You’ve probably seen the commercials. You know, with the guy go asks you about your settlement and the payments you’re receiving. Perhaps you’ve wondered what he’s talking about, or if you have one, whether you should convert the payments into cash now.
Structured settlements are payments a person receives, usually because of a lawsuit, which are payed over a period of time. There are a number of reasons to obtain a structured settlement, but generally, a person gets one to limit tax liability (although tort payments are tax-free), or to establish a retirement scheme and manage one’s finances. Some companies force structured settlements, based on the amount of the award.
People who receive structured settlement payments often debate whether they should "cash out" and take a lump-sum payment when they get months or years into the payment program. There are several commercial vendors who will purchase these payments, much like banks and mortgage lenders sell credit obligations.
The decision to cash out your settlement payment should not be taken lightly. You should, at the least, consult your attorney (especially the one who helped you get the money), and a qualified CPA or tax attorney. These individuals will be able to give you the best information, and an assessment of potential penalties, for the cash out. There may be particular reasons that the settlement was structured in a particular way, which you are not aware of.
Finally, you should also note that most times, instead of "selling" your "bad debt," you’re actually the one "buying" the debt. Many companies will pay pennies on the dollar (sometimes as little as thirty cents) for your payments, and no company will pay you full value (i.e.: $1,000,000 = $1,000,000) for the settlement plan. You should be aware that you’re getting discounted dollars (current value) for your payments.
Again, there is nothing wrong with cashing out your structured settlement payments in lieu of cash now. You must closely evaluate your reasons, and be sure you receive full advisement and analysis.
