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Settlement payments constitute a significant component of a court-ordered agreement that finalizes a legal dispute. Structured settlements are a subset of the settlement that provides an alternative to the payer putting out the lump sum in full.
This negotiated financial agreement ensures that the payee receives ongoing partial amounts of the final settlement over time. Some payees choose not to wait for deferred payments based on preference or need.
This is where the selling of structured settlement payments comes into play. But why would you sell settlement payments, and what does the process entail?
This post will give an overview of selling your structured settlement, discuss the potential benefits of doing so, and offer a warning about a few pitfalls to look out for. We will also provide a step-by-step guide to ensure your sale is successful.
What Are Some Pros to Selling Your Structured Settlement?
Based on the perspective of prolonged financial security, it can be significantly positive to look ahead at a long duration of monthly payments from a settlement. However, some circumstances require a bulk of cash, and these are the circumstances in which one would benefit from selling future payments.
Daunting unexpected bills, such as medical expenses, can arise with little to no warning. Those receiving structured settlement payments could take advantage of their option to sell and liquidate future payments into immediate cash relief.
It is important to note that in some circumstances, a payee can ask for a cash advance from the buyer to bridge the gap between agreeing to sell the settlement payments and completing the transaction process.
A cash advance is certainly something to consider, depending on the severity of the financial hardship.
The delayed receipt of a financial settlement could also cause considerable and sometimes unhealthy anxiety in an individual who would rather sell their future payments and gain peace of mind in obtaining the money sooner rather than later.
What Are Some the Cons of Selling?
Forty-nine states and the District of Columbia have coverage under the Structured Settlement Protection Acts, protecting payees from predatory payment purchases. However, it is always crucial for a payee to do their legwork while considering different offers.
An essential element to be aware of when looking to sell a structured settlement is that selling will always offer less money than a payee would receive if they stick to the monthly payments.
The buyer of the structured settlement calculates the terms of the sale by using a present versus future cost formula and accounts for their own legal and administrative costs associated with the sale and their profit.
A payee must consider this loss and carefully weigh the benefits against the sacrifices before deciding to sell their settlement. The loss of funds drives most structured settlement sales for only a portion of the full settlement rather than the total amount.
It is best to start by calculating the amount of cash one requires and the timeline associated with that amount based on their specific structured settlement terms.
It is also important for the payee to do their homework on how this sale might impact other areas of their financial health. Some things to consider are the potential repercussions involving eligibility for government aid programs and Social Security, taxes, and future retirement plans.
The next step is getting multiple quotes from various purchasing companies to compare contracts and make a confident, informed decision on the sale.
Who Can You Sell Your Structured Settlement Payments To?
Factoring businesses exist to purchase the invoices of other businesses. These companies use slow-moving payees to correct cash flow problems for other companies. A factoring company would act as the buyer of a structured settlement.
This whole industry has some notoriety for being misleading or shady, sometimes even corrupt, which is why there are laws in place to protect people from getting taken advantage of in these sales.
The best way to find a credible factoring company to work with is by checking client reviews or reports from outside agencies such as Better Business Bureau.
Making the right choice of which company to consider selling structured settlement payments to means looking into an individual company and determining whether or not it specializes in this industry and if it meets the specific criteria (like a timeline), one is seeking.
Do I Need Approval for This Sale?
Yes, court approval is required for selling a structured settlement payment. A judge for the county will determine whether or not the sale is in the best interest of the payee. This determination is a protective process to secure the financial well-being of the payee.
Factoring companies are responsible for gathering the necessary paperwork for this hearing and setting the appointment. The judge asks a series of questions to the payee during the hearing to thoroughly vet the situation.
Gaining court approval of the transaction is a required legal step. Any factoring company that says otherwise does not have credibility.
Step-by-Step Process To Sell a Structured Settlement
Now that we've answered some basic questions about the circumstances surrounding a structured settlement transaction, let's lay out the steps that need to be taken to ensure a successful sale.
Step 1: Determine the Amount of Cash Needed
First and foremost, a payee has to determine the amount of cash needed while keeping in mind that any portion of the settlement that is sold will be at a lower rate than the payee would receive through traditional monthly payments.
Carefully weigh the pros and cons, prioritize financial needs, and come to a confident decision on how much money you are willing to lose in the long run to gain immediate cash relief.
Coming to a well-informed and confident decision is critical because if a payee sells less than what is needed to pay off the concerning debts, the entire transaction process will have to start again to get the required amount.
Step 2: Contact Companies for Quotes
Once the necessary timeline and amount have been decided, the next step is to contact factoring companies for quotes. Contact multiple purchasing businesses to get various quotes and consider the offered terms carefully.
Step 3: Investigate the Businesses and Contracts
After the quotes roll in, investigate the businesses and contracts to make a well-educated choice on which purchasing company to move forward with.
Each quote should spell out the terms and conditions, including detailed information surrounding the accompanying fees. Different factoring businesses will require varying degrees of commission percentages and administrative costs.
Ask as many questions as are needed to achieve maximum clarity on each offer on the table. A payee has the right to sell under optimum circumstances, and only that individual knows what those circumstances are for their financial situation.
Step 4: Consult With an Attorney
It can also be in the payee's best interest to consult with an attorney over a structured settlement payment contract before proceeding with the sale.
Step 5: Provide the Necessary Paperwork
Once a buyer has been selected, provide the purchasing business with the necessary paperwork. Providing this typically includes a completed application for that factoring company, multiple forms of identification, copies of the annuity policy, and the original structured settlement agreement from the county court.
Step 6: Request the Cash Advance
If a payee is seeking a cash advance, this is the time to request that advance. Although the practice of selling structured settlement payments centers on the payee receiving immediate cash relief, the transaction can take several weeks or even months.
The average time to complete the structured settlement payment sale is between 45 and 60 days.
Step 7: Obtain Court Approval
This is the point in the sale where the court must approve. As previously mentioned, the purchasing company will make all necessary arrangements and handle all of the administrative work for the payee to appear in front of a county judge.
The judge will review the circumstances of the sale to determine its necessity and ensure that the transaction serves the payee's best interest.
Some factors that the judge will consider include the severity of the payee's financial hardship, the payee's life expectancy, the number of dependents involved in the situation, and the future financial responsibilities of the payee.
Step 8: Receive Your Funds
Get the money. Upon completion of the transaction process, with full court approval, the factoring company typically deposits the agreed amount into the payee's account within five business days of a successful hearing.
Overview of Selling Structured Settlement Payments
This entire process boils down to the level of understanding of a payee's financial situation.
Many aspects play a critical role in deciphering the payee’s overall financial health, including:
- Determining whether or not liquidation of future settlement payments is worth losing out on the total settlement amount
- Calculating exactly how much cash one needs to rectify a distressing debt
- Choosing the right purchasing company to fit these needs
The legal system that awards settlements takes responsibility for safeguarding each settlement and payee through Structured Settlement Protection Acts and meticulous court processes.
Credible factoring businesses provide buyer representatives that communicate with payees and judges to negotiate the terms of transaction contracts.
Ultimately, the payee holds responsibility for self-advocating with a strong understanding of his or her needs.
Reference Legal Explanations
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" How To Sell Your Structured Settlement Payments". Legal Explanations. Accessed on October 5, 2023. https://legal-explanations.com/blog/how-to-sell-your-structured-settlement-payments/.
" How To Sell Your Structured Settlement Payments". Legal Explanations, https://legal-explanations.com/blog/how-to-sell-your-structured-settlement-payments/. Accessed 5 October, 2023
How To Sell Your Structured Settlement Payments. Legal Explanations. Retrieved from https://legal-explanations.com/blog/how-to-sell-your-structured-settlement-payments/.