June 28, 1999

Jay A. Hershberg, Principal Financial Analyst
New Jersey State Legislature
Office of Legislative Services
State House Annex
P.O. Box 068
Trenton, New Jersey 08625-0068

Dear Mr. Hershberg:

This is in response to your letter of May 17, 1999 concerning selling of arrearages at a discount to a private firm. We have reviewed your hypothetical description and have several comments.

The concept you describe suggests that a State might sell of its old child support debt for some reduced rate such as 5 cents on the dollar. The State would recoup some money and give the appropriate share to the Federal government.

This proposal, or similar 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 and implementing regulations, specifically, the Federal requirements for distribution of child support (Section 457 of the Social Security Act, 42 U.S.C 657). Distribution rules require that the State pay the Federal government its full share of any assigned collections.

So long as the debt remains enforceable in the original judgement amount, and retains its character as a child support arrearage, 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 voluntary, or collected by a private entity. In other words, if a State discounted or sold its share of the judgement to a private entity, and a collection was subsequently made, the Federal government would still receive its statutorily required share of the proceeds of the collection.

Discounting debts is sometimes confused with the concept of a State accepting less than the full payment of arrearages assigned to the State in satisfaction of the entire judgement amount. States do have authority to compromise judgements, in certain circumstances, on the same grounds that exist for governments and settlement of any other judgement in the State. We articulated this position in PIQ-89-02 issued on February 14, 1989 and later in the preamble to final regulations at 45 CFR 303.106 pertaining to "Procedures to Prohibit Retroactive Modifications of Child Support Arrearages" which was published in the Federal Register on April 19, 1989 (54FR 15764). Federal law at section 466(a)(9) of the Social Security Act (the Act) and implementing regulations at 45 CFR 302.70(a)(9) provide that child support is a judgement on and after the date due with full force, effect and attributes of a judgement of the State, and may not be subject to retroactive modification. Such support judgements may, however, be compromised or satisfied by specific agreement of the parties on the same grounds as exist for any other judgement in the State.

Judgements involving child support arrearages assigned to the State under titles IV-A, IV-E and XIX of the Act, may not be compromised by an agreement between the obligee and obligor unless the State, as assignee, also approves such an agreement. State law may further require that the court or administrative authority must endorse any agreement affecting child support orders to ensure that the best interests of the child are protected.

We encourage caution not to confuse compromising arrearages with the statutory prohibition against retroactive modification of arrearages. The State plan requirement at section 454(20) of the Act requires States to enact laws that implement statutorily required procedures found at section 466 of the Act. Thus States must have laws that provide that child support payments become a judgement by operation of law and prohibits retroactive modification of arrearages. Retroactive modification of arrearages occurs when a court or administrative body takes actions to erase or reduce arrearages that have accrued under a court or administrative order for support. In effect, retroactive modification or arrearages alters the obligor's obligation without the concurrence of the obligee (or the State assignee) and is expressly prohibited by section 466(a)(9)(C) of the Act and 45 CFR 303.106.

While an agreement to compromise or settle the amount owed under the judgement and assigned to the State affects the amount payable for reimbursement to the Federal government, the Federal interest continues to be calculated as the statutory percentage of the entire debt payable. Any amount collected under the judgement must be distributed in accordance with section 457 of the Act.

A child support arrearage is a unique judgement. All States have enacted special enforcement laws (e.g. wage withholding limits are much higher than for normal commercial debts; credit reporting, liens, license revocation and other measures may only be applicable to child support

Debts) to facilitate collection of these arrearages. If a child support debt was discounted and sold to a private entity, that entity would presumably expect to continue to take advantage of these enforcement measures, just as if the debt was still intended to provide support to a dependent

Child (or to reimburse the State and Federal government for providing welfare assistance). I am sure you can understand that it would be inappropriate to permit private entities to utilize the full panoply of child support collections remedies, which were enacted solely to improve the enforcement of debts owed to children and families, to continue to enforce such judgements after they have been discounted and sold.

Thank you for your interest. If you need further information or have further questions or concerns do not hesitate to contact the Federal Office of Child Support Enforcement again.


David Gray Ross
Office of Child Support Enforcement