17
Questions
You Should Ask
Before Selling
Your Structured
Settlement
If you, or someone you know, is a recipient of a structured, long-term payment of an insurance or other settlement, or even a lottery pay-out, there are options to get an advance cash payment! Of the resources out there, most are ethical, some are shady, some pay you more than others. You owe it to yourself to be informed. This overview will help you navigate the ins and outs of this specialized area of financial transactions. Knowing the right questions—and the right answers—could save you thousands and endless heartache and hassle.
17 Questions You Should Ask Before Selling Your Structured Settlement
1. Should I sell some or all of my structured settlement payments?
When unforeseen or unplanned expenses arise, you can sell some or all of your future structured settlement payments. Some people decide to sell payments because of mounting debt, to avoid foreclosure or bankruptcy, to pay for needed car repairs, or a variety of other immediate cash needs.
2. How do I know if I qualify?
Selling your structured settlement payments is not the same as a loan. Your credit history, bankruptcies, or lack of a job will typically not prevent you from selling your future payments. All you need is a structured settlement with the payments in your name.
3. What is the process?
First, you should find a factoring company you feel good about. Next, you will need to come to an agreement on how much you will sell, and for how much. After reaching an agreement, the factoring company will send you a disclosure
statement with the agreement on it in basic terms. Shortly after that, you will get a contract. You should carefully review the contract before you sign it, and review it with a professional advisor if you want to. Next, the factoring company will file documents in court to get the transfer and sale approved.
4. Do I have to sell my entire settlement at once, or can I sell a portion of my settlement payments? And can I sell more in the future?
Most reputable companies that purchase settlements (settlement purchasers) will buy only a portion of your payments, if that’s what you need to meet your current financial needs today. If circumstances change for you in the future, and if there is money remaining in your settlement, you have the opportunity to sell
additional payments if needed.
5. How much money can I get from my settlement payments?
A reputable settlement purchaser will do everything possible to get you enough to meet your current financial needs. Some purchasers have a minimum funding amount of $10,000, but you can be funded as much as $1,000,000 or more depending on the size of your transaction.
17 Questions You Should Ask Before Selling Your Structured Settlement
6. What are the laws about selling my payments?
Forty-seven states have laws that allow the sale of structured settlements and insurance payments. In addition, there is a federal law, IRC 5891, which took effect on July 1, 2002, that provides a safe harbor for any individual wishing to cash in their payments.
7. Do I need a lawyer?
All states give the option to seek legal, financial, and/or tax advice before entering into a purchase and sale agreement. Some states have made this mandatory, while others require you to sign a waiver if you choose not to seek independent legal or financial advice.
8. Why would a judge approve such transactions?
Judges will carefully review your file to determine if the transaction is indeed in your best interest while considering the support and welfare of your dependents. Judges realize that many people do not have access to traditional credit sources, and the only way some of them can reach their financial goals is by selling a portion of their settlement payments. As long as the seller is an adult of sound mind, has a legitimate need for this money and can prove to the judge that selling is in the best interest of both the seller and their dependents, the judge has little reason to deny the transaction.
9. What about my dependents? How are they protected?
The federal law requires that every transfer meet certain conditions. With this in place, the courts consider the support and welfare of your dependents before giving permission to transfer payments. The court confirms that the transfer is in your best interest.
10. Will I have to be present in court?
Your chances of approval go up significantly if you are able to appear in court. The judge may ask you questions as to why you want this money and your presence in the room will help the judge approve your transaction.
11. What information do you need from me to get started?
Most settlement purchasers just need to know the state you reside in, your insurance company and your payments in order to provide you a quote. Once you
17 Questions You Should Ask Before Selling Your Structured Settlement
are ready to proceed, you will need copies of your settlement agreement and annuity policy available to submit to the settlement purchaser you choose.
12. Are there any tax consequences?
IRC 5891 specifically states that neither owners nor annuitants will suffer tax consequences as a result of these transfers.
13. What happens if the Judge denies my case?
Reputable settlement purchasers experience very few denials in court. This is because they would have done all the necessary advance work to ensure success. In the rare case of a denial, you would not owe any money.
14. Can this be done on worker’s compensation settlements?
Worker’s compensation benefits are administered at the state level. Many states do not allow transfer of these payment rights. Some states do allow it, or allow it in certain circumstances.
15. How am I protected if the settlement purchaser goes out of business?
You should conduct your own due diligence when choosing a settlement purchaser. Some of the things you might look for will be the number of consecutive years they have been in business. Customer service is also important, and you should be able to sense during your early conversations if the people you speak with by phone are clear and competent. Also, make sure the settlement purchaser is insured and bonded. All transactions should be backed by a legal court order.
16. What happens in court?
The judge will make sure that the law has been complied with, and the sale would be in your best interests (taking into account the welfare and support of any dependents). If the court approves the sale, then the factoring company will soon send you the funds.
17. What else should I know?
Completing the sale takes time. There are some built-in delays, such as between the time the disclosures are sent out and when the contract can be signed, and from the time the application for approval is filed with the court and when a hearing can be held (usually 20 days). Other delays are caused by trying to find
17 Questions You Should Ask Before Selling Your Structured Settlement
time on the court's hearing calendar, and from problems in retrieving documents, etc. The average processing time from start to finish is around 90 days.
Remember that the judge will decide whether or not you can sell your payments. Be a good witness and advocate for your cause.
