Selling of Child Support Arrears
DATE: September 5, 2001
TO: State IV-D Directors
FROM: Frank Fuentes, Acting Commissioner
Office of Child Support Enforcement
SUBJECT: Selling of Child Support Arrears
The purpose of this PIQ is to clarify OCSE's position concerning the sale of child support arrearages to a private firm at a discounted rate. Similar proposals or ideas have been suggested before, and we have concluded that any attempt to discount assigned child support arrearages would be prohibited by the Social Security Act (the Act) and implementing regulations. (See attached letter to New Jersey.) Section 457 of the Act, 42 U.S.C 657, requires the State to pay to the Federal government its full share of any assigned collections. So long as the debt remains enforceable in the original judgment amount, the Federal government is entitled to the full Federal share of any collections assigned to the State under title IV-A (Temporary Assistance to Needy Families) regardless of whether the collection is made by a State agency, paid voluntarily, or collected by a private entity. Once a State sells the assigned debt, it no longer controls those collections and would not be able to guarantee the Federal government its full share of any collections under the debt.
We further question this approach from a policy perspective. If selling these debts were allowable, then the buyer of the debt would be motivated to vigorously pursue the obligor, regardless of circumstances or ability to pay, and possibly having a negative impact upon his/her ability to maintain current payments to the family. Large assigned debts may involve arrearages owed by low-income obligors because of default orders set using imputed income and/or arrearages which have accrued because of delays in seeking a downward modification after circumstances change. They could have also accrued under orders in old AFDC cases set in the amount of assistance paid to the family, before the use of child support guidelines were required. There may be sound reasons for not aggressively pursuing collection in such cases.
We recognize that some States may have no statute of limitations on such debts and the State must continue to carry those debts, regardless of ability to satisfy the debt. There are other options available that would not be prohibited under the Social Security Act. States may want to look at permanently assigned debts to determine if specific case circumstances warrant consideration of available options for compromising permanently assigned arrearages, as set forth in PIQ-99-03. Compromising permanently assigned arrearages and selling assigned debt are different concepts. When a State compromises permanently assigned arrearages, the obligated parent is no longer responsible for satisfying those arrearages, and his/her ability to pay current support may be significantly enhanced. If an assigned debt is sold, the parent is still obligated to pay the full amount of the debt, regardless of the circumstances, which may have resulted in the accrual of the arrearage in the first place. If the State concludes that full collection is not feasible, the better course may be to negotiate directly with the obligor to determine whether a compromise payment in satisfaction of the permanently assigned debt might be warranted.
Attachment: Letter to New Jersey State Legislature Concerning the Selling of Child Support Arrears
cc: ACF Regional Administrators
Regional Program Managers