Structured settlements generally aren’t yours to do with at your leisure. You may already envision how you’re going to use the funds when you receive a lump sum payment.
The good news is this: you can spend the cash advance however you please. First, you must go through a court process to sell your structured settlement payments.
Selling your structured settlement boils down to the following steps: finding a factoring company (the company that will give you a lump sum in return for your settlement), seeking approval from a judge, and signing the loan agreement. To make your case in court, you must show extensive documentation and have a good reason for wanting an advance.
This article will show you how to sell your structured settlement effectively. Read further to know more.
Your Rights as a Recipient
If you need short-term cash, you cannot switch from an annuity plan to a single payment plan. Instead, you can sell a portion or all of the settlement in exchange for cash. In some cases, however, a settlement plan cannot be sold.
For example, workers’ comp claims and social security benefits aren’t eligible. Overall, any settlement not approved by the court doesn’t qualify.
Determine How Much Money You Need
Above all, you should only borrow the minimum. Keeping your borrowing costs low will reduce the number of settlement payments you pledge to the lender. Also, determine how many payments you’re offering.
Finding a Structured Settlement Company
Find a company interested in purchasing your structured settlement. If you can show documents proving your settlement, you’ll stand a higher chance of approval.
Most structured settlement companies aren’t concerned about your personal income and credit profile. They’re primarily concerned about the settlement. Plus, these companies generally don’t care how you use the funds. Rightway Funding, for example, doesn’t impose restrictions on how recipients use the advance.
You can use the funds to cover immediate expenses (i.e. medical bills or living costs). You can even use the money to invest in a business venture. However, the company may inquire how you intend to use the money.
Each factoring company has a discount rate. The discount rate is a percentage of your advance.
The rate depends on such factors as the level of risk involved and the current value of your settlement. The discount rate helps lenders determine the settlement value based on inflation.
Due to rising future costs, the settlement money that lenders receive in the future will be worth less than it is today. This will affect how much money they’re willing to approve.
A low discount rate means you’ll get to keep more of your money. Conversely, high discount rates mean you’ll lose more of your money. The rates could stretch anywhere from 9 to 20%.
Getting Court Approval
Before a structured settlement company can proceed, a judge must approve the settlement transfer. A judge’s approval is necessary under federal law.
You’ll seek court approval in the district where you live. The court approval process will take up to 45 days.
The judge will ensure the transfer process doesn’t violate court orders. Moreover, court approval is necessary to protect victims from squandering the funds and preventing others from taking advantage of the settlement plan.
- Note: State law may have additional restrictions. For example, some states have a waiting period between the time you get a lender quote and the time you finalize the transaction.
The judge will ask why you want the settlement funds and how you intend to use the money. They will also ask if you understand the implications of selling your structured payments. Further, they could ask whether you compared the terms and conditions of the factoring company to other lenders.
If you’re selling a minor’s structured settlement, you may have a harder time getting court approval. Recipients can only sell a minor’s structured settlement if their circumstances have changed.
Regardless of the circumstance, you should bring the following to the court:
- Any document noting the agreement with the settlement company
- Photo ID (i.e. driver’s license or any other type of ID)
The approval process may seem cumbersome, but the court is looking out for your interests. The court may even recommend an attorney reviewing the agreement.
Contacting an Attorney
An attorney should review any financial document that you sign. Additionally, a lawyer can help you better understand the contract.
Financial agreements tend to contain complex jargon. Further, an attorney can tell you if the agreement will harm you in the long-0 term.
Choose an attorney who has experience in structured settlement cases. Attorneys are invaluable, but they can be expensive, especially experienced lawyers. Therefore, ask about the fee structure when interviewing an attorney, and review the attorney agreement thoroughly before signing it.
In most cases, the IRS will not tax the money you receive from selling structured settlements. In some cases, however, a tax would apply if the settlement derives from an emotional distress case or a discrimination case.
That said, a tax on structured settlement is generally rare. To be on the safe side, however, ask an attorney.
How Can I Sell My Structured Settlements Effectively?
Selling structured settlements requires documentation. A lending company wants documentation showing you receive regular settlement payments.
After finding the right lender, present the transfer agreement before the court. From there, the judge will determine whether the transfer process can proceed.
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