Are you receiving a structured settlement and being tempted to sell your structured settlement payment rights because you need "a little cash" now?
Beware! You could be seduced to sell a whole lot more than you actually need because of the profit requirements of the factoring company making the offer to buy your structured settlement payment rights!
Consider this situation. A gentleman who recently called me for advice, after reading this blog, was seeking about $11,000 to pay off some debts. A previous lump sum had already been sold some time ago. The only remaining payment was over $60,000 due in 2010. Apparently he was getting told that the structured settlement payment rights to ALL of the remaining payment had to be sold to "net" what was needed. Apparently, from what i heard "there was not enough profit in it" for the factoring company to do the deal for less.
I spent some "pro bono" time on the phone with this gentleman to provide some education on the subject and to help him realize that it might not be in his family's best interest to sell all the payment rights in relation to the amount of debt that needed to be paid off.
Furthermore, the factoring company was promising the man the money in 4-6 weeks. Without Court approval there is a 40% excise tax which would surely be passed onto the seller. 4-6 weeks is just not realistic "sales b.s.". As I said to the man, "if you later hear from them after 6 weeks that it will take a few weeks or longer, are you going to sue"?
The lessons to be learned here are:
- You should always seek independent financial advice before signing any contract to sell your structured settlement payment rights.
- There is an inherent conflict of interest in seeking such financial advice from a representative of the company offering to buy your structured settlement payment rights (and make a profit). Factoring company representatives appear to be like Forrest Gump's "a box of chocolates".
- A structured settlement annuity is not a bank account! Plan accordingly, if you can.