What to Know Before Selling Your Disability Payments

Structured Settlements: What To Know Before You Sell

Do you have a legal settlement related to your disability that gives you regular payments? If you need more money in a hurry, you might consider working with a company that offers to give you quick cash in exchange for getting part of your settlement. When you sign over some — or all — of your structured settlement payments to a company in exchange for a lump sum of money, it’s called “factoring.” But you won’t get all the money you would’ve collected over time — and it might leave without a way to pay your bills. Before you agree, know what you’re giving up.

Alternatives To Selling Your Payments

If you’re considering selling your payments because you’re having trouble paying your bills, factoring your settlement isn’t the only option.

• Contact your creditors or loan servicers as soon as possible to ask for more time. They may be willing to work with you.
• Consider a small loan from a credit union, bank, or other lender. But you may want to steer clear of payday or car title loans — these are expensive loans that leave you more in debt. Look into a cash advance on a credit card but know the interest rates and fees are typically high. Find out the terms on several options before you decide.
• Find a local non-profit consumer credit counseling service to help with a debt repayment plan or budget. Typically, the following organizations offer free or low-cost credit guidance:
  • Credit unions
  • Universities
  • Military bases and military personal financial managers
  • U.S. Cooperative Extension Service branches

You also may be able to find a counselor to get free or low-cost financial planning advice through the National Foundation for Credit Counseling or the Association for Financial Counseling & Planning Education (AFCPE).

Questions To Ask 

Before you sell your settlement payments, get answers to the following questions:

• What are the costs? Get all costs and fees in writing. Ask for the percentage or discount rate that the buyer will take to provide you with the lump sum amount. Also ask for a statement of how much money you’d get from them now, versus how much money you’d give up in future settlement payments. This information may not be in the ad or in your contract, so ask for it and get it in writing.

• How could it affect your taxes? Getting a big lump sum payment for the sale of your structured settlement payments might put you in a higher tax bracket, depending on the circumstances. By contrast, your regular structured settlement payments for your injury or disability are tax-free. Before you sign anything, talk it over with someone you trust or consult with a tax advisor. The IRS's Volunteer Income Tax Assistance (VITA) program offers free basic tax return help. To qualify, you must be a taxpayer who makes $58,000 or less, has a disability, or does not speak English. The Tax Counseling for the Elderly (TCE) program specializes in questions about pensions and retirement-related issues unique to taxpayers who are 60 or older. Check the Taxpayer Advocate Service website to find a VITA or TCE program near you.
• Can you cancel the transaction? Get a written copy of the factoring company’s cancellation policy to check how long you have to cancel and the steps you must take if you change your mind.
• What’s your state law? Almost all states (except New Hampshire) require court approval of factoring. So, before the transaction can take place, a judge must decide that it’s in your best interest. If a factoring company offers quick cash for your payments and ways to avoid the court process, they may be luring you into a scam and the lump sum payment may not be real. Dishonest companies also claim to offer independent advice on selling the payments, but instead steer you to individuals or for-profit companies that charge steep fees and lie about how much scrutiny a transaction with them requires.
• Are there complaints about the company? Your local consumer protection agency or your state attorney general’s office can tell you if any complaints have been filed about the factoring company.

Report Scams 

Where do I report a scam?

If you have a problem with a company that buys disability payments, or if you see a scam, fraud, or bad business practice, report it

• to the FTC at ReportFraud.ftc.gov
• your state attorney general
• your local consumer affairs office