A new policy at the Department of the Treasury is under fire for what many believe will be a dire, if unintended, consequence. While the change looks like a neutral cost-savings effort at first glance, noncustodial parents -- in Illinois and every other state -- who are behind on their child support payments could pay the price.
One sure way to cut costs at home or at the office is to move old "paper processes" to the Internet. Electronic bill pay, automatic deposit, online bank and mortgage statements -- most of the services are free, all are good for the environment and most save consumers and businesses money. Well, one of the biggest businesses out there is the federal government, and one of the most paper-intensive processes of the government is printing and mailing benefit checks.
The Treasury Department will stop printing and mailing those checks next March. Instead, the government will electronically transfer the payments into the beneficiaries' bank accounts. The problem is that the money then hits the state government's radar.
States not only have the authority to garnish wages and government benefits to pay past-due child support, but they can also freeze the debtor's bank account. Because disability or other benefit payments may be a person's sole source of income, the law limits garnishment of benefit payments to 65 percent. That garnishment happens before the government even writes that check.
The authority to freeze that person's bank account means that states also have access to the remaining 35 percent of that check. In case there's any question about which funds can be frozen -- just wages or government benefits, too? -- a separate Treasury Department regulation makes it clear that states can block access to Social Security disability and veterans' benefits as well.
The net effect? That person has access to no income from any source. And that has advocates steaming.
Continued in our next post.
Source: Associated Press, "Child support debts may leave some with no income," Daniel Wagner, Feb. 27, 2012