WASHINGTON (AP) — Thousands of poor and disabled men stand to lose their only income next year because of a change in government policy that will allow states to seize every dollar of federal benefits from people who owe back child support.
Previously, states could capture only 65 percent of benefits from people who opted to be paid by paper check. Advocates estimate that 275,000 men could be left destitute as a result of the change.
The concern is an unintended consequence of the Treasury Department’s decision to pay all benefits electronically, including Social Security, disability and veterans’ benefits, starting next year.
A separate Treasury Department rule, in place since last May in a preliminary form, guarantees states the power to freeze the bank accounts of people who collect federal benefits and owe child support.
By allowing seizure of the remaining 35 percent of benefits, the rules could cause thousands of poor men to lose their only income.
“It’s kind of Orwellian, what’s being set up here for a segment of the population,” says Johnson Tyler, an attorney who represents poor and disabled people collecting federal benefits. “It’s going to be a nightmare in about a year unless something changes.”
In many cases, the bills are decades old and the children long grown. Much of the money owed is interest and fees that add up when men are unable to pay because they are disabled, institutionalized or imprisoned.
Most of the money will go to governments, not to the children of the men with child support debts, independent analyses show. States are allowed to keep child support money as repayment for welfare previously provided for those children.
In some instances, the grown children are supporting their fathers.
The rule change illustrates how a politically desirable goal like cracking down on so-called deadbeat dads can have complicated, even counterproductive, effects in practice.
“The rule doesn’t look at the fact that the money is mostly interest, the money is going to the state, the kids are usually adults, and it’s leaving the payer with nothing,” says Ashlee Highland, a legal aid attorney who works with the poor of Chicago.
Highland says her office has clients in eviction, in foreclosure and unable to pay their bills because of states’ aggressive efforts to collect back child support.
Marcial Herrera, 44, has had his bank account frozen repeatedly since 2009, blocking his access to $800 a month in government benefits. Unable to work because of a severe back injury he suffered in 2000, Herrera fell behind on child support. He owes more than $7,000 — not to his 22-year-old son, but to the state of New York, because his son received welfare years earlier.
Herrera sought help in court and had his son speak on his behalf, but the judge could not erase the thousands he already owed.
“I’m just waiting for them to lock me up,” he says. “I don’t see no other way of me repaying that debt.”
A legal aid attorney suggested Herrera collect his benefits by paper check. It costs him $15 to cash the check each month, but at least he can be sure that he will have money to pay his bills.
States have had the ability to freeze accounts for years. That’s why people like Herrera rely on paper checks to safeguard part of their income.
Starting next March, that option will disappear. The Treasury Department will deposit federal benefits directly into bank accounts or load them onto prepaid debit cards. Either way, state child support agencies will be able to seize all of it.
Electronic payments are expected to save the government $1 billion over the next 10 years, the Treasury Department says. It costs the government about $1 to mail a check, compared with about 10 cents for an electronic transfer.
The Treasury Department understands that forcing people into direct deposit could deprive them of all of their income, say officials who spoke on condition of anonymity because they were not authorized to discuss the rule-writing process.
States can garnish only 65 percent of benefits before the federal government sends them out. But the limit does not apply once the money is in an account and states ask banks to freeze it, according to a Treasury Department memo obtained by The Associated Press.
A Treasury spokesman declined to discuss the policy. The officials who spoke on condition of anonymity say they believe the policy is legally unavoidable. They described a dilemma: Restrain states trying to collect child-support debts or risk depriving thousands of people of their only income.
Treasury’s legal justification assumes that receiving a paper check is still an option, says Tyler, the Brooklyn attorney.
Letting state agencies seize the money contradicts the public stance of the Department of Health and Human Services, the federal agency in charge of child support collections. The department does not want states to collect child support so aggressively that poor people lose their only income, spokesman Ken Wolfe says.
“Child support enforcement — getting that money and passing it on to parents and children — is a measure to fight poverty, and it doesn’t make sense to accomplish that by impoverishing somebody else,” he says.
Wolfe says HHS is developing guidelines for states to “make sure we’re not putting someone into deep poverty as a result of an automatic collection.” He declined to provide details of those plans.
Lawyers from HHS agreed with Treasury’s decision to let states seize benefits, according to the Treasury memo.
An early version of the Treasury department rule protected people from having their federal benefits frozen by debt collectors — including private collection agencies and states seeking back child support.
State child support agencies replied in public comments on the proposed rule that blocking their access to people’s benefits would cause great harm to parents and children receiving child support.
HHS research suggests the policy could deepen the hardship for people who collect benefits as well.
People who owe large amounts of child support are almost universally poor. Among those owing $30,000 or more, three-fourths had no reported income or income of less than $10,000, HHS says. Many had their earnings interrupted by disability or jail time and are unlikely to repay the child support debt, the government-sponsored research says.
The usual methods of collecting back child support often don’t work with the poor. States typically start by garnishing wages. If that doesn’t work, they can suspend driver’s licenses, revoke passports and take away professional credentials.
Those measures have little effect on poor people without jobs who rely on federal benefits. They have no wages to garnish and no passports. Many can’t afford a car and do not need a driver’s license.
State child support agencies echo the HHS view that child support enforcement should not be so draconian that people end up with nothing.
“You don’t want the noncustodial parent to go out and be living on the streets. You’re not going to collect anything at that point,” says Tom Shanahan, spokesman for the Idaho Department of Health and Welfare.
The Idaho department requires people who owe child support to show good faith by paying a minimum amount and seeking jobs when they are out of work, Shanahan says.
The White House is reviewing the final version of the rule. Its impact so far has been limited, legal-aid lawyers say, because people can still use paper checks. A White House spokeswoman did not respond a request for comment.
In a letter sent last week, the National Consumer Law Center and dozens of other groups called on the head of the Social Security Administration to withdraw his support for the rule.
“While both current and past due child support orders should be paid,” the letter says, it should not result “in the complete impoverishment of recipients” of federal benefits.
The issue has failed to raise alarm in part because most people feel little in common with men labeled deadbeat dads, says John Vail, an attorney with the Center for Constitutional Litigation who provided legal services for the poor for decades.
“There’s not a lot of sympathy for deadbeat dads, and justly so,” Vail says. “But everybody’s got limits, and I think people who have never walked a mile in some of those old, worn-out shoes are a little quick to rush to judgment about what that life might be like.”
AP Business Writer Christina Rexrode contributed to this report.
Follow Daniel Wagner at www.twitter.com/wagnerreports.