Structured settlement payments have received increased popularity in the United States since the 1970s and more than $100 billion has been paid to fund them. The payments are usually received on a periodic basis. However, the installment-like payments do not suit every person. Fortunately, it is possible to get a lump sum payment in exchange for structured settlement payments.

Why People Choose to Sell Structured Payments

Some claimants who win payments for damages may receive a structured settlement. Due to a variety of circumstances, however, it may not be convenient to wait for either months or years before receiving the full payout. Although structured payments are meant to help claimants receive a steady flow of income in the future, the rigid schedule that may take many years may make it difficult to meet present needs. Some annuitants decide to get money for their structured settlement payments.

However, the claimants may have some immediate needs that make the periodic payments unsuitable, including:

• Paying old debts

• Buying a new house

• Pursuing a business opportunity

• Covering unexpected school or medical charges

• Freeing up more cash flow

• Accelerating long-term payoff schedules

The Drawbacks of Structured Settlements

The structured settlements provide security for the future but cannot be adjusted to meet the present needs of some structured settlement recipients. Structured settlements are most often sold to pay off mounting debt.

How to Overcome the Challenges

It is possible to turn part or all future payments into 1 lump sum payment, which helps in addressing the present opportunities and challenges. Instead of waiting for years to receive payment, the transaction process usually takes between six and 12 weeks only.

Factoring companies buy structured settlements at a discount from the claimants; enabling them to get the cash they need in a lump sum instead of waiting to receive periodic payments for years. The companies buy structured settlement payment rights by giving a lump sum amount.

Structured settlement transfers have different terms that take into account a variety of issues, including the amount of lump sum payment the seller requires and the number of payments necessary to fulfill the obligation to the factoring company or investor.

Regulatory Considerations

Controversy used to surround the development of this secondary market, so much so that many states have enacted laws requiring the transfer of payments to receive court approval since 1997. The Internal Revenue Code reinforced the states statutes in 2002 by imposing a 40% federal excise tax on any transfer that does not get the required prior approval.

In spite of the differences in various states, the laws have some common denominators:

• The factoring company (transferee) must make some disclosures highlighting the values of transferred payments, which helps in making a contrast between that value and the value the payee is expected to receive in exchange of the structured settlement.

• The transfer of structured settlement payment rights must receive advance court approval.

• Some of the necessary procedures for seeking approval of the proposed transfers must be spelled out.

• All relevant key terms must be defined.

There are also several statutory provisions that provide supplemental protection to the payees. State courts are generally required to review transfer applications and make appropriate ruling.

Selling Structured Settlement Rights

Before selling a structured settlement right, it is important to determine whether you are eligible to do so. Some of the indicators for eligibility are when future payments are received:

• Following a personal injury, lawsuit or some other claim

• Are not because of worker’s compensation claim

• From an insurance company

• Only during the recipients’ lifetime or in the event of their deaths

• Are tax free

The first step to selling structured settlement right is finding a suitable buyer. The sellers have a lot of power and must ensure they get the best deal possible. It is always advisable to deal with a reputable factoring company that encourages its clients to consult attorneys before they sign anything. Such a company also has relevant experience in helping clients in need of more cash than their regular payments allow.

A good third party will customize contracts to suit individual requirements and offer the sellers a variety of options.

Explanation of Loan

Structured settlement loans are a type of financial arrangement in which an individual can exchange the rights to future payments for a structured settlement “loan” or lump sum of cash. The money from the structured settlement paid to the lender or funding company as if you were making monthly payments to payoff the loan. This is an option that allows an individual who needs to pay medical bills or to make an unexpected payment easy access to the money that they need.

Consideration Factors

The prospect of receiving a lump sum of money instead of periodic payments over time may appear as a preferable option, but there are factors to consider. When cashing out a structured settlement, the annuitant does not receive the full amount of the structured settlement. In most cases, depending upon the payout structure and amount of the structured settlement payments, the annuitant can receive massive discounts on the future value of the payments.

Factoring Process

A structured settlement factoring loan is approved by a state court as mandated by federal law. After approval and written order by the overseeing judge, the structured settlement funding company has up to 21 days to pay the annuitant. Most structured settlement loans take anywhere from 4-12 weeks to complete depending upon the state and funding company involved in the case. Most delays are caused by missing and outstanding documents.

Tips

• An individual’s credit score and credit history are not used to qualify for a structured settlement loan. This means your current financial situation is not typically a consideration when entering into a settlement factoring arrangement.
• Research the terms that are associated with your lump sum settlement before entering into any type of financial arrangement for your structured settlement.
• Shop around to multiple companies before accepting a lump payment offer.
• State laws exist to ensure that the loan amount that you receive for a structured settlement is fair.

The Logistics

Under a structured settlement annuity, the individual receiving the settlement has been awarded a cash settlement amount that is to be paid in installments over a set period of time at set intervals. For example, he or she may receive $1000 every month for a period of five years, for a total of $60,000. Cashing out structured settlement payments takes this future value and discounts it into a present value amount. The amount will be less than the future value, and the discount rate that the company will use will be based on the perceived risk of the future payments and the amount of profit that the company needs to earn. Following on the original example, the company may determine that the current payout it is worth $40,000. The difference between the payout amount and the future value, $20000 in this case, is the return earned by the company or the investor that is purchasing the payment rights. This practice is often referred to as factoring because it is the discount rate or factor that determines the profitability of the transaction to the company or investor.

The Advantages

There are several advantages for each party to the transaction, both the individual and the company. The individual benefits because he or she no longer has to wait for the payout period. Any risk associated with the future payments, the solvency of the annuity company for example, is transferred to the investor. The money may still be invested and a return earned on the money. This is an important consideration because the real cost of the transaction is the discount rate minus the risk-free rate – the amount the individual can earn with no risk, such as in U.S. treasuries. If the individual needs the cash immediately or believes that he or she can earn a more favorable rate in other investments, the transaction benefits the individual.

From the perspective of the company, the discount rate charged on this type of transaction is usually sufficiently high to lock in a very favorable rate of return for the company, even on a risk-adjusted basis. The company or investor can earn outsized annual returns because it capitalizes on two advantages. First, it has the resources to thoroughly understand the risks associated with the future payments. Secondly, the company diversifies its risks sufficiently so that should any given investment fail, it can still be successful overall. The company will figure a certain failure rate into its investment model that ensures the success of the overall program. When this type of transaction is conducted properly, each party will benefit.

How Will I Use the Money?

Before you sell your structured settlement, it is a good idea to have a solid plan for how you will spend the money so that you don’t end up spending it quickly and having no income. Some people sell their structured settlements in exchange for money to start their own business. Other people use the money to create a scholarship or endowment fund. It may make sense to sell a structured settlement to pay off your debts so that you don’t have to pay interest any longer. If your debts are high-interest, you could save hundreds by paying them off completely.

How is My Settlement Set Up?

When a person agrees to receive a structured settlement, the money is put into an annuity that pays the recipient each month. Every state has different laws regarding settlements and annuity contracts, so it is essential that you understand the way your settlement is set up as well as the laws in your state before signing a contract to sell your structured settlement payment rights. Most states are have laws based on the Model Structured Settlement Protection Act but your state may vary slightly. To view each State’s Structured Settlement Protection Act, click here.

Choosing a Company to Buy My Settlement

There are many companies that will gladly offer to purchase your structured settlement in exchange for a percentage of the entire amount. It is important to research the companies you talk to and make sure that they are reputable and are offering you a fair amount for your lump sum payment. Some insurance companies offer their customers options to cash out a structured settlement, so you may want to talk to your insurance company before talking to other factoring companies. Both Clearscape and All State are a good option for people who expect to receive a lump sum payment of less than $10,000.00.

A traditional factoring company is usually the best option for people who expect to receive more than $10,000.00 in their lump sum payments. These companies are usually able to offer a lower discount rate which means a greater lump payment for the selling party.

Also, because of this law, the insurance company that issued the structured settlement is made part of the process. In the past, the insurance company often didn’t find out a structured settlement payment had changed hands until after the fact. Not less than twenty days before the scheduled hearing, all information about the sale needs to be served on all interested parties. Professional counsel is required for the client to ascertain the effect on their financial future of receiving a lump sum payment.

Under the Structured Settlement Protection Act a judge must approve the sale of a structured settlement. In order to do this the client must have been given full disclosure about the financial terms of the sale. This disclosure should be given not less than 3 days before the contract signing date and the information should be in bold type, not small print.

Compliance with the disclosure of information is solely the responsibility of the company who wants to buy the settlement. Neither the client nor the issuer is responsible for this. If there is any liability for non-compliance, that liability also is the responsibility of the purchasing company.

The client must have a period of waiting after signing the documents to give them a chance to change their mind. Too often, when people get large lump sums they squander it within a short period of time and have nothing left for their future. The Structured Settlement Protection Act is there to, as far as possible, make sure this doesn’t happen.

The client must also be advised in writing by the structured settlement purchaser to get independent professional advice about the sale. In some states this advice can be waived. After this, a hearing will be held and the case is presented to a judge. The judge will examine the client’s financial situation and the reason they have for wanting the sale and decide if the sale is in the client’s best interest.

Before the Structured Settlement Protection Act came into effect, unscrupulous financial experts took advantage of an unsuspecting person who had a structured settlement and needed financial liquidity. The terms of transfer of the settlement were not fully disclosed to the client and more often than not the terms favored the buyer.

Without full knowledge of the transfer process and professional help, the client could face a higher tax bracket because of the lump sum payment. This could take most of the money gained and defeat the purpose of getting the cash. When looking for a buyer for a structured settlement, the recipient should seek unbiased guidance as well as look carefully into the history, experience and testimonials of any company that buys structured settlements.

It is possible to transfer structured settlement annuity payments in case unexpected expenses come up and a lump sum amount of cash is needed. To be able to get lots of cash fast, one needs to contact an individual who is a representative of a structured settlement buyer. These people buy settlements as investments for amounts less than their real worth, and in return will give the seller a lump sum of cash. The seller needs to decide which suits them more, to get the full amount over a long period of time in small quantities, or to collect the lump sum that is less than what they are entitled to.

Should the recipient of the structured payments decide to sell them for a lump sum, there are a number of methods they can employ. One possibility is to sell all future payments, get one large lump sum, and not hold any rights to any future payments. The second option is to sell a portion of the future payments. The investor collects a specified number of payments, while the seller gets the agreed upon lump sum. After the completion of the specified number of payments, the payments revert to the seller again. The third possibility is to sell part of the payments. Instead of the investor getting all of the payments and the seller getting nothing , both the seller and the investor get partial payments over a longer period of time, until the agreed upon amount of money is returned to the investor. The final option is to sell all or part of the structured payments in return for two or more payments of large amounts. The seller needs to decide which option will be most suitable for their specific need and then search the market for a suitable customer.

Once the details of the sale have been worked out with the buyer, the amount of time needed to complete the transaction and actually receive the lump sum of cash varies. Every state has its own set of laws and procedures on how these types of transactions can be carried out. These rules are there to protect the seller form unscrupulous investors, hence they can’t be carried out without the court’s approval. Many times the legitimate investor, after getting the go ahead from the seller, will go to court on behalf of the seller at their own expense. They will get the structured settlement payments assigned to themselves for the predetermined amount of time. The court order is a compulsory step that is designed to protect both the buyer and the seller. Upon approval from the court, the lump sum is paid to the seller and the operation is completed.

The actual amount of time to complete the court authorized process and all the paperwork is influenced by many factors. Depending on the state in which the transaction is being carried out, and the time taken to complete the documentation, the process can last anything from roughly 45 to 90 days. The settled upon amount can be transferred to the seller by a check or wire transfer, whichever they prefer. Here are some good articles they can help you when selling your structured settlement payments:

• 3 Cutting Edge Tips to Selling your Structured Settlement
• Step By Step Process to Selling a Structured Settlement
• Structured Settlement Factoring Company Reviews

• Contact Information
• Social Media Information
• Company Personnel
• Better Business Bureau Information
• Company Financial Info
• Number of Completed Transactions

Most of this information was compiled directly from the company websites, but other data such as the completed transaction stats were compiled using sources such as Westlaw.

In order to provide users with the most accurate information we are allowing each company to edit their information and provide a brief company bio.

Please feel free to provide us with any feedback on this new section.

Towards the end of 2011, some structured settlement factoring companies could see their demise.

Below are 5 predictions for the structured settlement factoring industry for the upcoming year.

1. Several structured settlement factoring companies will go out of business.
2. Courts will deny more transfers.
3. Legislation will become stricter.
4. Institutional money will be favored over private money.
5. Rates will increase, structured settlements will be worth less.

The Beginning to the End of Structured Settlement Factoring

What could cause so many companies to go out of business so abruptly? There are many factors that will lead to the downfall of some companies and eventually the industry in its’ entirety. Some companies secured institutional financing during a period where rates were at all time lows and transactions were coming through the door left and right.

As a stipulation of the financing, many institutional investors add in a supply clause which creates a penalty for the factoring company if they do not obtain a certain present value in a particular time frame. Some penalties can exceed $2,000,000.  As inflation kicks in, rates will rise, increasing discount rates, lowering the price structured settlement factoring companies can pay for structured settlements. This inevitably will lead to less transactions for factoring companies, causing a supply penalty, leading to the downfall of some companies.

As we discussed previously, rates are on the rise which causes structured settlements to be worth less. This author believes rates will increase to a point where 30-50%  of cases will be either turned away by factoring companies or judges will deny them due to the best interest standard not being met. Structured settlement annuities are priced to investors at 2 times the rate of other comparable financial products such as a treasury bond.  As the treasury bond increases with inflation, structured settlements will soon have investor rates over 10% for the first time since the Bank of the Internet fiasco.

With rates above 10%, annuitants in North Carolina and New York will not be able to cash out their structured settlement payments. In order to have most structured settlement factoring transactions approved, companies will take a cut in commissions in order to have the transaction meet the best interest standard. With high advertising costs, business overhead, less product and less income, some companies may have to close up shop.

We will continue this discussion in greater depth over the next few weeks. If you have questions about what was discussed here please feel free to comment below.

Petitioner J.G. Wentworth Originations, LLC (“Wentworth”) makes the instant application, pursuant to General Obligations Law, Title 17, known as the Structured Settlement Protection Act (“SSPA”), for an order approving the transfer of payment rights vested in Jenny Arce (“Arce”) under a structured settlement obligated and funded by American Home Assurance Company and American International Life Assurance Company of New York (“American”), respectively.

By hearing on May 19, 2010, for this Court’s determination of the propriety of the application for the transfer of those rights to Wentworth, Arce testified that she is a 42 year old single person with no dependents, who is employed with a telecommunications company earning approximately $35,000.00 annually. She further testified that she is seeking to sell a portion of the $11,300.00 annual payments that she receives. She stated, in support of the application for judicial approval of the proposed transfer, and her affidavit in support reiterated, that she needs the money to pay off medical bills that she incurred from surgery she had on February 23, 2010 at Elmhurst Hospital.

Discussion

Pursuant to Purchase Contract executed on March 23, 2010, Arce transferred to Wentworth her annuity rights to a portion of 10 annual payments in the amount of $6300.00, totaling $63,000.00, commencing on July 15, 2011 through July 15, 2020. In consideration thereof, she agreed to receive a gross advance amount of $24,550.00, yielding a net advance amount from Wentworth of $24,550.00, based upon an annual discount rate of 20.00%.

The court needs to find this transaction in the best interest of the annuitant.

Conclusion

Here, based upon the general downward trend of interest rates, and in particular, in the factoring industry since the enactment of the Structured Settlement Protection Act, this petition is disquieting to this Court and is reminiscent of the exorbitant interest rates offered in these types of transaction as a general practice just a few short years ago.

In recognizing that the rate employed in this transaction is higher than the annual discount rates, ranging from 15.46% to 19.82%, which were previously rejected by New York courts as unreasonable, this Court finds that this particular petition is neither fair nor reasonable. This is particularly so, given that the net advance funds of $24,550.00 represent approximately 39% of the $63,000.00 aggregate future payments that are being transferred.

This Court would be hard-pressed to find “fair and reasonable” which would result in Arce receiving only 39% of the monies designated to be transferred, a consequence that this Court finds unconscionable, and will not condone.

Settlement Quotes, LLC would have offered this individual $38,000 for the same payments.

Structured settlements are popular for the obvious benefits they offer for both parties; the insurance company saves money, while the recipient benefits by receiving a steady tax-free income which could last for many years.  While there are many issues to consider should you decide to sell, your first question is probably whether or not it is actually legal.

Do Some Structured Settlements Prohibit Selling?

While it is true that some settlement agreements include anti-assignment, or anti-acceleration language, numerous court cases have challenged this language, with the results being that the recipient of a structured settlement does indeed have the right to assign the payments. A federal law was put into place in 2002, which invalidated the “non-assignable” language and during the past few years, many states have also passed statutes regulating the transfer of such payments. Some states will require that the selling of structured payments include a court order authorizing the sale; if the sale takes place outside the applicable state statute, the purchaser must pay an excise tax on the total discount. Because of the steep price of this tax, most companies will not purchase a settlement which doesn’t meet state statute requirements.

Should I Contact an Attorney?

While certain states do require you consult an attorney or financial advisor during the process of selling your future structured settlement payments, most do not. Even if your particular state does not have a law approximating the 2002 federal law, the insurance company who is currently making your settlement payments may be based in a state which does have these laws in place.

In such a situation, the laws of the state where the insurance company is based will be used to specify the process governing the sale of your structured settlement. The short answer is that you probably do not need an attorney during the sale of your structured settlement, however if you feel unsure about your decision, it could be wise to consult the advice of a lawyer who has experience in this area.

Legal Process

First, you must be given full disclosure regarding the financial terms of your sale, and you must be offered a “cooling off” period in case you change your mind after you have already signed the documents. Ask any companies you are considering selling your structured settlement to what your state’s cooling off period is. There must be a statement in writing advising you to seek independent professional advice regarding this sale, although some states allow the waiver of this advice. A hearing will be held in which a judge will look carefully at your case, and either approve it or not.

The judge is allowed to examine your financial situation as well as your intentions regarding the money, leading to a conclusion regarding whether or not the sale is truly in your best interests. Once the judge approves the sale, a court order approving the sale will be issued, and the sale of your structured settlement will be complete.