YOU WON’T GET CREDIT FOR PAYING, BUT IT SUCKS WHEN YOU DON’T: THE EFFECT OF UNPAID CHILD SUPPORT ON YOUR CREDIT REPORT


Most guys don’t mind paying child support – it’s when they fall a little bit behind and can’t catch a break that the problems erupt. Maybe it’s the ex threatening to take him to court if he is even one day late. Maybe it’s her lawyer sending him a letter that his payment is past due, completed with a “friendly reminder” that he can be held in contempt of court and  tossed into jail until he pays up. Or maybe it’s his son or daughter asking him why mom says we can’t have x, y or z because you aren’t supporting us anymore. Whatever it is, most guys dread the feeling of being labeled a “deadbeat dad” simply because they’ve fallen on hard times and can’t make their payments as timely as they once did, and would if they could.


Some of those guys work really hard to pay on time. They get second or third jobs and skip other bills to pay child support. Their ex and children might appreciate it, but they won’t get a glowing score on their credit report, as one might get for making timely mortgage, car and loan payments.


Worse, for those guys struggling to keep their payments current, the problems do not stop with their ex, her lawyer and their kids. Federal law allows the child support agency to report a delinquent payor who is just $1,000, and sometimes less, behind!  That delinquency will appear on all three of the national credit agency reports, and although it may not necessarily prevent the payor from obtaining loans, some loan officers may require the payor to bring the support account current or provide proof of a plan to do so before lending money.


The reporting process starts with a notice. If you receive this notice, do not ignore it. You have only 21 days, at most, to contact the state child support agency before the agency sends the information for credit reporting.  The notice must include your name and address, the amount of child support owed and your right to contest reporting. Check all of this information for accuracy.


Your right to contest reporting is not unfettered. Rather,  you can only contest the amount claimed owed and whether you have made any payments since the child support agency mailed you the notice. If the arrears amount is correct and meets the agency’s threshold for reporting, you must pay the arrears within 21 days to prevent reporting. Otherwise, on it goes to your credit report.


Try to prevail upon the agency to give you a break, and you are probably out of luck. In many states, like Michigan, where I practice, the child support agency does not have discretion to withhold reporting. In other words, once you’ve hit the threshold, the agency must send your information off for credit reporting – no ifs, ands or buts about it.


To avoid credit reporting if you are headed toward the threshold, you should consider:


Review and Modification – If your income is reduced, request a review or modification of child support as soon as possible. A “review” refers to an administrative adjustment of the support order without a hearing to determine whether there is a sufficient change in circumstances to warrant a support modification. For most states participating in the Title IV-D federal program, a parent may request this review once every three years. A “modification” refers to a change following a hearing at which you present evidence of a sufficient change and how the support obligation should also change. Be cautious, however, because the other parent’s income may have also changed – and you could end up owing more support. You should make your request as soon as practicable because, in most states, you can only “back date” your support obligation and erase arrearages, absent the other parent’s agreement, to the date you filed your request.


(Correct) Direct Pay – Do not pay child support directly unless your support order allows you to do so. We cannot overstate this rule. In most states, any direct payments are conclusively treated as gifts, and you will still owe the support you paid directly. Even if you have proof of payment, and in many states even if the other parent acknowledges receiving the payment, you will still be treated as behind in the eyes of the state. For states that do collect receipts, you can expect to take a long time at the courthouse or the support agency to correct your account. That being said, if you and the other parent can get along, or if you can arrange for automatic deposits from your pay, you might consider revising your order to allow for direct payments, however. In many states, you pay an administrative fee to make payments through the state, and you can save yourself money by making them directly.


Nunc Pro Tunc Orders – If you notice a clerical error in your support order – for example, maybe the “2” in “$250 each month” became a “5” -contact the courthouse or support agency to request a nunc pro tunc  order. These are orders “from the beginning,” and we use them to correct clerical errors so that the court’s order reflects the court’s and/or the parents’ intent at the time the order was issued. Any mistakes made while the incorrect order was in existence are automatically corrected. This means, that extra $300 each month in our example that went unpaid is automatically erased from the first date support was due.


Arrears Discharge –If you have a forgiving ex, ask you ex to forgive some of the arrearages owed to her. In many states, parents can forgive all or a portion of support owed them directly for their child, even if the state cannot forgive the support owed to the state as reimbursement for government benefits. This may make it easier for you to work – without a huge support debt appearing on your credit report, for example. Some states are even suspending interest and penalty charges for parents who make good faith payments toward their support arrearages. It is worth looking into if your arrearage is insurmountable.


Whatever you do, don’t let yourself slip into a pattern of late payments. Your credit score will take a serious hit.


WHAT ABOUT THE LEASE? How to Pay Child Support Directly

 


 


You may have asked whether you can pay child support directly – or even done it – and received a stern no, do not do it, it is a bad idea, it does not work and it is not allowed under our laws  in response. For many cases, it is a bad idea, you should not do it, and it may not be allowed under the law that applies to your case – at least, according to the order that currently applies to your case. However, that does not make it impossible to pay child support directly, and, sometimes, it is a good idea.


Is it Possible?

By now, you have probably heard of child support “guidelines” or “formulas” or “calculators.” Since the early 1980s federal enactment of the Child Support Enforcement Amendments, all States receiving federal dollars to administer child support programs –currently, all of them -- must have a uniform method for determining how much child support to pay per child. The CSEA also established a national advisory panel on child support guidelines. The panel became a part of the federal Office of Child Support Enforcement. With the panel’s assistance, states were to establish numeric guidelines, also known as “child support formulas,” to calculate child support. The guidelines were to be advisory only. By 1988, the guidelines garnered favor, particularly because they were predictable. Therefore, Congress passed the Family Support Act. The FSA required states to make the guidelines presumptive, not advisory.


That is, the guidelines-recommended amount should be presumed the amount of child support to order, unless the payor and/or the payee establish that the amount is “unjust or inappropriate.” What is “unjust or inappropriate” depends on the nature of the case and the judge.


This is one method for deviating from the guidelines. Look for circumstances in which one parent assumes an extraordinary amount of debt (maybe the entire mortgage shortfall) or has a serious health condition.


Another is the method of payment. Even if the judge requires parents to pay the recommended amount, in most States parents remain free to determine the method of payment so long as neither parent owes support to the State (for example, for the time a child was in foster care).


Direct Pay – Third Party

One method is a payment to a third party who provides necessaries. “Necessaries” are food, clothing, shelter, education, childcare and other basic living expenses. Parents most often pay third parties to maintain control over a debt that is in the parents’ names or the paying parent’s name, and which would trigger a collection action and/or a poor mark on a credit report if not timely paid.



For example, you might prefer to pay the lease for the van awarded to your ex-wife because she uses the van to take your children to and from school, hockey practice, friends’ events, etc., and the lease agreement is in your name. This way, you know the payment is made and you provide a necessary – transportation – for your children.


As another example, you might want to pay for your children’s cell phones so that you can correspond with them at any time. Just be sure your judge treats a cell phone as a “necessary” and not an “extra.”


As a final, and most common, example, you may prefer to pay the home mortgage because you are the sole mortgagee and your children will reside in the home. This is one way to deal with a mortgage in one parent’s name for a home the other parent receives as a result of a settlement or a trial. Be sure your divorce decree specifies what happens if you cannot pay the mortgage, who claims tax benefits and whether either parent can renege on the agreement or request a modification upwards or downwards.


Whatever you do, do not pay a third party without permission from the other parent and            the judge in your support order. If you do not have this permission, then, in most States, your payment is a gift, and you will not receive credit for it. So, you could end up paying twice.


Direct Pay – Other Parent

Another method is to pay the other parent directly, rather than the State. States vary on options here, so be sure to speak with an attorney about the options available to you, but, in many States, the parent obligated to pay child support makes a monthly payment to the State Support Disbursement Unit (the “SDU” or the “IV-D agency”), which then allocates the payment between State-owed fees and child support, distributes it among the parent’s files (if the parent has more than one child owed support), then disburses it to the receiving parent. As you can imagine, this process takes time, sometimes months, and it is ripe for human error.


Parents in a bind, for example when a child has an unanticipated school expense, usually want support now. The risk is, you could make a direct payment out of the goodness of your heart – you are a parent, after all – but not receive credit for it.


You may prefer to pay your ex directly. That is ok, so long as your child support order allows direct payments and your relationship with your ex suggests the two of you will not fight, later on, about whether you actually made the payment.


Mistakes to Avoid

If you are contemplating direct payments, either to a third party or to the other parent, avoid these common mistakes:


Payment Without Permission – If you pay the other party or a third party directly and do not have permission from the judge, then in most States that payment is conclusively a gift, and you will have to pay the parent as specified in your support order anyhow. This means, you pay twice.



Using Cash – It may be a pain to write a check or set up a direct deposit from your account to your ex’s, but it is a must. Do not pay your ex in cash – you are asking for a disagreement in the future over whether you paid, how much you paid, and what your payment was for. A few dollars here and there may seem insignificant – would you really write a check for $20 for your child’s cough medicine? – but the “here and there” adds up. If you must use cash, you must obtain a receipt from your ex that specifies the date, the amount and what the payment was for.


Trusting You Ex – If you agree to pay the mortgage directly, do not give your ex the money with the understanding that she will make the mortgage payment as she pays the other household bills. You made an agreement for a direct pay method for a reason, and you need to follow it.  Who’s to say your ex will not keep the money, or make the payment late, or deny it altogether?


Forgetting “What-If”s – It may be a good idea to agree to pay the van lease, the mortgage, etc., directly now. You are in a stable job, have the money and want to keep this control. But, what happens if you lose your job? What happens if you want to sell the home? What if you ex becomes employed and you would otherwise qualify for a downward support modification? Be sure your support payment method contemplates these “what-if”s by including language that allows for support modifications, that specifies when and how direct payments terminate, that clarifies whether the parents intend for support to continue after the child reaches the age of majority, and so forth. The “what-if”s may never happen, but, if your agreement is to last, you must guard against them.


These are easy mistakes to make, but they are also easy to avoid -- with proper planning, that is. So, if you are contemplating direct child support payments, have a frank and thorough discussion with your attorney about your options and the law that applies to them.


Because making direct payments may not be such a bad idea after all.

 


HOW TO END THE VISCIOUS CHILD SUPPORT COLLECTION CYCLE


Ever feel like you cannot get out of the cycle of child support collection? You may have fallen behind and just got caught up – and then, wham!, you receive a notice for a tax refund intercept, a notice for a hearing to explain why you have an arrearage, an income withholding order that can take away up to 65% of your pay, a passport revocation letter, a boot on your car, leaving you stranded at home and unable to work, or a combination of these things.


For many parents, this a cycle that keeps on going, and going, and going, until their children are grown adults, living out of home and having children of their own. Child support collection becomes the task of a State worker with one goal in mind – to have you paying the State in interest and penalties, for years and even decades after your child support obligation terminates.


But is this fair? I mean, after all, your children are adults, and the State isn’t watching over them. So why should you pay the State anything? There are many good reasons, and a lot of bad ones. If your tax dollars go to support a child on food assistance, you should want the parent who is capable of supporting that child actually supporting that child. So, the State is owed something when he refuses. But, one can, and should, question why immobilizing a vehicle so a parent cannot get to work, to make money to pay support, is fair. One can, and should, question why adding penalties and interest to unpaid support, so that the total owed reaches an amount that makes him eligible for incarceration, is a good idea when the parent cannot pay the support in the first place.   In the abstract, at least, because there are circumstances in which both are fair. We would not want a parent driving down to the casino to gamble away his paycheck when he could be feeding his kids.


However, that parent is not most parents. Most parents work hard to meet their child support obligations and even harder to pay-up when they fall behind. But to avoid that vicious cycle of interest, penalty, refund intercept, hearing, incarceration, and then back again, there is more that can, and should, be done:


Review and Modification – If your income is reduced, request a review or modification of child support as soon as possible. A “review” refers to an administrative adjustment of the support order without a hearing to determine whether there is a sufficient change in circumstances to warrant a support modification. For most states participating in the Title IV-D federal program, a parent may request this review once every three years. A “modification” refers to a change following a hearing at which you present evidence of a sufficient change and how the support obligation should also change. Be cautious, however, because the other parent’s income may have also changed – and you could end up owing more support. You should make your request as soon as practicable after your income changes because, in most states, you can only “back date” your support obligation and erase arrearages, absent the other parent’s agreement, to the date you filed your request.


parents(Correct) Direct Pay – Do not pay child support directly unless your support order allows you to do so. We cannot overstate this rule. In most states, any direct payments are conclusively treated as gifts, and you will still owe the support you paid directly. Even if you have proof of payment, and in many states even if the other parent acknowledges receiving the payment, you will still be treated as behind in the eyes of the state. For states that do collect receipts, you can expect to take a long time at the courthouse or the support agency to correct your account. That being said, if you and the other parent can get along, or if you can arrange for automatic deposits from your pay, you might consider revising your order to allow for direct payments, however. In many states, you pay an administrative fee to make payments through the state, and you can save yourself money by making them directly.


Nunc Pro Tunc Orders – If you notice a clerical error in your support order – for example, maybe the “2” in “$250 each month” became a “5” in the state’s order -contact the courthouse or support agency to request a nunc pro tunc  order. These are orders “from the beginning,” and we use them to correct clerical errors so that the court’s order reflects the court’s and/or the parents’ intent at the time the order was issued. Any mistakes made while the incorrect order was in existence are automatically corrected. This means, that extra $300 each month in our example that went unpaid is automatically erased from the first date support was due. We avoid the problems with back-dating support orders for reviews and modification (see above) this way, provided you can point to a true clerical error and not your own error for not filing for a review or modification soon enough.


Abatement – If you regularly exercise more parenting time than your current order allows, you should consider requesting a modification of that order and/or an abatement of support while your children are under your case. This is because most support orders are based, in part, on the amount of time you spend with your children. You are supposed to support them when they are not with you, so if you are supporting them and they are with you, you are effectively paying twice. Many states require a significant change in the children’s lives to modify an order, so be sure you consult with an attorney before taking this action.


Arrears Discharge –If you have a forgiving ex, ask you ex to forgive some of the arrearages owed to her. In many states, parents can forgive all or a portion of support owed them directly for their child, even if the state cannot forgive the support owed to the state as reimbursement for government benefits. This may make it easier for you to work – without a huge support debt appearing on your credit report, for example. Some states are even suspending interest and penalty charges for parents who make good faith payments toward their support arrearages. It is worth looking into if your arrearage is insurmountable.


The worst thing you can do is keeping working with the expectation that, some day, you will be able to pay. Chances are, you won’t – or, if you do, you will pay more than you would have had you taken some of these steps.


THE FIDM & YOU: THE QUARTERLY REVIEW FOR CHILD SUPPORT COLLECTION

Did you know the government could review your bank and credit union accounts at least once every financial quarter? Well, if you do or could owe child support, then the state government, the federal government, or both, will.

 

All states have agreements with banks, credit unions and other financial institutions doing business in the state to conduct a quarterly review of their account holders against a database called the Financial Institution Data Match. Financial institutions doing business in more than one state (e.g., CitiBank and Bank of America) may conduct the review with each state or with the federal Office of Child Support Enforcement. The purpose for the review is to identify accounts belonging to parents who are delinquent in their child support payments. The parent’s name, employment information, mailing and residential addresses, telephone number, even Social Security number – the information needed to open the account – are compared to the database, which lists the same identifying information for parents delinquent in child support.     If the financial institution finds a match, it must forward the account information for that parent to the state agency responsible for collecting the debt.

 

It goes like this. If you have or open a checking account, a savings account, a time deposit account, a demand deposit account, or a money market mutual fund, then the financial institution will compare your identifying information against the database at least once every quarter. (Certain retirement accounts, military pay and government benefits accounts are excluded.)          If you are in the database, then the l institution must return your name, mailing and residential address, Social Security Number, Taxpayer Identification Number and any other identifying information, such as employer and alias, to the state agency. The institution could pay or charge you a fee for nondisclosure, and the institution is not liable to you under state law or federal law for disclosing your private information to the state agency or for any of the consequences that disclosure causes, such as an over-collection of child support or a garnishment from a bank account that you intended to be a convenience account, such as an account held in your name but for your aging parent’s benefit. You cannot restrict the institution from disclosing this information, and, in fact, you could be charged with fraud for asking or changing your identifying information to keep the institution from comparing it to the database.

 

When the state agency receives this information, it will begin collection according to state law. Collection may include a levy against the account, a lump-sum garnishment to satisfy your arrears, an order to intercept any direct deposits to the account (except certain government and military benefits), a contempt hearing for you to explain why you cannot pay the arrears from that account, and jail-time if you do not, or more. Most states begin with intercepts and garnishments because they are quick and efficient – you will receive a notice in the mail of a pending intercept or garnishment or the short time period (usually 14 days) in which you can object, before the institution scoops the money out of your account and forwards it to the agency.

 

 

What can you do to avoid the FIDM? Honestly, when you have an arrearage, not a lot, at least not legally.

 

You should not open convenience accounts for relatives, such as elderly family members who want you to be able to write checks for them. These accounts will be in your name, and they will be compared to the FIDM database.

 

You should also not falsify information to avoid a match in the database, because, once the government catches on (the database is huge, and they will), you could be charged with state and federal offenses, in addition to interest and penalties for past due child support.

 

And if you are facing an arrearage, try to enter into an agreement with the court, the agency and the support recipient to pay those arrearages over time. Ask your court to adopt the agreement an order. Give a copy of the order to your financial institution, and make sure everyone knows you have a plan in place and, so, should not have your accounts garnished with the quarterly review.

 

Finally, talk to an attorney about any agreements to pay an arrearage over time, which accounts you can safely you and how to avoid an account garnishment if you do have an arrearage.

 

Otherwise, it is only a matter of time before the FIDM finds you.