Questions about the Legality of Selling Your Structured Settlement


alg-clarence-thomas-jpg-620x467Structured settlements can be valuable tools, but all too often recipients find that they really don’t offer the financial stability they need, as compared to receiving a lump sum settlement. However, lump sum awards from a court are rare – most judges believe (correctly or incorrectly) that a structured settlement is in the claimant’s best interest as it keeps them from spending all of the money at one time, thus ensuring they have better financial footing in the future. However, if you’re strapped for cash, selling your structured settlement might be a possibility, but it’s not for everyone.

Worker’s Compensation

Worker’s compensation settlements usually fall into the category of “structured settlements”, but that’s where the similarities stop. If you have a settlement due to a worker’s comp claim, you cannot sell it. You’ll need to continue receiving regular payments until the total amount awarded to you has been paid out. No state allows the sale of worker’s compensation annuities.

Concerns about Bankruptcy

Bankruptcy is all too common these days. While new regulations have made it harder to file bankruptcy, it’s still one of the most frequently turned to solutions when dealing with financial insolvency. However, if you’re still under bankruptcy, and it has not been discharged, you can still sell your structured settlement. There are additional complications here, though. It’s not as simple as selling a structured settlement without the bankruptcy in place. You’ll need to notify the company helping you sell the settlement that you’re still in bankruptcy, and the firm will have to speak with the trustee. There may also be additional fees charged for processing cases still in bankruptcy.

Income Tax

No one likes to pay taxes, but they’re a concrete reality. There’s good news, though. You do not have to pay income taxes on the sale of your structured settlement (in most cases). Generally, structured settlements are set up to be tax-free, so you don’t pay tax on the monthly payments. The same rule holds true for selling the settlement and receiving a lump sum (this applies to both federal and state income taxes). However, it’s always important to speak with an attorney about these situations, as there may be mitigating circumstances in your case.

Anti-Sale Language in the Settlement Documentation

Many structured settlement documents include some sort of language prohibiting the transfer, sale or modification of the settlement. A cursory inspection might suggest that these clauses prohibit you from selling the settlement at all, but that’s not necessarily the case. You’ll find that because your case must go back before the judge, it is within his or her power to make the decision on whether you can sell the settlement or not. They have the power to approve a sale, even if there is some type of limiting language in the documentation.

The best option for avoiding these legal complications is to work with an expert company with a reputation for helping sellers get the best deal for their structured settlements. 

About Author :

SB is a finance writer who like to write on various issues related to risk management, PI insurance, and various other ways in which people can protect their business and get out of this kind of mess.

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