Selling A Structured Settlement
As we have seen in other articles in this series, a structured settlement could turn out to be inadequate to meet your financial needs. The question of selling the settlement comes up in this context.
You have heard that people do cash out settlements. However, the wording in your settlement agreement might give a different impression. The restrictive wording would seem to prohibit any transfer of the settlement.
All this could lead to confusion, at a time when you are in urgent need of lump sum cash. In this article, we seek to remove the confusion and explain the process of cashing out your structured settlement.
You Are Not Selling the Settlement
The settlement was an agreement between you and insurance company (or other party). It is typically executed to settle a claim you made. If the insurance company settled the claim by purchasing an annuity in your favor, the annuity itself belongs to the company. You cannot sell it.
On the other hand, the settlement confers a right on you, the right to receive a future stream of payments. This right to receive payments is your asset. Like any other asset, you do have a right to sell this asset.
How Do You Sell A Structured Settlement
While you are entitled to sell your right to receive future payments, the law makes selling structured settlements somewhat difficult. Such settlements and annuities are considered better for the financial security of most persons. Hence the law encourages such settlements and discourages their sale for lump sum cash.
In such a situation, you proceed as follows:
Consider what you want to use the lump sum cash for. You would have to explain how a lump sum of cash serves your interests better than a stream of payments extending over years.
Locate a buyer that specializes in buying structured settlements. Business firms known as structured settlement factors do this. We look at the qualifications of a good buyer at the end of this article.
Get a quote from the buyer for buying out your settlement payments. Buyers typically discount the future payments to a “present value” and give their quote based on this value.
If you accept the quote, ask the buyer for a pro-forma contract, showing the terms under which they would buy your payments. Review it with your attorney.
Return the accepted pro-forma to the buyer. Reputed factoring firms would then check that the whole transaction is likely to be approved by the court and that all legal requirements have been met.
The firm would then file an application in a court to get an appointment to review the transaction.
On the date fixed by the court, you will appear before the judge and answer questions on why you want to sell the settlement. Other interested parties might also put questions to you. Explain to them how your interests are better served with a lump sum of cash.
If you deal with an experienced and competent factoring firm, the settlement sale would most likely be approved.
The factoring firm pays you the agreed sum within a few days of receiving the court order.
Selecting A Structured Settlement Factoring Company
Ensure that the buyer of your payments is: