Can a bank take your money if you owe child support?
Millions of parents owe past due child support payments. Data shows that the majority of fathers without custody have a child support order, and a survey from Princeton University’s Fragile Families and Child Wellbeing Study (sample size = 5,000) reported that sixty percent of non-resident fathers with child support had fallen behind on payments. Unpaid child support represents a sizeable economy - a 2014 study estimated that non-custodial parents owed more than $114 billion in child support payments.
Thus, it is a hard fact that people who do not pay child support suffer the consequences. The courts look poorly on parents who do not contribute to the cost of raising their children, and accordingly, they empower child support agencies to use of an array of enforcement tools to forcefully encourage obligors to make good on their debts.
One tool is the ability to pull money from an obligor's bank account. The law even permits an agency to withdraw funds received from a tax refund.
The result: many obligors are unbanked
Owing to fears of garnishment, many obligors drop out of the banking system. Fear of a bank levy may be keeping many people outside of the banking system. According to the US Department of Health and Human Services, 5.5 million people are behind on their child support payments. Approximately four in five owe more than $20,000 and more than half owe more than $40,000.
Some may wonder if a person who owes child support can qualify for an account in the first place. The short answer is yes, you can get a bank account, but if you deposit money into it, the courts may attempt to collect the funds through a levy or a garnishment.
Not suprisingly, many banks reject obligors with large arrearages. Recognizing that such an account might be more trouble than it is worth, they forego the relationship. Nonetheless, they do not have to turn people down, so it bears making the effort to find a home even if the first few efforts are for naught. Do not give up - another bank will work with you.
How it works
Some believe that the bank takes responsibilty to collect outstanding child support. In fact, this is not entirely true. Regulated multi-state financial institutions must report specific data points for demand deposit accounts, checking accounts, savings accounts, time deposit accounts, and money market mutual funds holdings to government agencies. Under rules established by the Personal Responsibility and Work Opportunity Research Act, financial institutions doing business in more than one state must work with child support agencies to conduct data matches to find accounts of people who are delinquent on child support. Federal and state governments match obligors to their accounts information contributed to the Financial Institution Data Match. They will report the account holder’s name, address, social security number, and taxpayer identification number.
A person might choose to apply for an account under a different name, even one with only a slight alteration. If (and it's an inevitability) the FIDM spots it, the act of giving a false name may become a federal or state offense. At the very least, they would attach interest and penalties to the obligor's outstanding debts.
Income (and potentially certain assets) face collection before they end up in a bank account. Instead, the courts put a lien on the account and garnishes wages. The employer is responsible for honoring the garnishment; failure to do so puts the employer at risk.
You Could Face Imprisonment
Some states consider it a felony to owe more than $10,000 in child support. Fourteen percent of those obligors were jailed. Some people would argue that the child support system hasfostered a new kind of debtor’s prison. Many obligors go to jail simply becausethey cannot afford to make the payments. The fact that rules exist to protect peoplefrom becoming destitute due to child support undermines that opinion. Regardless,the purpose behind child support stems from the fact that it provides for theneeds of children. As a country, we want parents to provide for their childrenregardless of their circumstances because it stands to reason that those kidswill benefit from more resources. Does imprisonment solve that problem? Undoubtedly,it does not.
How to Protect Assets
A seriously-delinquent obligor can make an effort to rectify the situation. With the financial advice of an attorney, an obligor could negotiate with the court to pay back an arreage over time, secure the right to hold some assets in a bank account, and avoid a short-term financial crisis. While child support agencies will work hard to represent the interests of those who are owed support, the system has some empathy for the need of an obligor to have food, shelter, and transportation.
The critical thing to remember is that garnishment should not leave you in severe financial hardship. The court should leave enough for your basic needs. An attorney could potentially reduce or eliminate your obligation if it can be proven that the current order, if observed, would prevent you from adequately feeding yourself, maintaining your utilities, attaining transport to work, buying essential clothing, or forcing you to become homeless. Other circumstances might work as well, but those are the reasons likely to be relevant to the highest number of people.
Additionally, some kinds of income cannot be garnished. You maintain your rights to all of your federal benefits payments. Thus, Social Security and SSI income are exempted, as our student loan disbursements and FEMA aid.
A child support enforcement agency cannot garnish Transitional Assistance to Families with Dependent Children (“TAFDC”), Supplemental Security Income (“SSI”), Transitional Aid to Needy Families (“TANF”), State Veteran’s Benefits, and Emergency Assistance for Elderly, Disabled, and Children (“EAEDC”)
A person can also protect their tax refund. A person can petition the National Taxpayer Advocate to seek relief. The NTA is an independent department within the IRS that protects the rights of taxpayers who have tax problems that they cannot resolve on their own. It is not a for-profit tax relief scheme. The NTA will ask the person to demonstrate that without a tax refund, he or she would face a severe financial hardship. With luck, the NTA may be able to let a person keep a portion or even all of their refund.
Caught in a Hard Place
In rooms of fathers who struggle to make ends meet, getting a bank account triggers concerns. They fear for their financial survival.
The odd thing is that I rarely hear of this nexus when I talk with people who work in public policy. In rooms where everyone wears a tie, the idea that child support laws might reduce the use of bank accounts is unheard of. For example, see this 2002 study of the unbanked.
People surveyed in this study said they “wanted to avoid unauthorized, surprise withdrawals for child support,” but the authors chose to ignore the question. This report from the nation’s largest credit bureau listed the ten top reasons people choose to be unbanked; it didn’t mention past due child support.
The good news, at least for those “obligors” who owe child support, is that some protections exist to cap how much can be taken from an account. Under the principle that a worker still must be able to provide for his or her support, there are thresholds on the amount that can be levied. However, the courts can be strict about imposing discipline on a person’s finances. Obligors in default will be able to justify a reasonably modest lifestyle – no fancy cars or luxury apartments.
Yesterday I spoke with a woman from Florida who owed more than ten thousand dollars in child support. She did work, but even with her wages, she could not stay current. Once, when she did have a bank account, she lost all of her tax refund to the child support agency. "They drained my account," she said. "They took every last dime." She had hopes of an account. In the meantime, she relied on the payroll card she received at work. She said that the agencies had never found her funds on that card. She had also used a NetSpend card, but she didn't like paying the monthly fees plus the other gotcha fees they charged just to use the account.
Anyone with legal questions should consult an attorney who can speak to the laws that apply in their specific state.
Frequently Asked Questions:
Q: Can I open a business bank account but avoid paying child support?
A: You may be able to open a bank account in the name of your business. You will need to have a tax id number for that business. If approved, those funds would not be attachable.
Q. If I owe child support, will it hurt my credit?
A: No, it will not impact your credit. Child support is not a credit-related obligation. However, if your former partner successfully files a civil judgment to collect outstanding child support, then it would negatively impact your credit score. The damage will be long-lasting and substantial. The funds owed for that civil judgment could be collected through a wage garnishment.
Q: Can I avoid paying child support by leaving the country?
A: Leaving the country will not change your responsibility to pay your child support. However, the degree to which your status can be traced varies from country to country. It might be easier to hide in parts of Latin America versus in Canada or the United Kingdom.
Q: Can Child Support be Taken Out of An Unemployment Check?
A: Yes. Under 42 U.S. Code 666 (b)(3)(A) : "this provision does not limit withholding to “employment” income, and indeed ideally, support payments should be withheld from any source of “regular income."
Q. Can Child Support be Taken from Disability Benefits?
Yes, your Social Security Disability Insurance ("SSDI") benefits can be seized. However, standard Social Security ("SSI") benefits cannot be taken, nor can past due SSI benefits be seized. SSI is considered to be different than earnings. SSDI is a factor of prior employment compensation and thus wrapped into the same standard that applies to normal income.
In my experience, people who are overdue on child support let their situation deter them from signing up for a bank account.
Several months ago, on a night when I gave a presentation about financial literacy at a local church, a man came up to the podium to ask a question. He told me he had fathered a child when he was twenty. He only learned that he had a son many years after the child was born – when a letter arrived from a CSE agency. As could be expected, he was deeply hurt to hear that he had lost those years. He resented his former partner, and he subsequently resolved to not pay for the cost of raising his child. To that end, he did not use banks.
“They will take my money,” he said.
Spiting his son’s mother, while emotionally satisfying, led to several problems. At best, he was putting off something that would never go away, and in the meantime, he couldn’t have a driver’s licenses. He did have a car, I might add, but that is more common than you might think. In its 2011 review of fatal car crashes, the AAA Foundation for Traffic Safety found that 18.2 of crashes involved a driver who was either unlicensed or invalidly licensed.
Since he was worried about money, my friend chose to live in the cash economy. He was in the shadows on purpose.
He finds work repairing cars, and when he does, he negotiates to receive his pay in cash. He keeps his funds in his home. When he is paid by a check, he goes to a check casher. He pays the three percent fee grudgingly, caught in a situation where he only sees sub-optimal choices.
He had been turned down for accounts at three of the largest banks in the United States. He assumed he would never qualify anywhere. He had, for all intents and purposes, given up on banks.
Due to my encouragement, he applied for and was approved for one of the bank accounts at WiseWage. I caught up with him a few months later.
“That was so cool,” he said. He leaned back and his chair and gave me a look that said he was proud of his new status. “I got the card in the mail in about a week. Pretty nifty.”
“So how do you like it?” I asked. “Are you taking advantage of the interest on savings?”
I guess I was naïve. Certainly, I was surprised that he didn't try to use his account.
“No, I haven’t used it,” he said. “They’ll take my money.”
NOTE: I am not an attorney and these comments should not be taken as legal advice. I would recommend that you seek the advice of a professional attorney.