Lump sum settlement deal nixed by court

We have had many clients over the years who have rightly decided to accept their settlement proceeds in the form of structured settlements which offer them periodic payments (usually monthly) over the course of many years. These structured settlements offer stability and cash flow to clients who often have lost the ability to earn income and need a steady stream of money to help them through tough times. However, the recipients of these structured settlements are often preyed upon by financial companies who offered them a lump sum of cash in exchange for an assignment of the rights to collect the future payments.

Often times these deals are harmful to the clients, and undercut the financial benefits of a structured settlement. One court has struck back at these financial predators and nixed a deal that had not been approved by a state court and which was abusive to the injured plaintiff.

A Pennsylvania federal appeals court, ruling in a case linked to the 1985 MOVE bombing in Philadelphia, blasted a Texas company that offers lump-sum advances to plaintiffs who settle lawsuits. The agreement required the plaintiff to “sign over an estimated $334,000 of his future payments in exchange for about $32,000 upfront from a Houston company, Rapid Settlements. Judge Joseph Weis Jr. wrote that “because no state court had signed off on it, as required by law in at least 43 states, including Pennsylvania” there was no deal. He said, “The laws were designed to prevent abusive practices by such firms, which are known as ‘factoring’ companies.”

A full copy of the court’s opinion can be viewed by clicking here. You can read the AP story on the case by clicking here.

In the decision, the court noted that the receipt of a large sum of money is not always the blessing the recipient envisioned. Advice as to how to manage newfound wealth is freely given by well-meaning friends, as well as by others whose motives are purely self-serving. The court further noted the following:

Seizing what they perceive as a lucrative financial opportunity, a number of factoring companies offer a lump sum in exchange for the rights to some or all future periodic settlement payments. Because of abusive practices employed by some factoring companies, at least forty-three state legislatures have enacted statutes requiring court approval of a transfer of future structured settlement payments.

It is important for any recipient of periodic payments, but particularly those who are receiving proceeds from a personal injury settlement, to be on guard for these financial predators. Before making any deal, these clients would be well advised to consult with their attorneys before taking any action.