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The Perils Of Selling Structured Settlements For Cash
These days, quite a few people are trying to cash in their structured settlements by selling their settlements to third parties for lump sums of cash. Starting in the 1990s, a variety of companies rose to prominence by purchasing these structured payment plans at discounted rates. Quite a few types of people can feel limited when they have to wait for scheduled financial payments. Recipients of structured lawsuit settlements and lottery payments must exercise patience to achieve just compensation.
Structured settlements were pioneered in Canada to compensate children affected by birth defects caused by Thalidomide. Commonly used to settle product liability and injury lawsuits, structured settlements can reduce legal costs by obviating the need for a formal trial. Structured settlements became popular when the IRS determined that if proper procedures were followed, all payments are tax-free. IRS rules ensure that this tax relief is more significant when payment plans are longer and pay out more slowly.
Today, most working fiscal experts agree people shouldn’t automatically seek to convert their settlements to lump sums when they face economic shortfalls. When they sell off annuities, people are often forced to pay fees known as “surrender charges.” In some cases these charges can range as high as 10 percent. In other cases, people who sell off their annuities before they are 59 and a half are presented with hefty federal tax bills and tax penalties. In contrast, keeping annuities can provide settlement recipients with tax-free income for the rest of their natural lives.
For some people, sudden job loss can raise the specter of complete financial insolvency. Even if seeking structured settlement conversion to resolve a dire situation such as this, it is important to compare and contrast competing offers from structured settlement companies.
To date, these companies have helped a large number of people overcome financial crises. Nevertheless, this financial sector does not have a completely unblemished record. To meet their goals, many of these companies have advertised heavily through television, radio and other mass media. Sadly, some of these companies have engaged in advertising practices that are either borderline deceptive or outright deceptive. For example, it is too common for structured settlement companies to advertise that large sums of cash are simply “one call away.” In reality, the speed at which people can sell their structured settlements is wholly dependent on the discretion of supervising judges. This process plays out in court under the watchful eye of judges who are tasked with protecting consumers.
Fortunately, most states have enacted laws to protect people from structured settlement companies that act unethically. These laws are various versions of the Structured Settlements Protection Act (SSPA). For example, Tennessee residents are protected by the Tennessee Structured Settlements Protection Act. Combined with the federal Victims of Terrorism Compensation Act (VOTCA), this body of laws provides people with protection from the least reasonable parties enabling sales of structured settlements. The VOTCA was the first federal-level legislation directly regulating sales of structured settlements. This legislation was passed to provide further safeguards for the victims of the 9/11 Twin Towers bombing.
Besides safeguarding the interests of payees, courts also make sure that payees who sell their structured settlements are fully informed about the various ramifications of their financial choices. Federal and state laws mandate that people attempting to sell their payments must receive professional counsel on the pros and cons of lump-sum payments. In addition, people have the right to change their minds and cancel lump-sum conversions within a preset time frame. The time window for reversal varies significantly from state to state.Fortunately, most modern structured settlement firms are staffed with conscientious, honest professionals who remember the best interests of payees or settlement recipients. Most financial experts feel that people should explore many other avenues before selling their structured settlements. Nevertheless, the financial realities of modern life ensure that this drastic action will remain viable in some instances.