Structured Settlement Cash Advance
A structured settlement cash advance is money that a purchasing company pays to the seller of a structured settlement before the sale is approved by a judge. It can be thought of as a nonrecourse loan in that the seller is not required to repay the cash advance if they fail to obtain court approval.
- 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
- Reviewed By Roger Wohlner
- Updated: May 8, 2023
- This page features 2 Cited Research Articles
In most cases, when someone has decided to sell, or transfer the rights to, their structured settlement payments, it is because they need money immediately. But the process of selling structured settlement payments is not quick. This puts the seller in an unfortunate position, unless they can get a cash advance from the buyer.
Many factoring companies offer cash advances under specific circumstances.
Can I Get a Cash Advance?
You may be able to get a cash advance while you wait for your sale of your structured settlement to be approved.
Whether or not this is an option for you will depend on the company buying your settlement payments and its criteria for granting cash advances.
For example, the purchasing company may first need to review:
- The state of residence of the seller
- The structured settlement obligor and annuity issuer
- Confirmation that the settlement obligor and annuity issuer agree to the transfer
- Release and Settlement Agreement
- Complete annuity contract
- Benefits letter
The purchasing company must review this documentation to protect itself from granting cash advances to sellers whose payments are not transferrable as a result of an existing statute or previous court order.
How Much Money Will the Buyer Grant Me Before the Sale Is Approved?
The amount of cash the structured settlement buyer will advance prior to the court’s approval is also dependent on the company.
Settlement buyers base the amount of a cash advance on the size of your payments and the length of your payment schedule.
Remember that the amount advanced will be deducted from your lump-sum payment when your transfer is complete.
Are There Negative Consequences to Taking a Cash Advance?
If you’re working with a reputable structured settlement factoring company, you won’t have to pay interest or fees on the cash advance. This is an advantage over taking out a traditional loan to satisfy your immediate financial needs.
Most importantly, keep in mind that each state has its own structured settlement protections acts, the laws that govern the transfer of structured settlement payments, and all transactions must comply with federal and state laws.
2 Cited Research Articles
- Cornell Law School. (). 26 U.S. Code § 5891 - Structured settlement factoring transactions. Retrieved from https://www.law.cornell.edu/uscode/text/26/5891
- Internal Revenue Service (2019, March). Excise Tax on Structured Settlement Factoring Transactions Audit Technique Guide. Retrieved from https://www.irs.gov/pub/irs-mssp/structured_settlement_factoring.pdf