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What is a structured settlement?
By Laura Gutmann on August 17, 2010

1168917_34933928-1-(1).jpgIf you find yourself in serious financial trouble and out-of-control debt, your lenders may take you to court in an attempt to claim their loss. If the judges rules in their favor, he or she can order you to pay off what you owe over a specified period of time. This is called a structured settlement, or a periodic payment plan. It is the opposite of a lump sum payment where the entire amount must be paid off all at once. Because structured settlements are arrangements mandated and organized by the courts, there are laws that govern their execution.
These laws can protect some of your assets from being seized or used to fulfill the terms of the settlement. For example, if you are forced to pay off a debt under court order, benefits like Medicaid and Medicare are protected. Sometimes, other assets like your home can be protected too, so that you will still have a place to live while you get back on your feet. The judge’s role is to ensure that you take responsibility for your debt, but in a way that is feasible. The goal is for you to pay off what you owe while getting back on your feet.

You may also be on the receiving end of a structured settlement if you successfully win a lawsuit that stipulates a repayment schedule. For example, if you sue for injury received in a workplace accident and win, the judge could opt to distribute your reward over a period of time. This could be better for you in the long run because you would continue to reap the benefits of receiving extra cash flow on a monthly basis. Experts like Suze Orman also advise sticking to the court ordered plan because, “periodic payments provide ongoing income and reduce the risk of blowing a lump sum through poor financial choices.”1 Periodic payments are also normally tax-free, while cashing out all at once will subject you to potential federal and state taxes.
Source:
1 http://www.oprah.com/article/omagazine/200905-omag-suze-selling-settlement Note: Companies that offer to pay you cash as a lump sum for your settlement normally offer a mere fraction of the current value of your structured settlement. Such programs are a very bad deal for the consumer.
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