Selling all or a portion of your future structured settlement payments may be the best way for you to obtain a lump sum of money for an unexpected expense, such as a large medical bill or urgent home renovations.
Sometimes people refer to this transaction as a structured settlement loan. But that phrase is actually inaccurate as there is no such thing as a structured settlement loan. Current laws prohibit structured settlements from being used as collateral for loans.
Evaluate Your Needs
Step 1: Decide how much money you need and how much of your structured settlement you want to sell. Keep in mind that the total dollar amount of the payments you would receive over time will be higher than the amount you will get from a company that purchases the rights to the payments. That’s because the company will have administrative and legal costs. The company also exists to make a profit.
The lump sum you receive from the buyer, or factoring company, can be as low as 50 percent of your total future payments, but typically will be between 60 and 80 percent. So if you get $1,000 a month through your structured settlement, you could sell each payment for anywhere from $500 to $800.
With that in mind, consider the amount of money you are willing to sacrifice and for how long. Most people don’t sell their entire structured settlement. They instead sell a portion of their payments. They might decide to sell six months’ worth of payments, leaving them with no regular income stream from their structured settlement during that time period.
Or they might want to continue to receive regularly scheduled payments during those six months, so they may sell half of their payments for a year.
The percentage and length of time are up to you. You should carefully evaluate your financial situation and consider what would be best for you.
Using the example of $1,000 monthly payments, you could elect to sell six months of the payments, or $6,000. In that case, you wouldn’t receive any money from your structured settlement for those six months. After that time was up, you would again begin receiving $1,000 a month. That arrangement could bring a lump sum of anywhere from $3,000 to $4,800, depending on the offer.
If you elected to sell half of your payments for the next year, the dollar amount would still be $6,000, but, in this scenario, you would receive payments of $500 a month — instead of $1,000 — for a year. After the six months, you would resume your monthly $1,000 income.
The legal requirements of selling a structured settlement may delay the buyer’s receipt of the money, which may impact the final offer.
Make sure you sell enough payments for whatever debt you need to cover. If you sell too little, you’ll have to start the process all over again and appear before a judge a second time to get additional funds. If that happens, the judge may doubt your ability to handle your finances and may be less willing to approve the second transaction.
Step 2: Contact the company that will make the purchase — known as a factoring company — for a quote. This will tell you how much the company will pay for your payments. It’s often a good idea to get more than one quote from different purchasing companies so you can be confident you’ve chosen the right factoring company.
It’s a good idea to check out the ratings for the companies from the Better Business Bureau.
Make sure each offer includes in writing all the fees and commissions the companies will require you to pay. It’s best to go into any transaction with your eyes open. After contacting companies and getting quotes, you’ll have a better idea of how much money you can get for your payments. Armed with this knowledge, you may want to revisit step one.
Assess Your Options
Step 3: Compare the offers to each other. Read all the fine print and know the terms of any deal before agreeing to it. Make sure all your questions are answered and that you are comfortable working with the company you choose. If you’re unsure, ask someone you trust to help you weigh your options. Don’t be shy about asking more questions.
Investigate the factoring companies until you’re satisfied that they’re reputable. Review their websites, talk to their representatives and look at the professional organizations to which they belong. Once you’ve done all your homework, decide which one works best for you.
Select the Company
Step 4: Choose the best offer and complete and sign the paperwork.
The required paperwork includes:
- Two forms of identification
- A completed application
- Copy of the original structured settlement and release agreement
- Copy of your annuity policy
Once this step is completed, you’ve officially agreed to sell your payments.
Request an Advance
Step 5: If you need money immediately, ask for a cash advance. This will be a partial payment of about $1,000 to hold you over while until the process is complete. It can take up to three months to receive your lump sum payment.
Appear Before a Judge
Step 6: Get court approval. This sounds intimidating, but it’s not. The factoring company you’re working with will make all the arrangements and prepare the paperwork for you to appear before a judge in your county. You will answer some questions to assure the judge that this transaction is in your best interest. This step is required by law. Among other things, the judge will consider the welfare and support of your dependents when deciding whether to approve the sale.
After the court approves the transaction, you will send a copy of the order to the administrator of your structured settlement.
Get Your Money
Step 7: Receive full payment, as specified in your agreement with the factoring company. This will typically happen within three to five business days of the court’s approval.
If you owe any past-due child support or have any tax liens, they will be subtracted from your lump sum before you can receive the money.
3 Cited Research Articles
- National Association of Settlement Purchasers. (n.d.). FAQs About Secondary Market Transfers. Retrieved from https://nasp-usa.com/settlement-transfers/secondary-market-faq/
- National Association of Settlement Purchasers. (n.d.). How to Protect Yourself in the Secondary Market. Retrieved from https://nasp-usa.com/settlement-transfers/secondary-market-protection/
- National Association of Settlement Purchasers. (n.d.). Structured Settlement Transfers: A Guide to How the Industry Works. Retrieved from https://nasp-usa.com/uploads/misc/NASP_PR_IndustryFAQs_0317.pdf