Structured Settlement Factoring Transaction

A structured settlement factoring transaction is the sale, in whole or in part, of a payee's right to receive future periodic payments under a structured settlement, in exchange for a discounted lump sum paid by a factoring company. Structured settlements themselves arise when an injury claim resolves with the defendant's insurer agreeing to fund an annuity that pays the claimant over time — often for medical or income-replacement needs — rather than paying a single lump sum, generally to provide tax-advantaged, disciplined long-term income. A factoring transaction lets the payee monetize some or all of those future payments immediately when a need arises that the structure was not designed to address, at a cost reflected in the discount between the payments' face value and the lump sum paid. Because structured settlement payments are typically protected from the payee's creditors and were designed with tax advantages that depend on the periodic payment structure remaining intact, federal and state law impose specific procedural requirements — most importantly advance court approval — before a factoring company can purchase the payment stream. The transaction is legally and functionally distinct from a plaintiff cash advance: it monetizes an already-resolved settlement's future payment stream rather than a still-pending claim's uncertain outcome, and it involves a completed, quantifiable payment obligation rather than litigation risk.

Factoring companies price the discount based on the certainty and timing of the underlying annuity payments rather than on any litigation or liability risk, since the obligor is already known and the payment schedule is fixed — pricing here resembles a fixed-income valuation exercise more than a claims-underwriting one.

The court approval requirement built around this product exists specifically because the payee, not a litigation adversary, is the party the transaction is designed to protect, which is why the underwriting and legal process looks fundamentally different from a pre-settlement advance despite both products serving injured claimants.