A structured settlement is a stream of regular payments granted to a plaintiff in a civil lawsuit. These settlements can be based on an individual lawsuit or a class action suit involving a number of claimants.
The idea is that stretching out the payments over time will provide the plaintiff with a level of financial security for a number of years.
For some plaintiffs, the stream of payments acts like an annuity, providing a level of extra income over the settlement period that helps with their normal expenses. Other plaintiffs may prefer a lump-sum payment in order to make a large purchase, invest the money or use it for any number of other reasons. These plaintiffs might choose to sell their structured settlement to a third party.
If you decide you want cash now over your future payments, it’s important to understand how to sell your structured settlement.
Federal law mandates that in order to sell some or all of your structured settlement, you must get court approval. In addition, 49 states and the District of Columbia have their own laws in place for this type of transaction. The laws, called Structured Settlement Protection Acts, aim to protect your interests as the structured settlement seller and encourage you to seek advice before making this decision.
Why Does a Judge Need to Approve the Sale of My Structured Settlement?
The need for a judge’s approval is based on a desire to protect the structured settlement holders from both themselves and bad actors who seek to take advantage of vulnerable individuals.
Buyers of structured settlements may include investors and factoring companies. The attraction for the buyer is that they purchase some or all of the future payments at a discount.
In other words, the buyer of the structured settlement will purchase the stream of payments for less than the face value of those payments. The discount rate typically ranges from 9 percent to 18 percent, though some discount rates are higher. The discount serves as the buyers’ profit margin for paying the money to the settlement holder upfront.
It’s the judge’s job to determine whether or not it is in the settlement holder’s best interest to sell the rights to future payments in exchange for a discounted lump sum.
The Court Process
The court process should be fairly straightforward, but like any court appearance or legal transaction, you are well-advised to prepare in advance.
What You Need to Bring
It’s important to have the proper documentation when you go to court. Being prepared prevents delays and is one way to demonstrate your seriousness about the sale and show that you are competent.
At minimum, you will need to bring:
- Proper identification such as a driver’s license with a photo or another form of identification that includes a photo.
- A copy of the settlement agreement and release.
- All documents related to the sale and transfer of your payments to the structured settlement buyer.
- The agreement or contract that funds your payments.
Questions to Expect
The judge will generally ask you a number of questions to learn why you want to sell your future payments and to determine whether or not you fully understand the implications of the transfer.
These questions might include:
- Why are you looking to sell some or all of these payments?
- How does the sale impact your financial situation, including the care of any dependents?
- Have you compared quotes from several structured settlement buyers?
- Do you understand that you will receive less money by selling the payments now than you would have over time with the original stream of payments?
- Do you understand the selling agreement?
- Has a qualified attorney reviewed the selling agreement?
The answers to these questions will help the judge decide if you have a valid reason for selling, and ultimately, whether or not to approve the sale. Remember the judge has your best interest in mind.
Will You Need a Lawyer?
The company looking to buy your structured settlement will be represented in court by an attorney. This fact alone says that you should strongly consider hiring a licensed and qualified attorney to represent your interests in this transaction.
In fact, the federal Structured Settlement Protection Act has a mandated disclaimer from factoring companies indicating that the payee has the right to seek independent counsel and encourages them to do so.
In looking for an attorney, some questions to ask include:
- Do you have experience in dealing with the sale of structured settlement payments and representing sellers like me?
- What services do you offer in this regard?
- What will your services cost?
- If there are issues that arise through the process, does your representation cover the handling of these issues?
When considering whether to sell your structured settlement payments, be sure to take a hard look at your financial situation to understand how receiving a discounted lump-sum payment will benefit you. It’s nice to receive a large sum of money all at once, but ask yourself if you are comfortable managing this much money, or if you would be better off receiving the payments over time.
If you decide a lump-sum is the right option for your situation, you can use a structured settlements calculator to get an estimate for how much your future payments are worth today
2 Cited Research Articles
- American Bar Association. (2019, September 9). How Do I Know if a Lawyer is Right for Me? Retrieved from https://www.americanbar.org/groups/public_education/resources/public-information/how-do-i-know-if-a-lawyer-is-right-for-me-/
- National Council of Insurance Legislators. (2016, November 20). Model State Structured Settlement Protection Act. Retrieved from http://ncoil.org/wp-content/uploads/2016/12/model-struc-settlement.pdf