Structured Settlements Authority

How to Get Cash for a Structured Settlement

Enactment of State SSPAs

Structured settlements undisputedly provide a huge blanket of security to their beneficiaries. By allowing personal injury victims to receive their compensations via a regular stream of payments, the victims, together with their families, are assured of a long-term protection against financial difficulties.

The past few years have witnessed the proliferation of financial companies buying future structured settlement annuities from claimants in exchange for huge sums of money. These financial companies, also known as "factoring" companies, commonly use phone banks, advertising, and high-pressure sales to offer cash for structured settlement payments.

These offers by the factoring companies often undermine the benefits of structured settlement that the government is trying to encourage via tax incentives and may also exploit the injured person at a time when they are most vulnerable due to an urgent need of cash. Because of these occurrences, in 1997, the Illinois state legislature enacted a law that recognized the need to protect structured settlement recipients against the abuses of the practice known as factoring.

Before a factoring company, also know as the transferee, can purchase a structured settlement from an accident victim, also know as the payee, they are required by the new law to make a series of disclosures. These disclosures are designed to highlight the value of transferred payments and to contrast that value with the net amount that the payee stands to receive in exchange for the transferred payments. In most states, the transferee must also disclose the discounted present value of the transferred payments. The discounted present value is determined using the most recent "Applicable Federal Rate" regularly published by the Internal Revenue Service for the purpose of valuing annuities.

The transfer of any structured settlement rights from the payee to the transferee must also pass two conditions first before a court will approve the transfer. The first condition is that the transfer should serve the best interests of the payee and the payee's dependents or is necessary for them to avoid hardships. The second condition is that the transfer should not contravene any applicable laws or previous court orders.

Some Structured Settlement Protection Acts expressly require the court to make an affirmative finding regarding the fairness and reasonableness of a proposed transfer. This finding generally should confirm that the transfer will serve the best interests of a payee and his or her dependents. SSPAs in some states require the payee to acknowledge that they have been advised to seek independent professional advice and have either received it or knowingly waived that advice.

Legal terms and unique aspects of the sale of structured settlement payments should be clearly defined during the transfer process. As an example, the statutes identify the categories of interested parties that are entitled to receive notice of a proposed transfer, the contents of the notice, and the minimum notice period that must elapse before an application can be heard. Furthermore, key terms such as structured settlement, payment rights, and transfer should also be clearly identified.

Legal Aspects of Getting Cash for a Structured Settlement