What is a structured settlement?

A structured settlement is an agreement where a settling plaintiff agrees to take payments over time rather than in a lump sum when settling a lawsuit.  Many personal injury and wrongful death lawsuits are settled using a structured settlement. The claimant or plaintiff receives payments over time, usually from a structured settlement annuity (SSA), tax free.  The structured settlement industry saw explosive growth in the 1980’s due to a 1982 amendment to the tax code that provided favorable tax treatment to property and casualty insurers who use structured settlements to settle claims. While a structured settlement offers many advantages, the inflexible nature of the settlement terms can sometimes leave the claimant with a need for liquidity.

What is a factoring transaction?

By the mid to late 1990’s, an industry had been created where companies purchased streams of payments from the recipients of structured settlement annuities, giving the annuitants access to lump sums of money that were not previously accessible under their structured settlements.

Abusive practices in the industry led to the enactment of state statutes known as “Structured Settlement Protection Acts” designed to provide standards and a process for the purchase and sale of SSA payment streams, with the transfers requiring court approval.  In 2002, Congress enacted IRC Section 5891, which imposed a stiff tax penalty for transfers made without court approval.  In 1997, Illinois became the first state to enact a structured settlement protection act. In August 2021, New Hampshire formally enacted its own structured settlement protection act. All 50 states and the District of Columbia now have a structured settlement protection act.

Recent amendments to many of the state structured settlement acts have strengthened their protections.  The Virginia and Florida statutes now require that any transfer petition be filed in the seller’s county of residence.  Maryland now requires “factoring” companies to register with the Attorney General’s office.

There are many companies in the secondary market purchasing structured settlement payment streams. Some companies are legitimate, and others are not.  Many of these companies have no track record, and exist only to purchase payments from a few sellers.  Sellers should exercise caution when responding to advertisements offering “cash now!”

The rise of structured settlement factoring fraud.

In recent years, many companies in the factoring industry have employed high pressure predatory sales tactics to raid large structured settlement annuities designed to provide a lifetime of income, security and medical care for personal injury victims. Instead of these companies providing needed liquidity to annuitants in times of hardship, these companies target people with large structured settlement annuities and shop for courts and judges they know will rubber stamp petitions that don’t meet the best interest standard required under state and federal law. Some companies target elderly sellers, or those suffering from mental illness, or with intellectual disabilities.  Many companies targeted victims of lead paint poisoning.

The Consumer Financial Protection Bureau has issued a warning to individuals thinking of selling their structured settlement payments that can be found here. Some of the companies in the factoring industry are legitimate, and others are not. Many of the companies filing transfer petitions have no track record, and exist only to purchase payments from a few sellers. Sellers should exercise extreme caution when selling their annuity payments, making sure to do their homework on the company and individuals seeking to purchase their payments.

What exactly is forum shopping?

In order to comply with Section 5891 of the Internal Revenue Code, a factoring company may only file a transfer petition in the seller’s state of residence or domicile.  Edward Stone Law has been advised of many situations where a factoring company told a seller that it is legal to file a transfer petition in another state.  It is not. If you have been a victim of forum shopping, contact us now via email at or by phone at (203) 504-8425.

Are you a victim of structured settlement fraud?

If you or someone you know has been victimized by structured settlement fraud, Edward Stone Law will evaluate your case at no charge, and let you know if help is available. Check here for recent updates from Edward Stone Law on structured settlement fraud.

Edward Stone Law is familiar with all aspects of the structured settlement industry.  Please do not hesitate to contact us if we can be of assistance with respect to your structured settlement issues. You can reach us by email at or call us at (203) 504-8425.