Hundreds of government records listing addresses, national insurance numbers and bank details of people in Blackpool were found dumped in an alleyway.
The haul of documents was in a mail sack stamped Department of Work and Pensions (DWP) off Erdington Road.
Plumber Graham Aspinall told the BBC he was "gobsmacked" by his discovery of the sack on Sunday.
The DWP said it took loss of personal data "very seriously" and has started an investigation.
Mr Aspinall, 51, from South Shore, was delivering an oil drum to the back of a friend's house when he spotted the open bag.
"I just looked at it and I thought, 'Well, that's not right there's papers hanging out'. I looked at a couple of the papers and I saw National Insurance numbers," he said.
Bank account numbers, mortgage details and a prison release document were among the hundreds of bundled papers stamped "internal mail", Mr Aspinall added.
"I was a bit gobsmacked... because it could cause a lot of misery to people couldn't it?
"It amazes me how it has happened because it was internal mail and I thought it just got picked up from one place to another.
"It was definitely dumped, it was in with a load of black bin bags."
A DWP spokeswoman said: "We take any loss of personal data very seriously, have now successfully retrieved the documents in question and are carrying out a full investigation into this matter."