Most plaintiff attorneys know that structured settlements are tools that ensure a steady, long-term flow of income for their injured clients. But what happens when the client wants to make a big purchase now instead of waiting for the money to be distributed? If the settlement hasn’t been properly planned, then that’s where a factoring company can sneak in.
Factoring: How It Works
You’ve no doubt seen the “cash now” commercials, showing happy customers who have sold their structured settlements. What these commercials fail to show are the long-term implications of selling a structured settlement for immediate cash.
Factoring companies make it their business to find your clients. If your client has a court-approved settlement, you can bet that a factoring company has pillaged the court records and tracked down the claimant. These types of companies are well-trained in tactics that make it as easy as possible for structured settlement beneficiaries to sell their payments. They often charge large fees, resulting in an extremely discounted lump sum payment to the beneficiary. The factoring company then collects the payments that were originally scheduled for the beneficiary and may repackage the future income as an annuity to sell to another customer.
Are There Laws Protecting Annuitants?
Laws governing the factoring process vary by state. In order to complete this transaction in most states, the annuitant must petition the court, stating why they need to receive the cash now rather than over the original payment period. The majority of states do not require the annuitant to appear before the court; they need only submit an affidavit with the reason(s) why the assignment is requested.
Many states subscribe to the belief that it is not their responsibility to protect settlement beneficiaries from themselves and therefore, provide few safeguards to prevent repeated requests for factoring arrangements.
Facing the Repercussions
Sadly, there are countless stories of personal injury victims who have received large settlements as the result of injury or illness, but have nothing left in only matter of years.
The Wall Street Journal recently profiled Terrence Taylor, a man in his mid-30s. Taylor had received a multi-million dollar settlement for the loss of his leg and many fingers, which occurred as the result of a childhood fire. Once Taylor reached the age of thirty, he sold his future payments in a series of 11 transactions involving 5 finance firms, leaving him nearly penniless and back at home with his parents.
Work With an Expert
Unfortunately, it is not always possible to know what the future holds for your client and when extra cash flow may be needed. Luckily, situations like Mr. Taylor’s are largely preventable if a settlement expert is brought in prior to finalizing the case.
By working closely with your client to determine their needs and goals, a settlement planning expert can design a structured settlement arrangement that not only offers a regular payment stream, but that also allows for lump sum payments at certain points, if needed.
At The Settlement Alliance-WEST, our team has worked with hundreds of law firms and their clients to develop structured settlement arrangements. To avoid the risk of your client turning to a factoring company in the future, contact us today at 800-354-2258.