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Publication: Don’t Sell Your Structured Settlement

Publication

Don’t Sell Your Structured Settlement

A structured settlement is a completely voluntary agreement between an injured person and the insurance company obligated to pay for the negligent conduct of the person or company that caused the victim’s injuries. In a structured settlement, an injury victim doesn’t receive compensation for his or her injuries in one lump sum. Instead, the victim receives a stream of payments, sometimes over many years, that are designed to meet future medical expenses and basic living needs.

A long-term structured settlement provides guaranteed long-term income and can help a victim avoid having to make decisions about how to invest a large personal injury settlement. Long-term structured settlements also prevent a victim from overspending upon receiving a large settlement. After a federal law granting favorable tax treatment to structured settlements was passed in the 1980s, structured settlements became increasingly popular in personal injury cases.

This fairly sudden popularity spawned an industry that now purchases structured settlements from victims. Because structured settlements don’t give victims all their settlement money up front but instead promise steady income over future years, victims sometimes become impatient and sell their structured settlements.

Search the Internet for “structured settlement,” and you may find more sites for businesses looking to buy structured settlements than sites sharing information about establishing such settlements. Unfortunately, companies buying structured settlements may offer an immediate purchase price payment of as little as 25% or less of the value of the total long-term payments owed to the injury victim. And such companies sometimes seek out injury victims and offer to purchase their settlements. Once an individual or company has purchased a victim’s structured settlement, the victim loses the right to collect all future payments. All of the future payments become the sole property of the purchaser.

Because selling a structured settlement often operates to the complete economic disadvantage of an injury victim, many States have recently passed new consumer protection laws strictly regulating the sale of structured settlements. Pennsylvania’s consumer protection law, passed in 2000, prohibits the sale of a structured settlement without judicial approval. When a Pennsylvania injury victim considers selling his or her structured settlement, he or she must file a petition with the local court, asking for approval. Most entities that purchase structured settlements offer to provide the lawyer and initially carry the cost of getting the judicial approval.

Sometimes, depending on the exact terms of the structured settlement, the insurance company that is paying the structured settlement must agree to or approve the sale. The petition must include a “disclosure statement” provided by the individual or company seeking to buy the structured settlement. This disclosure statement must add up the dollar value of all the future payments owed to the victim under the existing structured settlement and must compare that value to the exact amount of money that the victim will actually receive for selling the structured settlement.

Judges can and do withhold approval if the sale is not in the best interests of the victim or his or her dependents. And judges don’t even have to schedule a hearing–they have the power to deny the sale if the petition doesn’t recite good factual support for the sale. Any sale of a structured settlement that does not go through the judicial approval process has been declared by Pennsylvania law to be illegal and an unfair trade practice and is thus subject to the substantial penalties of the Unfair Trade Practices and Consumer Protection Act, a separate law.

While it is certainly possible to sell a structured settlement for a fair price, Pennsylvania lawmakers have wisely recognized that all too many such sales sadly undercompensate injury victims. If you are considering buying or selling a structured settlement, be sure you follow the strict requirements of the law and secure judicial approval first.