Structured Settlement Factoring

Structured settlement refers to an arrangement, either financial or insurance, for periodic payments over a certain period of time. These are basically arranged to come to an agreement by the Internal Revenue Code in which a victim of any alleged crime accepts to receive payment periodically from the wrong doer. This was initially introduced as a mode of settlement for children that were suffering from effects of a teratogenic drug called thalidomide. These became a popular mode of settlement in the later years in the United States.

This mode of settlement of dispute became extremely popular in the 1980's mainly due to the many advantages associated with them. The federal government gave incentives like waiver of taxations in case of regular and timely payments.

However, a disadvantage of such settlement for the recipient was that he got money after a certain period of time and could not utilize it in the form of a lump sum if he needed to do so. This resulted in the evolution of a new trend named "structured settlement factoring". This term means selling one's rights to receive future structured settlement payments in return to a lump sum of money. This was mainly done if one required more money in a relatively shorter time e.g. an unexpected medical expense, educational expenses or other varied reasons. This meant that a person could sell a part of or all his future payments to someone else. This gave rise to the so-called structural settlement factoring companies. These companies would pay a certain percentage of someone's future payments and in exchange to that became entitled to receive the future payments.

These companies earned a lot of profit through such deals. These structured settlement factoring companies actually paid up to seventy percent of the total amount that the seller is entitled to in the future. In this way, they earn up to thirty percent of the total amount of every structured settlement. Such a deal is thought to help both the parties.

A person would only sell his settlement rights if he really needs some money. The factoring company would earn profit while helping the settlement seller at the same time. Sometimes the entity that has to pay settlements, stipulates that the rights of recipient can not be sold. There are many laws regulating structured settlements and their selling in the United States. In the year 2002, a law concerning these was passed which stated that all such transactions that involved the selling or purchasing of a structured settlement, must be signed by a court. This law had been effective in the United States since July, 2002. This was done to ensure that the decision of selling a structured settlement was in the best interest of the seller and that he had no other dependents that could be affected by this decision.

People must be careful and well-aware of the terms of their settlements and the terms at which they sell them before making the final decision. It is an important decision in one's life, and therefore, must be taken after a great deal of deliberation.