A structured settlement is inflexible by its nature. 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 created 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 face. 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 spend the cash. And considering the expense of this type
of transfer, it's in your best interest to have a sound financial need to
justify the cost. If the court determines that the structured settlement
transfer 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 improve 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 advance your education to acquire skills that would improve your
earnings potential
* 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 even
if how it works is confusing. Money today will buy more than money in the future
or money in the future has less buying power than money right now.
More
importantly, money itself has a time value. If you receive a thousand dollars
now, you could invest it and accumulate 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 common 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 selected 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
transfer. This agreement would have to be reviewed by a court. The payment would
be made shortly after the court approval is received. The whole process may take
anywhere from 4 weeks to 4 months depending on the availability of documents and
timeliness of signing parties, attorneys and the court.
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