Options for Cashing Out Your Structured Settlement
You have a structured settlement that is bringing you a steady stream of income. But you’ve also got an unexpected financial need, and the payments from the structured settlement are not enough to pay your bills. How can you get the cash from your structured settlement early?
- Written By Rachel Christian
Writer & Researcher
Rachel Christian is a Certified Educator in Personal Finance with FinCert, a division of the Institute for Financial Literacy. She is committed to promoting financial literacy and making complex financial topics accessible to readers from all walks of life.Read More
- Edited By Roger Wohlner
- Updated: May 8, 2023
- This page features 9 Cited Research Articles
If your court case ended with you receiving a structured settlement, you know those periodic payments can provide stability and a dependable stream of income. But their drawback is they lack liquidity. In other words, you don’t have access to the pool of money from which the payments are being drawn.
This can be a problem if you face a large expense that your scheduled structured settlement payments can’t cover. This can be anything from urgent home repairs, uninsured medical costs or having to purchase a new vehicle.
If you need a larger amount of cash than your immediate structured settlement payments provide, you can sell all or part of your future payments in exchange for a lump sum.
If you want to sell a portion of your payments, there are several ways to do that. You can sell all your payments for a period of time — say six months. Or you can sell a fraction of every payment for a period of time — maybe 25 percent of each payment for the next two years. This would result in a continued, if reduced, income stream for you, along with your lump sum.
Selling payments can be an involved process. You will have to appear before a judge, who will decide whether the sale of your structured settlement payments is in your best interest.
You should also keep in mind that the amount of money you receive will be less than the total dollar amount of the payments. That’s because the company purchasing the payments will need to account for its legal and administrative costs. It also operates to make a profit.
You should shop around to make sure you’re getting the best deal possible. You should also check out the company’s track record with the Better Business Bureau.
Pros and Cons of Cashing Out
There are valid reasons for and against selling all or part of your structured settlement payments.
- You have immediate access to a larger amount of your cash.
- It allows you to get out of a financial crisis.
- You can pay large expenses such as home repairs or large medical bills.
- You will collect less money overall for the life of the settlement.
- You lose all or part of a guaranteed income stream.
- You forfeit future payments.
You must consider both sides to ensure you are making the best decision based on your current financial needs.
Is Cashing Out Your Structured Settlement Right for You?
Before you sell your structured settlement payments, examine all your options and decide whether you can go without receiving the regular payments you’re selling.
Other options for managing expenses include:
- A loan: Check with your bank or credit union to see if you qualify for an unsecured loan. The payments from your structured settlement may be considered income to prove you can repay the loan. However, you will not be able to use your structured settlement as collateral for a loan.
- Contact creditors: If you need more time to pay your bills, your creditors may be willing to work with you to ensure you have enough time to pay them back.
- Hospital charity care: If you have medical bills from a hospital, check to see if the hospital has a charity care program that can help.
- Consumer counseling: A nonprofit consumer credit counseling service may be able to help you work out a debt repayment plan.
Questions to Ask Before Cashing Out Your Structured Settlement
In deciding whether you should cash out your structured settlement payments, you should ask some questions of the companies that may purchase them.
Make sure you are clear on these important facts:
- What will it cost me? Make sure the companies you consult give you a list in writing of all your costs for this transaction. Find out the interest rate and any fees. This includes commissions, legal and notary fees. Compare how much they’re proposing to pay you to the value of your structured settlement payments.
- Can I cancel the sale? Get a written copy of the companies’ cancellation policies before you agree to anything.
- Are there complaints about the companies? Check with your state or local consumer protection agency or your state Attorney General’s office, as well as the Better Business Bureau, to learn all you can about potential issues involving the companies.
- What about taxes? In most instances, the lump sum you receive for your structured settlement payments won’t be taxed. Talk to the purchasing companies to confirm this is the case.
You should also consider whether you can go without the income from your structured settlement and whether your need for a lump sum is valid and more important than that income. This is a decision you should not make in haste. You must weigh this carefully.
It’s always a good idea to get a second opinion or an independent evaluation from a trusted source, such as your attorney or a financial advisor. The lawyer who represented you in the court case that resulted in your structured settlement may be able to help.
Structured Settlement Cash Out
According to the National Association of Settlement Purchasers, less than 15 percent of structured settlement holders sell their settlement payments. The vast majority of the sales involve a portion of a person’s structured settlement payments. Very few sell all of their future payments. Most of those people don’t depend on their structured settlements for all of their monthly income.
If none of the other options work, after gathering enough information to satisfy you that selling your payment is best for your situation, you can work with a company that specializes in buying structured settlement payments.
A structured settlement purchasing company considers the market conditions and future value of money to determine how much money they can give you for your payments.
The company can walk you through the paperwork. It can also handle most of the legal requirements, including securing approval from a judge in your county. You will probably need to appear before the judge, who will decide if the sale is in your interests. Be prepared to explain your plan for using the money to the judge.
The court process was established to protect owners of structured settlements from being taken advantage of. It’s required by law in virtually every state.
The process can take up to two months. In some instances, the company may be able to arrange for a cash advance while you’re waiting for the transaction to be finalized
How Do I Cash Out My Structured Settlement?
Once you decide to sell, a company that specializes in buying settlements will help you with filing the necessary paperwork, walk you through the court process and provide you with all the information you need to feel good about your decision.
- Decide: Consider your options and determine that you feel comfortable selling. Weigh how it will make you feel and how it will affect your financial future.
- Contact us: Get in touch with us. We will connect you with a representative who will stay with you throughout the selling process.
- Get your quote: Your representative will give you a quote in minutes and answer all your questions.
- Complete your paperwork: Your representative will send you the necessary paperwork overnight. Fill out the paperwork and return it.
- Go to court: With the paperwork in hand, your representative will help you set up a court date. You will explain your reasons for selling to a judge, who has the final say on if the sale goes through.
- Cash out: Once the judge accepts it, we transfer the money directly into your account.
The entire process of selling your structured settlement payments takes 45 to 60 days. Sometimes that’s too long when a serious financial crisis is looming. That’s where a cash advance comes in.
If you need money more quickly, you can get a cash advance of up to $1,000 in a matter of days.
9 Cited Research Articles
- Allen, B. (2010, June 29). How Structured Settlement Buyout Offers Work. Retrieved from https://www.creditcards.com/credit-card-news/evaluate-structured-settlement-buyout-upfront-payment-1273.php
- Armstrong, T. (2015, May 22). Think Twice Before Selling a Settlement. Retrieved from https://www.nerdwallet.com/blog/finance/selling-settlement/
- Consumer Financial Protection Bureau. (2017, June 7). What should I know before giving up my monthly disability, personal injury or structured settlement payments in exchange for a one-time lump sum payment? Retrieved from https://www.nssta.com/sites/default/files/library/2017/2017-06/CFPB%20Statement_0.pdf
- Federal Trade Commission. (n.d.). What to Know Before Selling Your Disability Payments. Retrieved from https://www.consumer.ftc.gov/articles/0517-what-know-selling-your-disability-payments
- National Association of Settlement Purchasers. (n.d.). Benefits of the Secondary Market. Retrieved from https://www.nasp-usa.com/benefits_of_the_secondary_mark.php
- National Association of Settlement Purchasers. (n.d.). FAQs about Secondary Market Transfers. Retrieved from https://www.nasp-usa.com/secondary_market_faq.php
- National Association of Settlement Purchasers. (n.d.). How to Protect Yourself in the Secondary Market. Retrieved from https://www.nasp-usa.com/protect_yourself.php
- Nicks, C. (n.d.). Getting Cash Now From Your Long-Term Structured Settlement Annuity. Retrieved from https://www.nolo.com/legal-encyclopedia/getting-cash-now-from-your-long-term-structured-settlement-annuity.html
- Securities and Exchange Commission. (2013, May). Pension of Settlement Income Streams. What You Need to Know Before Buying or Selling Them. Retrieved from https://www.sec.gov/investor/alerts/ib_income_streams.pdf