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Do You Advise Payment Plan Settlements?

By George Khoury, Esq. | Last updated on

When a government entity settles a lawsuit, it's rather uncommon for it to not actually have the present ability to pay for the settlement. Interestingly though, that is exactly the predicament one New Jersey city has recently stumbled into.

The city of West Wildwood is coping with the aftermath of a settlement it couldn't really afford. On the other hand, the town probably couldn't afford not to settle. Fortunately, the plaintiff in the matter, a former and current employee, was agreeable to a payment plan to help the matter resolve at the rather agreeable amount of about $1.75 million. While generally frowned upon, agreeing to a payment plan is one way a party without enough liquid assets can settle a case.

City on the Brink

The city of West Wildwood isn't very big, with only 600 year-round residents and an annual budget of only $2.5 million. And as the local news outlet reports, the city has already begun furloughing workers (excepting emergency services and police) in anticipation of paying off the settlement. And while this all sounds awful, it gets worse: the city has to pay because its insurer refused to cover the claim.

Fortunately for the plaintiff in that matter, the usual big risk in accepting a payment plan in a settlement, the paying party defaulting, isn't really an issue in this case. Though the city's approval was likely a major hurdle. Unfortunately, every city resident will likely be angry about the fact that property taxes are bound to go up over the settlement, and that the money is going to the city's police chief.

The Payment Plan Settlement

Entering into a payment plan settlement is rarely advisable if there are alternatives. And there are alternatives. For example, a settlement agreement's payment plan can be contingent on outside financing, such as secured loans, being unavailable.

The big problem with payment plans is that each payment creates potential uncertainty and the more installments there are, the more processing costs increase. However, sometimes, as the old saying goes, you can't squeeze blood from a turnip. But the lesser known corollary that was made up for this blog post explains: If you make your adversary eat turnips, you can squeeze money out of them on a payment plan.

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