Millions of parents owe past due child support payments. Owing to fears of garnishment, many of those individuals (“obligors”) choose to drop out of the banking system. Most of the professional policy commentary look past this fact. Perhaps that is because no one wants to appear to appease those who do not pay child support. Regardless, it is a factor.
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. They can impose penalties on people who do not make good on their separation agreements.
A key question is “can a bank take your money if you owe child support?”
The short answer is: 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.
Nonetheless, while the bank can disburse the information that enables the court to find your funds, the bank will not be the one collecting the debt. A financial institution is not the entity that collects child support. Nonetheless, their regulators require them to report data to child support agencies, and ultimately, your bank account can be levied to collect outstanding child support.
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 https://www.acf.hhs.gov/css/resource/financial-institution-data-match-overview to find accounts of people who are delinquent on child support.
The regulated FIs must report specific data points for demand deposit accounts, checking accounts, savings accounts, time deposit accounts, and money market mutual funds holdings. They have to report the account holder’s name, address, social security number, and taxpayer identification number.
Financial institutions are not expected to pull money from the account holder’s account. Instead, the court puts 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.
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 4 in 5 owe more than $20,000 and more than half owe more than $40,000.
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. Not here, in 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 will be able to justify a reasonably modest lifestyle – no fancy cars or luxury apartments.
Nonetheless, 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.
In Massachusetts, the 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”)
Other states have their own rules. Anyone with legal questions should consult an attorney who can speak to the laws that apply in their specific state.
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.”