It hasn’t always been possible to sell a structured settlement. As long as there have been lawsuits, individuals have been encouraged to settle out of court, being awarded a lump sum in exchange for their complicity in not drawing a case out in a courtroom. In the 1970’s it became common for these settlements to be paid out at intervals, over time. This is the “structure” in structured settlement. It was seen as a way to further insulate vulnerable people from predatory practices, or their own spending impulses.
Gradually, structured settlements became the norm for cases settled out of court. Plaintiffs were supposed to be given the option, but many reported being strong-armed into taking a structured settlement, sometimes from an insurance company they had no say in hiring. In some cases, these companies would liquidate, leaving individuals with drastically reduced settlement payments and little legal recourse, and even fewer resources to pursue legal actions that were available to them.
Many of these individuals were still feeling the pinch of the problem that led to the lawsuit in the first place. Some faced long term hospital stays, disability, and loss of income. A gradual payment structure wasn’t sufficient to cover their large immediate needs, and many went bankrupt even as their payments started trickling in. For this reason, George W. Bush signed the Tax Relief Act of 2001 (H.R. 2884) into law, which made provision for individuals to sell their structured settlement to someone else, for a lump sum to cover immediate needs.
In order to further insulate these individuals from predatory buying practices, they had to get the sale supported at the state court level. The State Courts were only to grant permission for the sale when the money would go to an authentic need. Individuals could sell their settlement to make a down-payment on a house, start a business, or pay off a high interest loan. They could not use the sale to fund a cruise. Companies like iSettlements came into being to provide timely payments for people in these situations.
However, for every reputable buyer like this, there were other organizations who paid out pennies on the dollar for individuals who wanted cash now and considered little else.
This takes us to the present day, where the structured settlement and structured settlement buying industries have been in operation largely unchanged since 2002. So the question remains, when is it appropriate to sell a structured settlement of your own? There are many issues to consider, but here are the most important.
How much are you being offered? Naturally, you will be selling at a loss, but you will be gaining the independence and buying power that comes from having your payout all at once, rather than staggered out over time. There are plenty of people and companies who will be willing to buy your settlement. Shop around and take only the best offer available to you.
What should you do with the money? As stated above, state courts are meant to ensure that the sale of your settlement will benefit you in a significant way. I would recommend not selling your structured settlement unless the thing you are spending your money on will earn you more than you would gain from the settlement itself. If you are able to start a business or pay off a loan that is costing you hundreds or thousands a year, these are legitimate reasons to sell off your settlement.
What if a structured settlement isn’t my only option? If your settlement is available to you as a lump sum in the first place, by all means take it. It is best to proceed with caution, as you would with any sudden windfall. Don’t spend it immediately. Use it only for applications that will generate even greater wealth for yourself. If you are able to fight for a lump sum payout, do so, but otherwise live with your structured settlement if you possibly can.
Structured settlements have an interesting history in the United States. The laws have always been tweaked to protect the individual. Even so, it is still difficult to know for sure how to deal with your settlement, especially in the stress of a lawsuit. Take the time to review your options and talk to a finance professional if you find yourself settling out of court.