Family and State Benefits of Debt Compromise

IM-22-03

Publication Date: August 18, 2022
Current as of:

INFORMATION MEMORANDUM

IM-22-03

DATE: August 18, 2022

TO: State IV-D Agencies

SUBJECT: Family and State Benefits of Debt Compromise

Child support debt creates hardships for families, including a disproportionate number of parents and children from low-income households. This memorandum shares data on child support debt and discusses impacts and strategies states may implement to prevent, reduce, and eliminate it. These strategies help to increase consistent and reliable child support payments and improve the economic well-being of families.

Data and Research Findings Related to Child Support Arrears

As of September 2021, total child support arrears certified by states and submitted to OCSE totaled $111.7 billion, and the average amount owed per case with arrears was over $17,000.[1] Roughly 70 percent of these arrears were initially submitted to OCSE more than 10 years earlier.[2] These large amounts of arrears contrast sharply with the average amount of current support owed per case with an order, which was $241/month as of September 2021.[3]

High child support arrears are a major problem for families. When child support is not paid and arrears accumulate, custodial-parent families and their children do not benefit from the financial support they are owed. Many of these families live in poverty.  Receiving this financial support would help them escape this plight. In addition, noncustodial parents who fall behind in their payments are subject to enforcement actions, which can include suspension of their drivers’ license and incarceration. Depending on the state they live in, they can also face interest charges on their arrears. Child support arrears can also exacerbate hardships for families by reducing noncustodial parents' subsequent compliance with ongoing child support obligations and discouraging noncustodial parents' employment.[4]

The persistence of high child support arrears creates significant problems for states as well. Large arrears balances give the impression that state child support programs are not doing their job, a perception that is not always accurate. High arrears are often interpreted by the public as a sign of agency incompetence and a failure to serve custodial parents and children, when, in fact, the picture is much more complicated than that.

Research examining child support arrears has found that most child support arrears are uncollectable.[5]  They are uncollectable in large part because most arrears are owed by noncustodial parents who have low reported incomes.  Studies show that roughly 70 percent of arrears are owed by noncustodial parents who have reported income below $10,000 a year.[6] In addition, the debt is often quite old.  Research shows that 88 percent of arrears that was certified as of January 2021 had been initially submitted to OCSE more than 5 years earlier.  Nearly 30 percent had been initially submitted more than 20 years earlier.[7] 

While total child support arrears have generally been increasing since the child support program began, the percent of arrears owed to the government has been steadily declining for roughly two decades.[8] As of September 2021, 18 percent of total certified arrears were owed to the government.  In September 2002, that percentage was 51 percent.[9]

Most states have developed policies to compromise child support debt owed to the state.[10] Compromise means the partial or full forgiveness or reduction of child support debt when certain criteria are met. Research has examined many of these programs and found positive results.[11]  For example, debt compromise programs have been found to increase employment, earnings, and child support payments among noncustodial parents with low incomes.  They have also been shown to increase the willingness of fathers to engage with the child support program.[12]

Impacts

Studies have determined that approximately 25 percent of nonresident parents owing child support have reported income below the federal poverty level.  A parent who works 40 hours a week at $7.25 per hour earns an annual income significantly below the federal poverty guidelines for a family of three.  These parents often face significant barriers to employment, including limited education, unstable housing, lack of job experience, and former incarceration.[13]

In “Piling on Debt: The Intersections Between Child Support Arrears and Legal Financial Obligations,” authors Vicki Turetsky and Maureen R. Waller noted: 

Parents who owe large child support debts are more likely to become discouraged and leave formal employment, further compromising their ability to support their children.  This is partly because up to 65 percent of disposable income can be withheld from the paychecks of nonresident parents owing arrears under the Consumer Credit Protection Act. This high withholding rate can have the unintended effect of pushing low-wage parents out of a job, because the remaining paycheck is often too little to survive on.  Child support debt can lead to increased job-hopping, participation in the underground economy, and generation of illegal income as parents try to support themselves and their children and avoid the child support program.

The authors continue:

Indebtedness can exacerbate family hardship and tensions, driving a wedge between the parents and pushing nonresident parents away from their children.  Child support debt that exceeds a nonresident parent’s ability to pay can increase friction between the parents and unrealistically inflate resident parent expectations of payment.  Child support debt can also create a barrier to parent involvement. There is evidence that indebted fathers are less engaged in their daily activities and provide less frequent informal support.

Nonresident parents with child support arrears also report more depression and problematic alcohol use.  Behavioral science research further finds that financial stress reduces capacity for good decision-making and problem-solving. Unlike some other forms of debt, child support arrears can create lifelong indebtedness, even after the obligor’s children are grown and have children of their own.[14]

Strategies to Reduce Debt and Promote Program Goals

Although these studies seem discouraging, the good news is that these trends can be reversed, especially when states implement strategies to eliminate, reduce, and prevent child support debt.  While many states have implemented some of the strategies discussed in this memo, there is more that states should consider.

Debt reduction programs can generate payments in cases with a history of nonpayment.  They can also increase the willingness of fathers to engage with the child support program.  A policy fact sheet by Ascend, the Aspen Institute found, “(n)oncustodial fathers with low incomes work more, earn more, pay more child support, and pay more consistently when their state-owed child support arrears are reduced.”[15]

And a recent blog from the Urban Institute’s “What Happens When We Forgive Debt from Child Support Payments” examined a debt relief pilot in California. Community partners in San Francisco collaborated on a pilot program that paid down a portion of participants’ public assistance payback debt, which allowed participants to receive full debt relief through California’s Compromise of Arrears Program (COAP).  Results of the pilot reflect that:

  • Parents make more consistent and timely payments
  • Parents’ housing status and credit scores often improve, and their employment barriers are reduced
  • Relationships between parents and children improve [16]

Compromising State-Owed Debt

Recognizing the benefits of compromising debt owed to the state, many states have initiated programs to assist noncustodial parents in addressing those arrears.  There are a number of approaches, which include:

  • Equitable Debt Reduction — a noncustodial parent applies for debt relief, which is granted when the parent can demonstrate inability to pay or for other equitable reasons
  • Capping Debt — some states have enacted a statutory limit on the accumulation of state‑owed arrears when noncustodial parents have low incomes
  • Debt Compromise and Matching Programs — states provide a matching credit or compromise and settle the remaining balance of state-owed arrears when a noncustodial parent makes a partial payment on family-owed or state-owed arrears
  • Debt Reduction in Exchange for Consistent Payments — offer debt relief in exchange for staying current on monthly payments or participating in activities designed to improve noncustodial parents’ capacity to pay or their level of engagement with their children
  • Debt Reduction in Exchange for Participation — parents agree to participate in employment, education, training, or parenting programs and activities in order to receive a reduction of state-owed arrears[17]

For a detailed discussion on these and other types of compromise programs being offered and examples of each, see Ascend at the Aspen Institute and Good+Foundation, Reducing Arrears, Child Support Policy Fact Sheet.[18]

OCSE found that at least 36 states and the District of Columbia have debt compromise options available to noncustodial parents.[19]  Although the approach varies from state to state, each of them have the same goals, encouraging consistent payments and fostering better family relationships.  And those goals are being achieved.

In a study by the Urban Institute, Relief from Government Owed Child Support Dept and Its Effects on parents and children (Evaluation of the San Francisco Child Support Debt Relief Pilot), the authors found that in addition to reducing the public assistance payback debt, debt compromise programs: contributed to more consistent child support payments, reduced stress, reduced barriers to employment, improved credit scores, housing status and feeling of control over finances; improved relationships with children and co-parents and improved relationships with the child support system.[20]

Compromising Family-Owed Debt

Debt reduction compromise is not only for states, but it can also be for family-owed arrears.

Compromising arrearages involves satisfying arrears by specific agreement of both relevant parties in accordance with state law or on the same grounds that exist for any other judgment in the state.

While a few states prohibit custodial parents from forgiving family-owed arrears, this policy is being reconsidered.  For example, Tennessee enacted legislation to authorize custodial parents to forgive child support arrears owed to the family.  Family-owed arrears continue to grow more rapidly than state-owed arrears, suggesting that more effective strategies are needed to set and maintain accurate child support orders and to work with both parents to resolve uncollectible debts.  Some states reach out to both parents to help them facilitate a compromise when family-owed arrears are uncollectible.  Research finds that custodial parents are more positive than negative when asked whether they are interested in negotiating family-owed arrears.[21]

While compromising debt is continually encouraged, it is also important to address preventative strategies for debt accumulation.

Eliminating Imputation of Income

The Flexibility, Efficiency, and Modernization in Child Support Programs (FEM)[22] rule requires a child support agency to gather information regarding the earnings and income of the noncustodial parent.  If earning and income information is unavailable or insufficient in a case, and the support guidelines authorize imputation of income, such imputation must take into consideration, to the extent known, such factors as the noncustodial parent’s assets, residence, employment and earnings history, job skills, educational attainment, literacy, age, health, criminal record and other employment barriers, and record of seeking work, as well as the local job market, the availability of employers willing to hire the noncustodial parent, prevailing earnings level in the local community, and other relevant background factors in the case.  The factual basis for the support obligation must be documented in the case record.  In addition, the regulation prohibits the guideline from treating incarceration as voluntary unemployment in establishing support orders.  That means state guidelines, which authorize imputation of income, must provide for consideration of the actual circumstances of the noncustodial parent.[23]

Child support should be appropriate given both parties’ financial circumstances.  Each party’s income, along with other factors, especially those recognized under state child support guidelines, should be considered.

Employment Services

Unemployment is one of the leading reasons for nonpayment of child support, and several studies have shown that difficulty finding employment is one of the key barriers to paying child support for many noncustodial parents surveyed.

OCSE believes that implementing employment services for noncustodial parents is a good strategy to increase participation in the workforce.  Such services also improve compliance with court-ordered child support payments and provide low-income noncustodial parents with a path out of poverty to financial self-sufficiency.

The Knowledge Works! initiative helps child support agencies implement or enhance a noncustodial parent employment program by highlighting the work of successful programs in other jurisdictions.  By sharing program material and connecting agencies to OCSE subject matter experts, the initiative helps assess programs and can assist in the planning, implementation, and determination of funding sources to develop a child support-led noncustodial parent employment program.  For training webinars addressing this topic, refer to: Knowledge Works! Webinars.  Also see OCSE’s Child Support-Led Employment Programs by State, which indicates that 32 states operate some type of employment assistance program.

And, because of its strong commitment to these employment programs, OCSE has encouraged the use of incentive funds to establish and maintain them. See IM-18-02 Use of Incentive Funds for NCP Work Activities and IM-19-04 Availability of 1115 Waivers to Fund NCP Work Activities.

Establishing Realistic Orders in Low-Income Cases

The FEM rule also requires child support agencies to take reasonable steps to develop a sufficient factual basis for the support obligation.  This must include gathering information on a case-by-case basis regarding the earnings and income of the noncustodial parent, as well as detailed information about the specific circumstances of the noncustodial parent.  OCSE has previously noted that “[h]igh minimum orders that are issued across-the-board without regard to the noncustodial parent’s ability to pay the amount do not comply with these regulations.”[24]

Reviewing and Modifying Support Orders

Child support agencies have a responsibility to ensure that child support orders are as realistic as possible when they are established and remain so throughout their existence.  For this reason, agencies must reach out to families needing help with modification of orders.  This help may take several forms, including providing parents with information about state or local court websites containing pro se modification forms and instructions, referring parents to legal service providers, and providing online forms or information on the agency’s website.25]

Noting that three-quarters of states have eliminated treatment of incarceration as voluntary unemployment in recent years, the FEM rule also prohibits treatment of incarceration as a form of voluntary unemployment.  The change includes situations where the noncustodial parent is incarcerated for a crime against the child or custodial parent or for intentional failure to pay support.  In explaining the regulatory change, OCSE pointed out that for noncustodial parents, the “collateral consequences of the treatment of incarceration as voluntary unemployment include uncollectible debt, reduced employment, and increased recidivism.”  OCSE also noted studies showing that there is a lower likelihood that parents who accumulate debt during periods of incarceration will work and pay support upon release.[26]

Conclusion

Compromising child support debt owed to the state eventually produces many positive results that benefit the child support program.  Therefore, it is important that child support agencies combine strategies to prevent debt accumulation and provide compromise relief, ensuring that the core mission of the child support program is fulfilled. 

As we strive to revitalize our ever-evolving engagement, let’s remember that debt compromise programs positively impact the people we serve, are good processes (policy) and more often than not increase our performance.  OCSE encourages all of you to use debt compromise programs as a part of your efforts to best serve customers. 

INQUIRIES:  OCSE.DPT@acf.hhs.gov

Tanguler Gray
Commissioner
Office of Child Support Enforcement

 

[1] OCSE, FY 2021 Preliminary Data Report and Tables, Table P-89.

[2] Elaine Sorensen, September 2, 2021, Most Arrears Were Submitted to OCSE More Than Five Years Ago.  

[3] OCSE, FY 2021 Preliminary Data Report and Tables, Tables P-64 and P-83.

[4] Cancian, Maria., Carolyn Heinrich, and Yiyoon Chung. 2013. Discouraging disadvantaged fathers' employment: An unintended consequence of policies designed to support families. Journal of Policy Analysis and Management, 32(4), 758—784. Miller, David and Ronald Mincy. 2012. Falling further behind? Child support arrears and fathers' labor force participation. Social Service Review, 86(4), 604—635. Waller, Maureen, and Robert Plotnick. 2001. Effective child support policy for low-income families: Evidence from street level research. Journal of Policy Analysis and Management, 20(1), 89—110.

[5] Formoso, Carl. 2003. Determining the Composition and Collectibility of Child Support Arrearages. Vol 1. The Longitudinal Analysis  (PDF).  Kim, Yeongmin, Maria Cancian, and Dan Meyer. 2015. Patterns of child support debt accumulation.  Children and Youth Services Review, 51, 87—94. Ovwigho, Pamela, Correne Saunders, and Catherine Born. 2008. Confronting child support debt: A Baseline Profile of Maryland’s Arrears Caseload  (PDF).  Peters, Jo. 2003. Determining the Composition and Collectibility of Child Support Arrearages. Vol 2. The Case Assessment  (PDF).  Sorensen, Elaine, Heather Koball, Kate Pomper, Chava Zibman. 2003. Examining Child Support Arrears in California: The Collectibility Study  (PDF).  Sorensen, Elaine, Liliana Sousa, Simone Schaner. 2007, Assessing Child Support Arrears in Nine Larges States and the Nation  (PDF).

[6] Sorensen, Elaine, Liliana Sousa, Simone Schaner. 2007.

[7] Elaine Sorensen, September 2, 2021, Most Arrears Were Submitted to OCSE More Than Five Years Ago.

[8] Sorensen, Elaine. 2014.  Major Change in Who is Owed Child Support Arrears (PDF).

[9] Sorensen, Elaine. 2014. Major Change in Who is Owed Child Support Arrears (PDF).

[10] State Child Support Agencies with Debt Compromise Policies

[11]See, e.g., Jessica Pearson, Nancy Thoennes, and Rasa Kaunelis. 2012. Debt Compromise Programs: Program Design & Child Support Outcomes in Five Locations  (PDF).  Carolyn Heinrich, Brett Burkhardt, Hilary Shager, and Lara Rosen. 2011. The Families Forward Program Final Evaluation Report  (PDF), University of Wisconsin-Madison, Institute for Research on Poverty.  Pamela Ovwigho, Corrine Saunders, and Catherine Born. 2005.  Arrears Leveraging Pilot Project: Outcomes Achieved and Lessons Learned  (PDF), University of Maryland.

[12] Jessica Pearson, Nancy Thoennes, and Rasa Kaunelis, 2012.

[13] Stacy Brustin, Child Support: Shifting the Financial Burden in Low-Income Families, 20 GEO. J. ON POVERTY L & POL'Y 1 (2012).

[14] Vicki Turetsky and Maureen R. Waller, Piling on Debt: The Intersections Between Child Support Arrears and Legal Financial Obligations,” UCLA Criminal Justice Law Review, vol. 4, June 2020.

[15] Fact Sheet by Ascend at the Aspen Institute and Good+ Foundation. (2020, August)  Reducing Arrears, Child Support Policy Fact Sheet  (PDF).

[16] Hahn, H and Kuehn, (2019, August 20) “What Happens When We Forgive Debt from Child Support Payments? ” Daniel Kuehn, Urban Wire, Urban Institute.

[17] Fact Sheet by Ascend at the Aspen Institute and Good+ Foundation. (2020, August) Reducing Arrears, Child Support Policy Fact Sheet  (PDF).

[18] See above.

[19] State Child Support Agencies with Debt Compromise Policies

[20] Hahn, H., Kuehn, D., Hassani, H., and Edin, K. 2019. Relief From Government-Owed Child Support Debt and Its Effects on Parents and Children  (PDF), Washington, D.C.: Urban Institute.

[21] Fact Sheet by Ascend at the Aspen Institute and Good+ Foundation. (2020, August)  Reducing Arrears, Child Support Policy Fact Sheet  (PDF).

[22] Department of Health and Human Services, Administration for Children and Families. Flexibility, Efficiency, and Modernization in Child Support Enforcement Programs, 81 Fed. Reg. 93,492 (Dec. 20, 2016).

[23] Office of Child Support Enforcement. (2021). Essentials for Attorneys in Child Support Enforcement.

[24] Id.

[25] Id.

[26] Id.