Cashing Out Structured Settlements
A structured settlement is inflexible by its character. Once you have signed off your injury claim, in return for a stream of future cash payments, you would be unable to alter the settlement terms. The insurance company and the lawyers, and settlement agents likely produced a cash flow settlement that all parties could agree on. Right now though, that agreement may not be working for you anymore.
You could find the pattern of payments unsuitable. The installments are too low to meet your commitments. You may be falling behind in paying your bills and your creditors may not be understanding of your current financial situation. And you know you have all that money coming to you in the future but not right now when you need it.
This is a situation many recipients of structured settlements confront. Hence the wide felt desire to cash out settlements.
How Would You Use the Cash?
The answer to this question is very important. Cashing out structured settlements require a court approval. And the court will ask you how you plan to use the cash. And considering the expense of this kind of move, it’s in your best interest to have a sound financial need to justify the cost.
If the court determines that the structured settlement move is not in your best financial interest, it will not give its approval. And you would not be able to cash out the settlement.
Hence, prepare yourself well to answer this question. The aim should be to explain how an immediate lump sum of cash, instead of a stream of future payments, would better serve your immediate needs.
When Could A Lump Sum Serve Your Interests Better than Future Payments?
In general, you have to show that the financial security of yourself and/or your dependants would be served better. For example:
* You are now paying high interest on a car loan. Prepaying the loan with the lump sum received from cashing out your structured settlement would enhance your cash flow, help you pay rent.
* You have accumulated a big credit card debt, again with high interest, to meet expensive medical bills. This can be paid off with the lump sum cash, freeing up immediate funds for living expenses.
* You could improvement your education to acquire skills that would enhance your earnings possible
* You, or one of your dependants, have fallen sick and require expensive medication. You have no other asset to meet the costs
The court would also consider the following actions as indicative of a genuine need for cashing out your existing structured settlement:
- You sell only a certain number of your settlement payments, just enough to raise the cash needed for the urgent requirement
- You have a clear plan to use the lump sum cash.
- You write a strong affidavit to explain your need.
How Do You Proceed to Cash Out Your Settlement?
The first thing is to find a buyer who would pay you a good amount in return for the future payments. Money received in the future is of less value than the same amount received now. There are two major reasons for this lower “present value” of the future payments.
Prices of everyday necessities would have gone up by the time you receive payments in the future. You understand what inflation is already if how it works is confusing. Money today will buy more than money in the future or money in the future has less buying strength than money right now.
More importantly, money itself has a time value. If you receive a thousand dollars now, you could invest it and build up interest. So, a thousand dollars now is more valuable than a thousand dollars received in the future because of its value as an investment.
Hence, a buyer of your structured settlement would compute the present value of the future structured settlement payments that you are selling, and pay you a lump sum based on that value. By selecting a reputable buyer, you could expect to get a good deal based on this present value. There are many brokers in the factoring cash flows industry, and just a handful of funding institutions. It is shared practice to shop around to get the best price, and then take it to a funding company that you feel comfortable with.
Once you have chosen a buyer, a lot of formalities would be involved before you get the cash. What you do is assign your right to receive the future payments to the buyer. The buyer then pays you the agreed immediate sum. Along the way there are a number of documents to be reviewed and signed, and state mandated steps to follow to legally complete the settlement move.
This agreement would have to be reviewed by a court. The payment would be made shortly after the court approval is received. The whole course of action may take anywhere from 4 weeks to 4 months depending on the availability of documents and timeliness of signing parties, attorneys and the court.