What should I know before giving up my monthly disability, personal injury, or structured settlement payments in exchange for a one-time lump sum payment?
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Dealing with companies that offer lump sum payments for your disability, personal injury, or structured settlement payments can be very risky. You could receive much less cash than your settlement is worth.
Some companies target people with disabilities who have structured settlements. If you receive a flyer or solicitation promising fast cash or a lump sum payment for your monthly or periodic payments, be careful! Consider all your options, talk to people you trust with your finances, and reach out to your lawyer or financial counselor before trading future payments for instant cash.
What is a structured settlement?
If you made a personal injury claim and settled or won your case, you are likely receiving payments through a traditional or structured settlement. A traditional settlement is generally paid out in one payment. But under a structured settlement, you get regular tax-free payments for a specified length of time. A structured settlement protects you from immediately spending your entire settlement at once and allows you to receive income over a period of time, such as monthly, quarterly, semi-annually, annually, or in a set number of lump-sum payments.
Structured settlement payments can contribute to long-term financial stability and provide a steady flow of income. Sometimes these payments are called disability payments since you receive money for injuries. However, these structured settlement payments are not government-provided Social Security Disability Insurance (SSDI) or Supplemental Security Income (SSI) payments.
Who wants your structured settlement payments?
Some companies aggressively market “cash now” deals to people with structured settlements. These companies make money by getting your structured settlement for much less than what the total settlement is worth over time. The companies will want you to give up the entire amount of your structured settlement or a portion of it.
What happens when you give up your structured settlement?
Usually, you get one lump sum payment upfront. This means you’re permanently giving up your right to receive your payments under the structured settlement. The payments you would have received go to the company that took over your structured settlement and you won’t be able to get to any future payments.
Why not take a lump sum?
While receiving a large amount of money all at once may be helpful, in the long run you will get a lot less money.
Monthly or periodic payments may give you more stability to manage your finances, pay your rent or mortgage, and keep up with your bills. If you do take a lump-sum payment, make sure you have a plan in place for how you will pay your monthly expenses without the benefit of monthly payments from your structured settlement.
Get answers before you consider giving up your structured settlement payments
Do you have other options?
If you are having trouble paying your bills and see a lump sum payment as an opportunity to get out of debt, first contact your creditors to see if you can work something out. If you have hospital bills, you should know your rights when it comes to medical bills and check and see if your hospital has a “charity care” program or a way of providing free or reduced prices. Learn about how to negotiate with a debt collector.
What are the costs?
Get a written statement with the following information from the company that wants your structured settlement:
- The total dollar amount of all your remaining monthly payments
- The value in today’s dollars of that total dollar amount
- The number of payments remaining
- How much you would receive as a lump sum
- All fees, interest or discount rate, and costs
What’s the cancellation policy?
Depending on your state law, you may have the right to cancel or rescind the agreement within a certain time frame, even after you signed. Get your cancellation rights in writing before you consider signing.
Do you have to pay taxes?
Your monthly structured settlement payments may be tax-free. Receiving a lump sum payment may have tax implications. Consult a tax advisor before signing.
Will there be an impact on public benefits?
If you receive public benefits, or plan to in the future, getting a lump sum payment may impact your eligibility. Check with your lawyer, your local legal aid office, or the department that administers those benefits.
Do you have rights under your state law?
Nearly all states require a judge to approve the agreement to give up a structured settlement. These states may require a judge to decide if the agreement is in your best interest or is necessary, reasonable, or appropriate. Your state law may provide for certain disclosures to be made before you sign.
Are there complaints about the company?
Check with your state Attorney General’s Office or state consumer protection office to see if the company is licensed to do business in your state.
What if I want more help?
- Consider contacting the lawyer who represented you in the disability or structured settlement matter. They may be able to advise you.
- View this list of lawyer resources from the American Bar Association . You can find legal help from your legal aid office or volunteer attorney program .
- A non-profit credit counselor may be able to help you weigh your options. To get started, you can contact the Financial Counseling Association of America, on their website or by phone at (800) 450-1794, or the National Foundation for Credit Counseling, on their website or by phone at (800) 388-2227.