can my lawyer deduct money they loaned me from my settlement?
This depends first on whether the lawyer was legally permitted to make the loan. Where a lawyer-client loan is allowed, repayment terms should comply with the applicable ethics, contract, conflict-of-interest, and financial-transaction rules. A lawyer cannot make an otherwise prohibited loan valid merely by agreeing to deduct it from a future settlement.
Q3. Can my lawyer help me find a settlement funding company?
A lawyer may be able to provide information concerning outside financing without becoming the lender, subject to state ethics rules and conflicts of interest. The client should understand the financing costs carefully because repayment obligations can substantially reduce the net settlement.
Q4. Why can my lawyer spend thousands on experts but not loan me money for groceries?
Ethics rules distinguish between expenses necessary to pursue the legal case and personal financial support for the client. Litigation expenses help present the client’s claim, while personal loans may give the lawyer a financial interest in keeping the client involved in litigation. ABA Rule 1.8 therefore generally allows advances for litigation costs while restricting loans for ordinary living expenses.
