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Understanding the Laws and Regulations at PlayStructured settlement sales are heavily governed and regulated by both the federal and state governments. This is to ensure that you get the best possible arrangement for your needs, while empowering you and protecting your rights. Understanding the various laws and regulations involved in the transfer of your scheduled payment rights is an important part of being an informed consumer and ensuring that you know exactly what you’re doing.
The Rising Popularity of Structured Settlements and TransfersGiven the nature of structured settlements (secure, tax-exempt, etc.), it’s natural that they gained immense popularity in the past few decades. In fact, the federal government did a great deal to make them that popular by decreeing them the preferred format for court settlements for personal injury and accident cases. The Periodic Payment Settlement Act was perhaps the most influential piece of legislation dealing with structured settlements, besides the Structured Settlement Protection Act.
However, growth doesn’t come without some issues, and the lack of regulation in the early secondary annuity marketplace led to some serious issues and the need for better safeguards, as well as the means to protect consumers’ rights. This was done via the SSPA (the Structured Settlement Protection Act mentioned above). This Act has the most to do with what you need to know about rules and regulations governing the transfer of your payments. The federal government enacted the SSPA but most of the states modified or even fortified the language in that Act before adopting it. With that being said, most states follow a similar tack in their legislation, and they all require:
1. The factoring company must directly explain to the seller the difference between the value of the settlement payments if the annuity remains unchanged, versus the value if it is sold. This is straightforward and designed to ensure that you know how much money you will not be receiving if you opt to sell.
2. All payment transfers must be approved by the court, and that approval is only possible if the judge determines that the transfer is in the seller’s best interest (the consumer transferring the payments). The court must also find that the transfer is necessary, not merely “desired”.
3. The buyer has to provide full disclosure of the terms agreed on with the transfer.
4. All interested parties involved with the transfer must be identified and notified so they have a chance to response, agree or oppose the transfer. The court must also have proof that they have been notified.
5. There can be no contravention of other state or federal statues by the transfer (this includes decrees, judgments and court orders).
When it comes to ensuring that consumers are aware of the intricacies involved in transferring a structured settlement, the government requires at least the possibility of getting impartial, third party advice. Many states require that the seller be notified of this right, while others require the seller to show proof that they have in fact received such advice. Others require a waiver to be signed if the seller elects not to get such advice. Alaska, North Carolina, Delaware, Louisiana, Maine, Maryland, Minnesota and Ohio all require that the seller get such counseling unless a waiver is signed.
Federal Law Applies as WellWhile state law has a great deal to do with the process you’ll follow during your structured settlement transfer, federal law also plays a role here, and that’s beyond what is required by the SSPA. In 2002, the federal government decided it wanted to standardize state statutes, and to that end, Congress made an amendment to the IRS Code (Section 5891, specifically). These amendments clarified and cemented industry rules by applying the following:
- All structured settlement transfers had to comply with the specific state’s SSPA version, including that the transfer had to be in the seller’s best interest and the best interest of that person’s family or dependents.
- A 40% excise tax was to be applied to any transfer that did not meet with approval of the judge. Rather than a punishment, this was meant as a deterrent, encouraging sellers not to go through with a transfer if the company in question was unscrupulous or predatory.
Trust Is VitalIf you are considering selling your structured settlement, it is paramount that you move forward based on a relationship built on trust with both the buyer and your attorney. The factoring company should be reputable, with a sterling reputation in the industry, and should go to great lengths to ensure that you are getting a fair deal. The same applies to your attorney.
Buyers in the Secondary Annuity MarketWhen you hear the term “secondary annuity market”, that’s a reference to the marketplace created for holders of annuities to sell their investments. This allows them to get a lump sum payment rather than relying on ongoing payments as set forth in their settlement agreement.
In most instances, those buying annuities and structured settlements are businesses themselves, although there are always a few individuals involved in the market as well. These businesses pay a lump sum for the transfer of a structured settlement into their name. This means that the seller (the consumer) gets a lump sum of money while the buyer (the company purchasing the settlement) gets ongoing payments. It’s really as simple as that.
The secondary annuity market came about rather by accident. In 1982, the PPSA was signed into law, and structured settlements became the preferred method for awarding settlements in injury and accident cases. However, the law did not take into account the fact that peoples’ financial situations and costs of living change frequently. This left annuitants and structured settlement holders holding the bag to a certain extent.
The secondary marketplace was born to provide those individuals with a means to sell their settlement or annuity (or a portion of that financial tool) in exchange for a lump sum of cash. With that cash, the individual could then pay their medical bills or meet any other financial obligations.
With that birth came problems, though. At first, there was no regulation at all. Then came the Structured Settlement Protection Act (SSPA). This made it mandatory that all sales go through a judge, who had to approve them. It also granted a range of other rights and protections to consumers selling their structured settlements or annuities. However, while things have improved dramatically, there are still unethical buyers out there, and it is up to the consumer to ensure they choose a reputable factoring company.
How to Choose a Quality CompanyFinding the right buyer is no simple thing. There are plenty of them out there, but getting in touch with them is the problem. Moreover, the problem is compounded by the question of quality. Most consumers have little knowledge of the structured settlement sales industry. Working with a factoring company helps take much of the confusion out, but there are important things that all consumers should remember.
First, understand that all buyers are in this for a profit. You will not sell your structured settlement for the face value of the agreement. You will sell it at a discount. That discount represents the company’s profit. The amount of discount varies considerably, and part of ensuring that you’ve chosen the right company is to make sure that you are getting a fair deal here. The buyer should certainly be able to make a profit, but you should be treated equitably as well.
Always review the agreement with your attorney or with an independent third party expert. Never assume that you understand all of an agreement unless you are a legal expert yourself. Hidden fees and unfair terms can be hidden within these agreements, so make sure that you are being provided with expert guidance throughout the process.
Using Your Settlement Proceeds to Pay Off Your DebtDebt is perhaps the one thing that most Americans have in common. It’s become “the American way” to a sense. We all carry more debt than we should, but for those injured in an accident and no longer able to work fulltime or at all, debt can be a crippling burden. That debt can build up over time, or it can happen seemingly overnight, often the result of medical bills and healthcare needs brought on by the accident or injury in question. The problem here is that if you’re living on the payments from a structured settlement, they’re not enough to meet your cost of living expenses and your debt burden. For many people in this situation, the answer is to sell your structured settlement for a lump sum.
Of course, it’s not necessarily as simple as all that. You’ll need to understand a few things about selling your payments before you get started.
Selling Your PaymentsIf you need to sell your structured settlement to handle debt, whether that debt is from medical bills, student loans or something else, you’ll need to follow these simple steps:
- Know Your Value- Your structured settlement is an asset, and it has a specific value. You need to know what that value is before you decide to sell it or a portion of it. The current cash value will help you, but you might also want to speak to a financial advisor about the effect of inflation over time.
- How Much to Sell – Another thing you’ll need to know is how much of your settlement you want to sell. You do not have to sell it all. You only need to sell as much as necessary to cover your debt. You can then retain the remainder and keep it against your future needs.
- Get Help with a Factoring Company – Working with the right factoring company is the key to finding a qualified buyer without going through all the trouble and hassle of researching them yourself. We can help you get started right away.
- Legal Guidance – We always recommend legal guidance. What is right for one consumer is wrong for another, and we cannot say that you’re needs are best served by the sale of your structured settlement. Work with a trusted lawyer to ensure that you’re making the right decision here.
- Go to Court – The sale of any portion of your structured settlement will necessitate you going to court to seek the judge’s approval. You’ll need to appear in court and answer the judge’s questions satisfactorily. As a note, selling payments in order to reduce your debt burden is often considered a viable reason.
- Finish It Up -Once the judge has agreed to the sale, you have to sign the contract. From that point, you receive your money. However, the time between the judge issuing approval and you receiving your check can vary considerably.
Using an Annuity for Debt SettlementDebt settlement is always a delicate subject, but sometimes it’s a necessity. If you’re struggling under a growing mound of debt, working with a debt settlement company can give you the means to make one payment per month and stop creditor harassment. Of course, debt settlement companies cannot do anything that you can’t, but they’re often better connected, and they’re also experts in what they do. These companies do charge for their services, and that fee comes off the top of your monthly payments.
Making those monthly payments can seem impossible. However, if you have an annuity or a structured settlement, selling a portion of it can provide you with the means to make those payments on time (or to circumvent the debt settlement company completely and work directly with your creditors, which is always cheaper).
In fact, selling your structured settlement can help ensure that you’re able to meet your financial obligations no matter what you’re going through. If you have lost your job, or your hours have been reduced at work, if you’re having to pay high medical bills for yourself or your spouse – selling your structured settlement can ensure that you have a viable alternative to defaulting on those debts.
With that being said, selling your settlement or annuity is not right for everyone. You will not receive the entire face value of the settlement, and the amount you receive can vary considerably depending on the offer you choose. While transferring/selling a settlement can be a good idea, it’s something that you should think through very carefully before determining that it’s the right course for you.
We Can HelpSelling your structured settlement should be a simple, straightforward process, or at least that’s what we believe. We can help ensure that you get the fair deal you deserve and the best payout possible from your transfer.
All you need to do is provide us with a few important pieces of information, and we go to work on your behalf, connecting you with qualified buyers who are in the market for settlements just like yours and willing to pay well for the opportunity. Of course, we do more than just connect you with a buyer. We’ll work with you throughout the entire process, from finding a buyer to going to court and getting a judge’s approval on your sale. We are dedicated to helping you.