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The Laws that Protect People Who Sell Structured Settlement Payments

There are several layers of federal and state laws that protect individuals who want to sell their future structured settlement payments. If you are weighing your options, the info below may be a helpful place to start. 

26 U.S. Code § 5891, titled Structured settlement factoring transactions, is meant to help protect you, the seller. The law (available in full here) does this by requiring state courts to approve each transfer and confirm that it is happening in the best interest of the seller and his or her dependents. Signed into law by President George W. Bush in 2002, here’s what 26 U.S. Code § 5891 covers*:

  • Who can sell: Only people with structured settlements from certain kinds of cases can transfer the rights of their future payments for money. Technically this means payments assigned under 140(a)(1) or 140(a)(2) that are in accordance with 130. Essentially that means qualifying cases involve personal injury, medical malpractice, wrongful death, physical injury-related mass torts, and class action. In addition, some workers' compensation cases may be eligible.
  • Why they can sell: As stated in 5891, the transfer must be “in the best interest of the payee, taking into account the welfare and support of the payee’s dependents.” In general, that means you can legally sell if there is an emergency or sudden need for a large sum of money you can’t obtain otherwise.

How does the court ensure that the sale -- called a “structured settlement factoring transaction” -- happens in a seller’s best interest? The answer: buyers are substantially taxed unless the process is approved by a judge. Anyone who purchases the rights to future structured settlement payments will pay a BIG tax (40%) on the money they receive for that transfer unless the judge agrees that the transfer is happening in the best interest of the annuitant and his or her dependents. If the judge finds that this is legal, beneficial, and necessary, the judge will issue a “qualified order” and the tax will be waived**.

The federal law also offers some helpful definitions and other rules for selling structured settlement rights. If you are interested in selling your future payments, reading the full law can provide some good background info. We also offer a helpful how-to with additional info here. In addition, 49 states have their own laws that govern the process of transferring the rights to structured settlement payments. Our resource center links to each relevant state law here.

Need help? We’re here.

CrowFly's online platform connects vetted buyers with individuals who are selling structured settlement payments. We minimize transaction expenses, so buyers pay a minimized cost and sellers receive the most value for their settlement.

We’re all about educating sellers and getting you the most value for your settlement. If you have questions about selling your structured settlement, we can help. Visit https://crowfly.com or call (888) 560-6629. There’s no obligation when you call, and a real person will be there to answer your questions.

*Crowfly does not offer legal or financial advice. The information in this article is intended to provide a basic overview and does not constitute professional legal advice.

**If anyone is asking to buy your settlement without going through a court transaction, beware. That likely means that they are giving you a low enough price if they could afford to pay Uncle Sam 40% tax and still have money left over! Not a good deal for you.