Everything You Need to Know About Lump Settlements and Your DBA Claim

Everything You Need to Know About Lump Settlements and Your DBA Claim

Jun 21, 2018 | Defense Base Act

No matter where you are in the process of filing or winning your claim under the Defense Base Act (DBA), it’s wise to start thinking about financial planning. A windfall of cash can throw anyone off-balance, so it’s important to have a plan ahead of time.

If you win (or have already won) your DBA claim, you should be able to negotiate how you want to receive your compensation. The two primary options are to choose one lump sum or to spread out the payments over many years.

Lump settlements seem like an obvious choice because you get your money sooner, but it’s more complex. Our legal experts can guide you through the pros and cons of a lump sum settlement.

The Advantages of Lump Settlements from a DBA Claim

The most obvious benefit to lump settlements from a lawsuit is that you don’t need to wait for your money – it’s ready and waiting for you whenever you choose to spend it.

If you’ve become behind on your bills, a lump sum can be helpful. It allows you to pay back your creditors right away instead of accruing interest or penalties while you catch up little by little.

Another advantage to a lump sum settlement is that you don’t have to worry about the payer declaring bankruptcy in the future. Depending on the details of your case, your payments could stop if they declare bankruptcy.

Finally, you may end up with more money in the long run if you choose a lump sum because you can invest that money right away or earn interest on it.

The Disadvantages of Lump Settlements from a DBA Claim

First of all, let’s take down one common myth. A legal settlement isn’t the lottery – you don’t get less money if you choose a lump sum than you would if you chose a structured settlement. There are, however, some disadvantages of choosing a lump settlement.

A single windfall of cash is much harder to manage than incremental payments. Few people actually do the math to see how much money they can spend each month depending on how long the money has to last. Even fewer people account for the fact that inflation will raise living expenses as the years go by, but it won’t raise the money in your bank account.

Long-term money management is especially important if your injury will require ongoing medical expenses. Structured settlements are usually easier to manage for these ongoing costs.

Another important disadvantage is that you may ultimately pay more in taxes with a lump settlement. Taxes are among the most common questions about DBA claims. While the settlements themselves are not taxed, any interest you make from the money will be.

Choosing Between a Lump Sum or Structured Settlements for DBA Claims

There’s no definitive answer about whether a lump sum or a structured settlement is better. It just depends on each person’s needs. While lump settlements are generally better for small or moderate sums, structured payments are often better for meeting your long-term needs.

If you’re filing a DBA claim, our lawyers can give you guidance about what settlement option to choose for your case. For help with your DBA claim, contact our experienced lawyers for a consultation.