A structured settlement is a financial agreement, involving scheduled periodic payment that a claimant accepts to resolve a claim. Often involving insurance or tort claims, structured settlements were first introduced in Canada and the U.S. to as an alternative to lump sum settlement. Structured settlements are now part of general law in many countries.
Structured settlements allow claimants to receive funds from a settlement periodically in small sums. Often, claimants find they would prefer a lump sum and can receive a “cash advance” – allowing a company to buy their settlement. In this scenario the claimant receives a one time payment by the company and the company takes the structured settlement payments.
Structured settlements are a complicated issue, and before taking any action, it is highly recommended you consult with a lawyer. A lawyer in your area can help you determine what you options are and what would be best for your financial health.
U.S. Law Defines Structured Settlement with the following definitions:
(c) Definitions
For purposes of this section -
(1) Structured settlement
The term ''structured settlement'' means an arrangement -
(A) which is established by -
(i) suit or agreement for the periodic payment of damages
excludable from the gross income of the recipient under
section 104(a)(2), or
(ii) agreement for the periodic payment of compensation
under any workers' compensation law excludable from the gross
income of the recipient under section 104(a)(1), and
(B) under which the periodic payments are -
(i) of the character described in subparagraphs (A) and (B)
of section 130(c)(2), and
(ii) payable by a person who is a party to the suit or
agreement or to the workers' compensation claim or by a
person who has assumed the liability for such periodic
payments under a qualified assignment in accordance with
section 130.
(2) Structured settlement payment rights
The term ''structured settlement payment rights'' means rights
to receive payments under a structured settlement.
(3) Structured settlement factoring transaction
(A) In general
The term ''structured settlement factoring transaction''
means a transfer of structured settlement payment rights
(including portions of structured settlement payments) made for
consideration by means of sale, assignment, pledge, or other
form of encumbrance or alienation for consideration.
(B) Exception
Such term shall not include -
(i) the creation or perfection of a security interest in
structured settlement payment rights under a blanket security
agreement entered into with an insured depository institution
in the absence of any action to redirect the structured
settlement payments to such institution (or agent or
successor thereof) or otherwise to enforce such blanket
security interest as against the structured settlement
payment rights, or
(ii) a subsequent transfer of structured settlement payment
rights acquired in a structured settlement factoring
transaction.
(4) Factoring discount
The term ''factoring discount'' means an amount equal to the
excess of -
(A) the aggregate undiscounted amount of structured
settlement payments being acquired in the structured settlement
factoring transaction, over
(B) the total amount actually paid by the acquirer to the
person from whom such structured settlement payments are
acquired.
(5) Responsible administrative authority
The term ''responsible administrative authority'' means the
administrative authority which had jurisdiction over the
underlying action or proceeding which was resolved by means of
the structured settlement.
(6) State
The term ''State'' includes the Commonwealth of Puerto Rico and
any possession of the United States.
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You can read the full text of the law here.