How Does a Structured Settlement Work?

By Jedidiah McKeehan

You may have no personal experience with a structured settlement, but I bet you know the J.G. Wentworth jingle that starts off, “If you have a structured settlement and you need cash now…”

Before we dive into what those people in the commercial are singing about, let’s discuss what a structured settlement is.

A structured settlement is usually the settlement of a personal injury case where the plaintiff (the person injured) is being paid the settlement funds over an extended period.

For example, say someone receives a settlement of $1,000,000.00 and the amount is to be paid over 10 years. So, they will be receiving $100,000.00 a year for 10 years. Why would someone choose to receive the money over time as opposed to all at once? Well, they can avoid paying taxes on the interest earned on the money while it sits in their bank account, but the primary reason would be to use the structured settlement as a form of money management.

In order to avoid the temptation to blow through the money all at once (and this happens quite often), the money is received by the plaintiff over time. So, using our hypothetical, even if a plaintiff blows through their first $100,000.00 quickly, they know they will receive another $100,000.00 in another year.

That brings us to the J.G. Wentworth situation. There are companies out there that will give you CASH NOW in exchange for you assigning your personal injury settlement payments to them.

I suppose if you were trying to buy a home, a car, or pay off debt, that might be a reason to get CASH NOW in exchange for your future payments, however, J.G. Wentworth will not be giving you a straight dollar for dollar exchange for your future payments. It will expect a discount in exchange for giving you money now.

So, if J.G. Wentworth (and this is just the largest of these groups, there are many) they were buying out $500,000.00 of payments for five years. They may give you something in the range of $450,000.00, maybe more, maybe less, right away, in exchange for the $500,000.00 you can offer them in five yearly payments.

Is it a good idea to sell your structured settlement in exchange for CASH NOW? I cannot answer that question. It would depend on the situation and the real and actual need someone has for CASH NOW.

Jedidiah McKeehan is an attorney practicing in Knox County and surrounding counties.  He works in many areas, including personal injury, divorce and custody, criminal and landlord-tenant law. Visit attorney-knoxville.com for more information about this legal issue and other legal issues.

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