How to Get Money From a Settlement Early

Individuals awaiting resolution of legal cases often face financial strain. Settlements, whether negotiated or court-awarded, can take an extended period to finalize and disburse. This delay prompts many to explore methods for accessing anticipated or awarded settlement funds sooner. Understanding these options can provide necessary financial relief.

Accessing Funds Through Pre-Settlement Funding

Pre-settlement funding provides a non-recourse cash advance to individuals involved in ongoing personal injury or other civil lawsuits. This financial arrangement is distinct from a traditional loan because repayment is contingent upon the successful outcome of the legal case. If the plaintiff does not win their case, they are not obligated to repay the funds. This type of funding is commonly sought in cases such as personal injury, car accidents, slip and fall incidents, medical malpractice, and workers’ compensation claims.

To apply for pre-settlement funding, claimants must gather specific information and documentation. This includes detailed case information, police reports, and all relevant medical records. Contact information for the claimant’s attorney and a copy of the formal complaint filed in court are also necessary. The attorney’s involvement is essential, as funding companies require their cooperation to verify case details and assess the likelihood of a favorable outcome.

After submission, the funding company reviews the case’s strength, evaluates the estimated settlement value, and communicates directly with the claimant’s attorney for verification. If approved, a funding offer is presented, detailing the terms of the advance. Upon acceptance, funds are typically disbursed rapidly, often within 24 to 48 hours, and sent directly to the claimant’s attorney. The attorney then disburses the funds to the client.

Accessing Funds by Selling a Structured Settlement

A structured settlement is a financial arrangement where a claimant receives a series of periodic payments over time, rather than a single lump sum. This often occurs as part of a personal injury, workers’ compensation, medical malpractice, or wrongful death settlement. These payments are frequently funded through the purchase of an annuity by the defendant or their insurer. Individuals may consider selling their future structured settlement payments for an immediate lump sum due to a sudden need for cash, such as unexpected medical expenses, home repairs, or investment opportunities.

When contemplating the sale of structured settlement payments, specific documentation is required. Claimants must provide the original settlement agreement, detailed annuity policy information, and the established payment schedule. Any court orders that originally approved the structured settlement are also necessary for the review process.

The process of selling a structured settlement includes several procedural steps, culminating in mandatory court approval. After finding a buyer, the factoring company conducts due diligence to assess the value of the future payments. The legal review process then begins, leading to obtaining court authorization for the sale.

Federal law, along with state Structured Settlement Protection Acts, mandates court approval to safeguard sellers from potentially exploitative practices. During the court hearing, a judge will assess whether the sale is in the seller’s “best interest,” considering financial needs, the welfare of dependents, and the seller’s understanding of the transaction’s terms. This judicial oversight ensures that the conversion of future payments to a lump sum is equitable. The entire process typically takes between 45 to 60 days.

Financial and Legal Considerations

The financial implications of accessing settlement funds early vary significantly between pre-settlement funding and selling a structured settlement. For pre-settlement funding, the amount received is determined based on the estimated value and strength of the case. Funding companies charge non-compounding fees and risk-based rates; the longer the case takes to resolve, the more the accrued charges will be. The advance provided typically ranges from 10% to 20% of the anticipated settlement amount.

Selling a structured settlement involves a discount rate applied to the future payments. This discount, which commonly ranges from 9% to 18%, represents the difference between the total value of the future payments and the immediate lump sum received. The buyer essentially purchases the future payment stream at a reduced value, providing them with a profit margin for the upfront capital.

Regarding tax implications, pre-settlement funding is generally not considered taxable income by the Internal Revenue Service. It is classified as a non-recourse debt, meaning it is not reported on tax returns. However, any profits generated from investing these funds would be subject to taxation.

For structured settlement sales, if the original settlement was awarded for personal injury or wrongful death and was tax-exempt under Internal Revenue Code Section 104, the lump sum received from selling it typically retains its tax-free status. Structured settlements stemming from non-personal injury claims may have taxable components. Buyers of structured settlements face a 40% excise tax if they fail to obtain the required court approval for the transaction.

The role of the claimant’s attorney is integral to both processes, providing necessary case information, reviewing proposed agreements, and ensuring compliance with legal and ethical standards. For structured settlement sales, court approval is a statutory requirement, mandated by federal and state Structured Settlement Protection Acts. This legal safeguard is designed to protect sellers from predatory practices and ensure the transaction is in their best interest. Pre-settlement funding, while not requiring court approval, is contingent on the case’s outcome, with the advance being repaid directly from the settlement proceeds by the attorney before the remaining funds are distributed to the client.