Is a Loan against a Structured Settlement Possible and what to do if you want to Receive Cash Now for your Structured Settlement if you are Seeking

The simple answer is no. If you received a structured settlement as a result of a personal injury settlement, then your only option is to “sell your structured settlement payments”. While the concept is easily confused, obtaining a “structured settlement loan” is not possible. The reason being is that although you as the original injured party are entitled to receive payments under a structured settlement, you as the injured party are not actually the “owner” of the structured settlement itself.

The owner of the structured settlement is actually the insurance company that purchased an annuity to fund the settlement you received.  You, as the injured party, are legally referred to a “beneficiary”. And as a beneficiary, you own only the “right”’ to receive the payment stream. While the distinction may appear to be technical, it is actually quite significant.

Although loans can take several forms, the fundamental requirement of any loan is that you actually own the underlying asset that you are seeking to borrow money against. In the case of a structured settlement annuity that means you would have to actually “own” the annuity contract itself as that is the underlying asset.

Second, a loan also implies that any amount “borrowed” against the asset can also be re-paid at some later date. But, in the case of a structured settlement annuity, there is no re-payment option available either. And what that truly means is if you are seeking to obtain “cash now” from your structured settlement; what you are actually doing is permanently “assigning” your to receive future structured settlement payments.

Because such transactions are not deemed to be loans, there is limit on how much a company can charge you for your rights to the structured settlement payments. And even if you agree to sell your rights to receive your future payments at a 50% discount or more, which would be a 50% interest rate if it were a loan, you cannot come back at a later date and hope to “buy back” the payment rights you sold.

This does not mean that you should not enter into the sale of your structured settlement payments if you need cash and have no other options to get the liquidity you need. Rather, it simply means that you should be aware of what you are doing when you are seeking to sell your structured settlement, and probably should also seek to have an Independent Professional Advisor assist you throughout the sale process.

In many states, and because of the fact that most average consumers are not aware of the distinction between selling structured settlement payment rights and borrowing or obtain a loan against a structured settlement, laws have been specifically enacted to protect sellers that are seeking to sell their structured settlements. Most of these laws are commonly known as “Structured Settlement Protection Acts”.

More important, every state’s Structured Settlement Protection Act also strongly encourages every potential seller of a structured settlement either to obtain, have, or waive their right to seek independent professional advice. An independent professional advisor is generally defined as either an attorney, certified public accountant, actuary, or other licensed professional retained to protect your interests.

There are several advantages to having an Independent Professional Advisor if you are considering the possible sale of your structured settlement payment rights. First, all legal issues involving the sale of your rights can be explained to you by the independent professional advisor. Second, an Independent Professional Advisor can also often seek to assist you to negotiate more money for your future payment rights than you could have obtained on your own. Plus, as every sale of structured settlement rights also requires a prior Court Approval where you will be required to appear in Court to prove that the sale of your rights is in your best interests; having an Independent Professional Advisor represent your interests greatly increase the likelihood that the sale will be approved by the Court.

Best of all, an independent professional advisor may also be able to receive payment for their services either directly from the purchasing company itself where allowed in states such as in California. Or, the additional amount that the independent professional advisor can usually negotiate on your behalf will generally still result in a net greater amount to you than you could have obtained on your own without their services.

In summary, the sale of structured settlement payments may be superior to a loan because it cannot affect an individual’s credit rating, and does not require re-payment. At the same time, because the legal issues involved in every sale of a structured settlement are complex and detailed, a well-educated seller will take advantage of the services of an Independent Professional Advisor as recommended by each state’s structured settlement protection acts.