managing federal receivables - bureau of the … · purpose of managing federal receivables ......

MANAGINGFEDERAL

RECEIVABLES

A Guide for Managing Loansand Administrative Debt

Department of the TreasuryFinancial Management Service

May 2005

This page is left intentionally blank.

TABLE OF CONTENTS

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CHAPTER 1 – INTRODUCTION

Purpose of Managing Federal Receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1-1Scope and Coverage . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1-2Key Related Legislation, Regulations and Guidance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1-3Responsibilities of Departments and Agencies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1-6

Office of Management and Budget (OMB) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1-6Department of the Treasury’s Financial Management Service . . . . . . . . . . . . . . . . . . . 1-7Department of Justice . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1-8Program Agencies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1-8

Program Review . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1-13Form of Assistance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1-13Financial Standards . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1-13The Credit Management and Debt Collection Cycle . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1-14Document Organization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1-15Inquiries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1-15

CHAPTER 2 – BUDGET AND LEGISLATIVE POLICY FOR CREDIT PROGRAMS

Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2-1Program Review . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2-1Form of Assistance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2-2Financial Standards . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2-2Implementation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2-3

CHAPTER 3 – CREDIT EXTENSION

Extending Credit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3-1The Application . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3-2Application and Origination Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3-5Verifying Information Provided by the Applicant . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3-6Credit Scoring . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3-7Using Credit Reports . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3-8Credit Ratings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3-10Conducting the Credit Analysis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3-11Appraisal of Real Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3-13Loan Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3-15Non-Loan Screening . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3-17Credit Extension Documentation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3-18

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CHAPTER 4 – ACCOUNT SERVICING

Servicing Government Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4-1Billing the Debtor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4-2Reporting Account Information to Credit Reporting Agencies . . . . . . . . . . . . . . . . . . . . . . . . . 4-4Account Monitoring . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4-5Loan Classification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4-6Consumer Loan Classification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4-7Commercial Loan Classification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4-8Allowance Accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4-9Servicing Documentation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4-10Contract Servicing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4-12Treasury Report on Receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4-13

CHAPTER 5 – MANAGEMENT OF GUARANTEED LENDERS ANDSERVICERS

Managing Risks in Guaranteed Loan Programs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5-1Lender Eligibility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5-2Lender Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5-3General Participation Requirements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5-4Performance Standards . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5-4Reporting Requirements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5-5Loan Servicers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5-5Lender and Servicer Reviews . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5-6Corrective Actions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5-7

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CHAPTER 6 – DELINQUENT DEBT COLLECTION

Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6-1

Part I – Managing Delinquencies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6-4Background . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6-4

Delinquency Defined . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6-4Changes in Governmentwide Debt Collection in 1996 . . . . . . . . . . . . . . . . . . . . . . . . 6-5Debt Collection Statutes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6-5Governmentwide Debt Collection Regulations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6-5Governmentwide Debt Collection Guidance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6-6

Key Debt Collection Principles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6-6Agency Regulations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6-6Program Goals and Debt Collection . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6-7Due Process . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6-7Minimum Due Process Requirements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6-8Privacy Protections . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6-9

Determining the Appropriate Collection Technique to Use . . . . . . . . . . . . . . . . . . . . . . . . . . 6-10Establishing a Collection Strategy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6-11Collection Action Documentation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6-12Agency Workout Groups . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6-12Contact With the Debtor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6-13Assessing Interest, Penalties and Administrative Costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6-17

Waiver of Interest, Penalties, and Administrative Costs . . . . . . . . . . . . . . . . . . . . . . . 6-18COLA Alternative to Assessment of Late Charges . . . . . . . . . . . . . . . . . . . . . . . . . . . 6-19

Installment Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6-20Acceleration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6-22Rescheduling . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6-22Compromise . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6-23Taking Action Against Co-borrowers/Guarantors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6-25Application of Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6-26

Part II – Debt Collection Tools and Programs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6-27Transfer of Debts to FMS for Collection – Cross-Servicing . . . . . . . . . . . . . . . . . . . . . . . . . 6-27

Debt Referral Requirements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6-27Exceptions to Referral Requirements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6-28Requirements for Agency Participation in Cross-Servicing . . . . . . . . . . . . . . . . . . . . 6-30Debt Collection Actions at FMS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6-30Cross-Servicing Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6-32

Administrative Offset (Including the Treasury Offset Program) . . . . . . . . . . . . . . . . . . . . . . . 6-33Centralized Offset Through the TOP . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6-33How TOP Works . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6-34

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Debts Eligible for TOP . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6-35Exceptions to Referral Requirements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6-35Due Process Requirements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6-36Types of Federal Payments Eligible for Offset Under TOP . . . . . . . . . . . . . . . . . . . . 6-36Payments Exempt from Offset Under TOP . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6-37Special Provisions for Certain Recurring Payments . . . . . . . . . . . . . . . . . . . . . . . . . 6-37Offset of Federal Salary Payments Under TOP . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6-38TOP Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6-38Computer Matching and Privacy Protection Act of 1988 . . . . . . . . . . . . . . . . . . . . . . 6-38

Non-Centralized Administrative Offset . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6-39Types of Non-Centralized Administrative Offset . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6-40

Internal Offsets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6-41Contractor Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6-41Collection of Travel Advances and Training Expenses from Federal Employees . . . 6-41Retirement Pay . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6-42Federal Employee Salary Offset . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6-42

Reporting Delinquent Debts to Credit Bureaus . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6-44Private Collection Agencies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6-45Administrative Wage Garnishment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6-47

Requirements for Agency Use of Administrative Wage Garnishment . . . . . . . . . . . . 6-48Notice Requirements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .6-48Hearing Requirements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .6-49Administrative Wage Garnishment Form (SF-329) . . . . . . . . . . . . . . . . . . . . . . . . . . . 6-50Amount of Garnishment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6-50Wage Garnishment Worksheet . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6-51Limitations on Amount of Garnishment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .6-52Financial Hardship . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6-53Eligibility for Administrative Wage Garnishment . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6-53Termination of the Wage Garnishment Order . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6-54

Liquidating Collateral . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6-54Bankruptcy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6-56Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6-57

Fraud/False Claims . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6-60Statute of Limitations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6-60Potentially Ineligible Referrals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6-61Pre-Referral Requirements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6-62Post-Referral Activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6-62

Barring Delinquent Debtors from Obtaining Federal Loans, Guaranties and Loan Insurance 6-64Delinquent Status . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6-64Delinquency Resolution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6-65

Revoking/Suspending Licenses or Eligibility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6-66

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Part III – Miscellaneous Topics . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6-67Purchasing Credit Reports and Locating the Debtor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6-67

Credit Reports . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6-67Consumer Credit Report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6-68Commercial Credit Report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6-68Reviewing Credit Report and Other Financial Information . . . . . . . . . . . . . . . . . . . 6-69Locating the Debtor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6-70GSA’s Federal Supply Schedule for Business Information Services (Special Item Number 520-16) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6-70Internet Resources . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6-70Internal Revenue Service . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6-71Post Office Trace . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6-72Department of Motor Vehicles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6-72Place of Employment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6-72

Automated Collection Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6-73

CHAPTER 7 – TERMINATION OF COLLECTION ACTION, WRITE-OFFAND CLOSE-OUT/CANCELLATION OF INDEBTEDNESS

Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7-1Termination of Collection Action Criteria . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7-5DOJ Concurrence for Terminating Collection Action . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7-10Suspension of Collection Action . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7-11Termination and Suspension of Collection Action and Compromise Regarding Fraud Claims 7-14Write-off . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7-14Pursuit of Collection After Write-off/CNC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7-17Write-Down . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7-17Close-out Classification and Discharge of Indebtedness/Issuance of Form 1099-C . . . . . . . . 7-18

Close-out Classification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7-18Discharge of Indebtedness . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7-19

Compromise of Debts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7-23

CHAPTER 8 – PORTFOLIO SALES

Interim Guidance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8-1

TABLE OF CONTENTS

TC - 6

APPENDICES

Appendix 1 - Credit Bureau Report KeyAppendix 2 - Credit Extension/Servicing Checklist Appendix 3 - Early Financial Warning SignsAppendix 4 - Debt Collection Statutes and WebsitesAppendix 5 - Debt Collection StrategiesAppendix 6 - Documentation of Collection ActivitiesAppendix 7 - Sample List of Appropriate Debt Collection PracticesAppendix 8 - Demand Letter Checklist Appendix 9 - Sample Financial Statement Appendix 10-A - Handling the Department of Justice’s 3% Fee Appendix 10-B - Claims Collection Litigation Report and Instructions

GLOSSARY

1-1

Chapter 1 Introduction

Purpose of Managing Federal Receivables

The purpose of "Managing Federal Receivables," is to provideFederal agencies with a general overview of standards, guidelines,and procedures for the successful management of Federal activitiesranging from the extension of credit or financial assistance toclosing-out uncollectible debts. Agency personnel who manageFederal credit programs and accounts receivable should alsofamiliarize themselves with the laws, regulations, policies andprocedures specific to their agency’s programs. Agenciesshould use the parts of these guidelines which pertain to theircredit management and debt collection activities and types of debt. The appendices include various checklists, documents and theappropriate references to assist agencies in managing their creditand debt collection activities. A glossary of relevant terms is alsoincluded at the end of the document. This edition supersedes theprior version of “Managing Federal Receivables” dated July 1994.

Since 1994, many changes have been made to Federal creditextension and debt collection policies and procedures. Federalagencies are now required to use credit reports as a screening tooland have applicants certify the accuracy of their initial applicationfor assistance. There are also several new delinquent debtcollection techniques, most notably, the requirement to refer debtsthat are delinquent 180 days or more to Treasury’s (Treasury)Financial Management Service (FMS). This document providesguidance on these and other changes to laws and policiesgoverning Federal receivables management and is consistent withthe Debt Collection Act of 1982, as amended by the DebtCollection Improvement Act of 1996 (DCIA); the revised FederalClaims Collection Standards (FCCS -31 CFR Parts 900-904)published November 22, 2000; and the revised Office ofManagement and Budget (OMB) Circular No. A-129 publishedNovember 29, 2000.

Introduction

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Scope and Coverage

This document covers credit extension and receivablesmanagement functions related to:

C all direct loans where the Federal Government hasdisbursed funds to a borrower and enters into a contractwith the borrower for repayment;

C defaulted guaranteed loans where, under a guarantee orinsurance agreement, the Federal Government hasreimbursed a private financial institution or other entity fora borrower's default and assumed responsibility forrecovering any outstanding amounts;

C financial contracts designed to support borrowing;

C grant programs and contracts where financialresponsibility is a factor; and

C administrative debt, such as fines, fees, penalties andoverpayments.

The standards, guidelines and procedures described in thisdocument generally must be followed by all Federal agencies forall types of debt, unless otherwise provided by law. The standards,guidelines and procedures do not apply if they are statutorilyprohibited or are inconsistent with statutory requirements. See, forexample, Chapter 6, Delinquent Debt Collection, Overview (page6-1).

For the purposes of this document, the term "Federal agency"includes all Federal agencies and Government corporations definedunder 5 U.S.C. 105 and all other Federal instrumentalities, unlessthe application of a particular portion of this document isspecifically prohibited by statute. The term “Federal agency” alsoincludes judicial and legislative agencies to the extent authorizedby law. See, for example, 31 U.S.C. 3701 et seq. requiring judicial

and legislative agencies to collect delinquent debts using specifiedcollection remedies.

Introduction

1-3

Key Related Legislation, Regulations and Guidance

This document incorporates the relevant provisions of the:

C Federal Claims Collection Act of 1966 (FCCA) whichauthorized agencies to collect delinquent debt;

C Debt Collection Act of 1982 (DCA) which expanded theFederal Government's right to use debt collection toolssuch as offset, credit bureau reporting and private debtcollection agencies;

C Deficit Reduction Act of 1984 which added tax refundoffset as a debt collection tool;

C Chief Financial Officers Act of 1990 (CFO Act) whichinstituted effective financial management practices for theFederal Government and provided for the improvement ofthe Government's financial management, accounting, andinternal control systems;

C Federal Credit Reform Act of 1990 which requiredagencies to estimate a credit program's subsidy cost fordirect and guaranteed loans for inclusion in budget outlays;

C Federal Debt Collection Procedures Act of 1990(FDCPA) which established a uniform process through thecourt system for collecting debts owed the FederalGovernment and provides for uniform procedures forenforcing judgments to collect Federal debts;

C Administrative Dispute Resolution Act of 1990 (ADRA)which temporarily raised the authority of agencies tocompromise, suspend, and terminate collection action to$100,000 and gives the Attorney General the authority toincrease this threshold administratively. This authority wasmade permanent by the Debt Collection Improvement Actof 1996;

Introduction

1-4

C Cash Management Improvement Act Amendments of1992 (CMIAA) which expanded the use of tax refundoffset;

C Omnibus Budget Reconciliation Act of 1993 (OMBRA),as amended, which mandated that agencies, including theFederal Deposit Insurance Corporation (FDIC) and theNational Credit Union Administration, report dischargeddebts to the Internal Revenue Service as income to thedebtors;

C Department of Justice 1994 Appropriation Act whichauthorized the Department of Justice to charge a 3%administrative fee on amounts collected;

C Debt Collection Improvement Act of 1996 (DCIA) whichcentralized offset and other administrative debt collectionprocedures at the Treasury; bars delinquent debtors fromobtaining Federal loans, loan insurance or loan guarantees;mandates credit bureau reporting; and authorizesadministrative wage garnishment;

C General Accounting Office Act of 1996 which transferredfrom the General Accounting Office to Treasury certainauthorities, including the authority to promulgate theFederal Claims Collections Standards with the Departmentof Justice;

C Federal Claims Collections Standards (FCCS) (revisedNovember 22, 2000) which clarified and simplifiedFederal debt collection procedures and reflects changesunder the DCIA and the General Accounting Office Act of1996;

C Treasury Regulations which establish rules for certaindebt collection tools such as centralized administrativeoffset, cross-servicing and administrative wagegarnishment, as well as standards for barring delinquentdebtors;

Introduction

1-5

Federal Claims Collection Act Debt Collection Act

Deficit Reduction Act Debt Collection Improvement Act

CFO Act, Credit Reform, FDCPA, ADRA, CMIAA,

OMBRA, DOJ Act

Federal Claims Collection Standards

OMB Circular A-129

Agency Implementing Regulations and Standards

Managing Federal Receivables Credit Bureau Reporting Guide

Treasury Report on Receivables (TROR)

C Office of Personnel Management Salary OffsetRegulations which established rules and process foroffsetting the salaries of federal employees to collectdelinquent nontax debt; and

C OMB Circular No. A-129 “Policies for Federal CreditPrograms and Non-Tax Receivables” which establishedpolicies and procedures for justifying, designing andmanaging Federal credit programs and for collectingoutstanding receivables.

Key Credit Related Laws and Policies

Introduction

1-6

Responsibilities of Departments and Agencies

The successful implementation of a governmentwide creditmanagement/debt collection program depends upon the activeparticipation and support of several key agencies:

Office of Management and Budget (OMB)

C reviews legislation to establish new credit programs ormodify existing credit programs;

C monitors agency conformance with the Federal CreditReform Act;

C formulates and reviews agency credit reporting standardsand requirements;

C reviews testimony pertaining to credit programs and debtcollection activities;

C reviews agency budget submissions for credit programsand debt collection activities;

C develops and maintains the Federal credit subsidycalculator used to calculate the cost of credit programs;

C formulates and reviews credit management and debtcollection policy;

C approves agency credit management and debt collectionplans;

C provides training to credit agencies;

C chairs the Federal Credit Policy Working Group(FCPWG) which provides advice and assistance to agencies in the formulation and implementation ofcredit/debt policy governmentwide;

C resolves interagency issues;

Introduction

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C sets credit management and debt collection programpriorities; and

C approves the asset management portions of the ChiefFinancial Officer Status Report and Five-Year Plans.

Department of the Treasury’s Financial Management Service

C serves as part of the FCPWG;

C develops and publishes, with the Department of Justice,the FCCS;

C works with OMB to develop Federal credit policiesand/or review legislation to create new credit programs orto expand or modify existing programs;

C promulgates governmentwide debt collection regulationsimplementing the debt collection provisions of the DCIAand other debt collection laws;

C provides collection services for delinquent non-taxFederal debts (referred to as “cross-servicing”), andmaintains a private collection contract for referral andcollection of delinquent debts;

• maintains a governmentwide delinquent debtor databaseand conducts offsets of Federal payments, including taxrefunds, under the Treasury Offset Program;

C works with Federal program agencies to identify debt thatis eligible for mandatory and voluntary referral toTreasury for cross-servicing and offset, and to establishtarget dates for referral;

C issues operational and procedural guidelines regardinggovernmentwide credit management and debt collection;

C assists in improving credit and debt management activitiesgovernmentwide;

Introduction

1-8

C tracks Federal Government receivables through theTreasury Report on Receivables and agencyimplementation of credit and debt management initiatives;

C develops guidelines and procedures on credit accountingand management information;

C provides operational assistance and consulting services toagencies;

C provides training on credit management and debtcollection related topics nationwide; and

C reports to Congress on governmentwide debt collectionactivities.

Department of Justice

C litigates on behalf of the Federal Government;

C approves compromises and terminations of collectionaction for debts over $100,000;

C develops and publishes, with Treasury, the FCCS;

C manages the Nationwide Central Intake Facility (NCIF) totrack and monitor agency referrals to the Department ofJustice;

C works with the program agencies to facilitate referrals tothe Department of Justice and resolve problems; and

C administers private counsel and special assistant U.S.attorney programs to collect Federal Government debt.

Program Agencies

Each agency is ultimately responsible for managing its ownreceivables activities and shall manage credit programs and non-tax receivables in accordance with applicable statutory authoritiesand prescribed policies to protect the Federal Government’s assetsand minimize losses in relation to social benefits provided.

Introduction

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Each agency shall ensure that:

C Federal credit program legislation, regulations and policiesare designed and administered in compliance withprescribed legislative and regulatory requirements and thatthe costs of credit programs covered by the Federal CreditReform Act of 1990 are budgeted for and controlled inaccordance with the principles of that Act (unless anagency is expressly exempted from the statute);

C every effort is made to prevent future delinquencies byfollowing appropriate screening standards and proceduresfor determining creditworthiness and to determine whetherthe DCIA bars a loan applicant from loan assistance;

C lenders participating in guaranteed loan programs meet allapplicable financial and programmatic requirements;

C informed and cost effective decisions are made concerningportfolio management, giving full consideration to optionssuch as contracting for loan servicing functions or sellingthe portfolio;

C the full range of available and appropriate delinquent debtcollection techniques are used, such as those found in thisdocument (see Chapter 6, Delinquent Debt Collection), theFederal Claims Collection Standards and Treasuryregulations. Debt collection techniques include demandletters, administrative offset, salary offset, tax refundoffset, private collection agencies, cross-servicing byTreasury, administrative wage garnishment, and litigation;

C delinquent debts are written-off as soon as they aredetermined to be uncollectible, but no later than two (2)years from the date of delinquency (see Chapter 7,Termination of Collection Action, Write-off and CloseOut/Cancellation of Indebtedness);

C timely and accurate financial management andperformance data are submitted to OMB and Treasury sothat the Government’s credit management and debtcollection programs and policies can be evaluated;

Introduction

1-10

C regulations and forms are amended to comply withstatutory and regulatory requirements;

C credit management/debt collection tools and techniquesappropriate for the type and size of the agency's debts areimplemented;

C its personnel receive training on agency andgovernmentwide credit and debt management regulationsand procedures;

C the agency provides for receivables reporting and accounttracking systems to inform its own management, OMB,and FMS of essential credit information and to ensureaccurate financial reporting on the Treasury Report onReceivables (see Chapter 4, Account Servicing);

C the agency develops and implements portfolioperformance-based systems to ensure management andstaff accountability in administering and managingreceivables activities;

C the agency develops and implements the capability totrack and monitor key indicators of portfolio performance;

C the agency separates individual responsibility for creditactivity, for example, differentiating between extendingcredit and servicing accounts; and

• the agency maximizes the use of available technology andsystems to facilitate program operations.

Introduction

1-11

Key Participants in the Receivables Management Program

In order to establish these objectives, OMB Circular No. A-129requires that each agency shall:

(1) as appropriate, establish in accordance with OMB CircularNo. A-129, Section I, Subsection 4. b. (1), a board tocoordinate agency-wide credit management and debtcollection activities and to ensure full consideration ofcredit management and debt collection issues by allinterested and affected organizations within the agency. Ata minimum, the board should include the agency ChiefFinancial Officer (CFO) and the senior officials forprogram offices with credit activities or non-taxreceivables. The board may seek input from the agency’sInspector General based on findings and conclusions frompast audits and investigations;

(2) ensure that the statutory and regulatory requirements andstandards set forth in OMB Circular No. A-129,governmentwide regulations (e.g., FCCS and Treasuryregulations), and the supplementary guidance set forth inthis document are incorporated into agency regulations andprocedures for credit programs and debt collectionactivities;

OMB

Policy, Oversight

Federal Agencies

Implementation, Reporting

DOJ

FCCS, (with Treasury), Litigation

GOVERNMENTWIDE

RECEIVABLES

MANAGEMENT

PROGRAM

FMS

FCCS (with DOJ) , Delinquent Debt

Collection, Regulations, Guidelines, Consulting,

Training

Introduction

1-12

(3) propose new or revised legislation, regulations, and formsas necessary to ensure consistency with the provisions ofOMB Circular No. A-129;

(4) submit proposed legislation and testimony affecting creditprograms for review under the OMB Circular No. A-19legislative clearance process, and budget proposals forreview under the OMB Circular No. A-11 budgetjustification process;

(5) periodically evaluate Federal credit programs to assuretheir effectiveness in achieving program goals;

(6) assign to the agency CFO, in accordance with the ChiefFinancial Officers Act of 1990, responsibility for directing,managing, and providing policy guidance and oversight ofagency financial management personnel, activities, andoperations, including the implementation of assetmanagement systems for credit management and debtcollection;

(7) prepare, as part of the agency CFO Financial Management5-Year Plan, a Credit Management and Debt CollectionPlan for effectively managing credit extension, accountservicing, portfolio management and delinquent debtcollection. The plan must comply with the standards OMBCircular No. A-129; and

(8) ensure that information contained in loan applications anddocuments pertaining to individuals is managed inaccordance with the Privacy Act of 1974, as amended, andthe Right to Financial Privacy Act of 1978, as amended.

Introduction

1-13

Program ReviewProposals submitted to OMB for new programs and forpreauthorizing, expanding or significantly increasing funding forexisting credit programs should be accompanied by a writtenreview which examines at a minimum:

C Federal objectives to be achieved;

C justification for the use of a credit subsidy;

C estimated benefits of the program or program change;

C the effects on private capital markets;

C the estimated subsidy level; and

C the administrative resource requirements.

Form of Assistance

When Federal credit assistance is necessary to meet a Federalobjective, loan guarantees should be favored over direct loans,unless attaining the Federal objective requires a subsidy, as definedby the Federal Credit Reform Act of 1990, deeper than can beprovided by a loan guarantee. For further information on Formof Assistance, see OMB Circular No. A-129, Section II.2.

Financial Standards

In accordance with the Credit Reform Act of 1990, each agencymust analyze and control the risks and costs of its programs. Anagency must develop statistical models predictive of default andother deviations from loan contracts. An agency is required toestimate subsidy costs and obtain budget authority to cover suchcosts before obligating direct loans and committing loanguarantees. Instructions for budget justification and subsidy costestimation under the Federal Credit Reform Act of 1990 areprovided in OMB Circular No. A-11, and instructions for budgetexecution are provided in OMB Circular No. A-34. For furtherinformation on Financial Standards, see OMB Circular No. A-129, Section II. 3.

Introduction

1-14

The Credit Management and Debt Collection Cycle

The DCIA and OMB Circular No. A-129 have placed increasedemphasis on credit management and debt collection. New toolsand techniques have been introduced to reduce the FederalGovernment’s risk of losses and strengthen the Government’sability to collect its debts. The major elements of the “creditmanagement and debt collection cycle” will be explained in thisdocument as follows:

C credit extension - screen applicants for creditworthinessand financial responsibility, including the required use ofcredit reports; verify the accuracy of applicant creditinformation and whether the applicant owes delinquentFederal debts (and is barred by the DCIA from obtainingloan assistance); and determine the applicant’s inability toobtain funding from private sector markets;

C account servicing - bill and collect accounts, includingautomating this process and reporting current (non-delinquent) consumer and commercial accounts to creditreporting agencies (also known as credit bureaus) on aroutine, non-exclusive basis. Lenders participating in theFederal Government’s guaranteed loan programs are alsorequired to report accounts to credit bureaus;

C debt collection - collect delinquent accounts, including thereferral of delinquent debts to FMS for collection, offset,administrative wage garnishment, referral to privatecollection agencies, referral to the Department of Justicefor litigation, and reporting of delinquent consumer andcommercial accounts to credit bureaus;

C write-off/currently-not-collectible - remove the accountfrom the agency’s receivables, determine whether the debtis “currently not collectible” and place the account on asubsidiary ledger for continued collection activity;

C write-off/close out - cease all collection action onuncollectible debt and report the discharged debt amount tothe Internal Revenue Service (IRS) as potential income tothe debtor.

Introduction

1-15

Each element of the cycle applies to guaranteed and direct loanactivities. Individual elements, such as account servicing, debtcollection, and write-off, apply to defaulted guaranteed loans,grants, contracts, and administrative debt.

Document Organization

This document is divided into eight (8) chapters, with Chapters 3through 7 covering the elements of the credit management anddebt collection cycle. The chapters are:

• Chapter 1 - Introduction;

• Chapter 2 - Budget and Legislative Policy for CreditPrograms;

• Chapter 3 - Credit Extension;

C Chapter 4 - Account Servicing;

• Chapter 5 - Management of Guaranteed Lenders andServicers;

• Chapter 6 - Delinquent Debt Collection;

• Chapter 7 - Termination of Collection Action, Write-offand Close-Out/Cancellation of Indebtedness; and

• Chapter 8 - Portfolio Sales.

Separate detailed guidance on reporting debts to credit bureaus isavailable in the “Guide to the Federal Credit Bureau Program,”which is available on FMS’s web site at www.fms.treas.gov. Othercredit management and debt collection guidance is also availableon the FMS web site.

Inquiries

For information on this or other FMS publications/activities,please contact the Financial Management Service, Director,Agency Liaison and Reporting Division, Debt ManagementService (DMS) at 202-874-6660 or the Director, AgencyEnterprise Solutions Division, Federal Finance at 202-874-6638.

2-1

Chapter 2 Budget and Legislative Policy for Credit Programs

Overview

This Chapter describes policies with respect to Federal creditprograms, as outlined in the Office of Management and Budget(OMB) Circular No. A-129, “Policies for Federal Credit Programsand Non-Tax Receivables” which may be found at the OMB website at www.whitehouse.gov/omb and the Department of theTreasury’s Financial Management Service web site atwww.fms.treas.gov. When developing new or revising existingcredit programs, Federal agencies must take into consideration theBudget and Legislative Policy for Credit Programs promulgated inOMB Circular No. A-129, which states:

“Federal credit assistance should be provided only when it isnecessary and the best method to achieve clearly specified Federalobjectives. Use of private credit markets should be encouraged,and any impairment of such markets or misallocation of thenation's resources through the operation of Federal credit programsshould be minimized.”

OMB Circular No. A-129, Section II., provides four subsections toassist agencies with respect to development and review of budgetand legislative policy.

Program Review

Proposals submitted to OMB for new programs and forreauthorizing, expanding, or significantly increasing funding forexisting credit programs should be accompanied by a writtenreview. See OMB Circular No. A-129, Section II., subsection 1.,paragraphs a-f, for the factors that must be included in the writtenreview.

Budget and Legislative Policy for Credit Programs

2-2

Form of Assistance

When Federal credit assistance is necessary to meet a Federalobjective, loan guarantees should be favored over direct loans,unless attaining the Federal objective requires a subsidy, as definedby the Federal Credit Reform Act of 1990, deeper than can beprovided by a loan guarantee. See OMB Circular No. A-129,Section II., subsection 2., paragraphs a-f, for details on the use ofguaranteed loans over direct loans and other considerationsregarding loan guarantees.

Financial Standards

In accordance with the Federal Credit Reform Act of 1990,agencies must analyze and control the risk and cost of theirprograms. Agencies must develop models (statistical or otherwise)predictive of defaults and other deviations from loan contracts. Agencies are required to estimate subsidy costs and to obtainbudget authority to cover such costs before obligating direct loansand issuing loan guarantee commitments. Specific instructionsfor budget justification, subsidy cost estimation and budgetexecution under the Federal Credit Reform Act of 1990 areprovided in OMB Circular No. A-11.

Agencies shall follow sound financial practices in the design andadministration of their credit programs. Where program objectivescannot be achieved while following sound financial practices, thecost of these deviations shall be justified in agency budgetsubmissions in comparison with expected benefits. Unless awaiver is approved, agencies should follow the financialpractices discussed in Circular No. A-129, Section II.,subsection 3., paragraphs a-g.


2-3

Implementation

The provisions of OMB Circular No. A-129, Section II will beimplemented through the OMB Circular No. A-19 legislativereview process and the OMB Circular No. A-11 budgetjustification and submission process.

For accounting standards for Federal credit programs, seeAccounting for Direct Loans and Loan Guarantees, Statement ofFederal Financial Accounting Standards Number 2, developed bythe Federal Accounting Standards Advisory Board. See OMBCircular No. A-129, Section II., subsection 4., paragraphs a-c, fordetails on such matters as:

a. proposed legislation on credit programs, reviews of creditproposals made by others, and testimony on credit activitiessubmitted by agencies under the OMB Circular No. A-19. The legislative review process should conform to theprovisions of this OMB Circular No. A-129;

b. How to request a waiver from OMB for use of proposedprovisions or language not in conformance with thepolicies of OMB Circular No. A-129. Agencies will berequired to request in writing that OMB waive therequirement, and the request must be submitted on astandard waiver request form, available from OMB. SeeOMB Circular No. A-129, Section II., subsection 4.,paragraph (c) 1, for details on how requests should becompleted;

c. the checklist for review of legislative and budgetaryproposals. See Appendix B of OMB Circular No. A-129;and

d. the model bill language to be used in developing andreviewing legislation (unless OMB has approved the use ofalternative language that includes the same substantiveelements) See Appendix C of OMB Circular No. A-129.


2-4

Every four years, or more often at the request of the OMBexaminer with primary responsibility for the account, the agency'sannual budget submission (required by OMB Circular No. A-11,Section 15.2) should include:

a. a plan for periodic, results-oriented evaluations of theeffectiveness of the program, and the use of relevantprogram evaluations and/or other analyses of programeffectiveness or causes of escalating program costs. SeeOMB Circular No. A-129, Section II. for further details onprogram evaluation;

b. a review of the changes in financial markets and the statusof borrowers and beneficiaries to verify that continuation ofthe credit program is required to meet Federal objectives, toupdate its justification, and to recommend changes in itsdesign and operation to improve efficiency andeffectiveness; and

c. proposed changes to correct those cases where existinglegislation, regulations, or program policies are not inconformance with the policies of OMB Circular No. A-129, Section II. When an agency does not deem a changein existing legislation, regulations, or program policies tobe desirable, it will provide a justification for notconforming with the Circular.

Questions regarding this chapter should be referred to the Office ofManagement and Budget, Budget Review Division at202-395-3945.

3-1

CreditReports

Purchase

RECEIVE APPLICATION

SCREEN PROSPECTIVE BORROWERS

CAIVRS, DEBT CHECK

CREDIT BUREAU REPOSITORIES

APPLICATION REJECTED

LOAN AGREEMENT SIGNED

ACCOUNT SERVICING

SELL LOAN ON PRIVATE MARKET

Report Consumer and Commercial

Accounts

Other Credit

History

Chapter 3 Credit Extension

Extending Credit

This Chapter details how Federal agencies and lendersparticipating in guaranteed loan programs (guaranteed loanlenders) should manage, process, evaluate, and document loanapplications and awards for loan assistance. See Chapter 5“Management of Guaranteed Loan Lenders and Servicers” forinformation on how Federal agencies should manage lenders andservicers that participate in Federally insured guaranteed loanprograms. See also Office of Management and Budget (OMB)Circular No. A-129, “Policies for Federal Credit Programs andNon-Tax Receivables,” which may be found online atwww.whitehouse.gov/omb or www.fms.treas.gov.

Credit Extension

Credit Extension

3-2

When extending credit through a Government loan program,agencies and guaranteed loan lenders must ensure that applicationsare processed and that credit is analyzed in accordance with allstatutory and regulatory requirements. Lenders and agencies needto assess and document their loan applicants' eligibility for thespecific type of credit offered. Except where required by statute,an agency will not extend credit to individuals or entities whocould obtain credit from private sector sources. Further, except inlimited circumstances, no agency or guaranteed loan lender mayextend credit to an individual or entity that is delinquent on aFederal non-tax debt, until the delinquency is resolved and proofof the resolution is presented by the debtor. Where permitted bylaw, individuals who owe delinquent child support obligations arelikewise barred from obtaining Federal loan assistance. Federalcredit granting agency personnel should work with their agencycounsel to determine whether the eligibility requirements may beextended to principals of entities in commercial transactions.

The Application

Federal credit granting agencies and private sector lenders inguaranteed loan programs shall determine whether applicantscomply with statutory, regulatory, and administrative eligibilityrequirements for loan assistance. Lenders and agencies should usethe application process as a first step in their effort to evaluate anapplicant’s request for credit and to determine eligibility for thecredit being sought by the applicant. The application form itself isa critical piece of documentation for capturing key informationabout the applicant(s), co-applicant(s) and guarantor(s), including:

C full name and any "also/known/as" (AKA);

C taxpayer identification numbers (TINs) (Social SecurityNumbers [SSNs] for individuals or Employer IdentificationNumbers [EINs] for all other entities). An agency mustrequire a loan applicant to provide the applicant’s TIN forany program under which the agency makes, guarantees, orinsures loans. See 31 U.S.C. 7701(b). Applicants must beasked to identify all prior TINs that were used in otherFederal Government applications;

C address(es) and telephone number(s);

Credit Extension

3-3

C any personal information, such as number in household,required by the program in accordance with provisions ofthe Privacy Act of 1974, as amended;

C name(s), address(es), and telephone number(s) ofapplicant’s and co-applicant’s employer(s);

C all relevant financial information, such as income, assets,payments, and liabilities; and

C collateral information, including collateral location,estimated value and description.

The application form will also contain the following:

C a statement signed by each applicant attesting to theaccuracy of the information provided. The statement willdescribe any penalties the Federal Government imposes onthose who knowingly provide false information on aFederal credit or financial assistance application;

C a “Certification of Non-Delinquency” signed by eachapplicant stating that he/she/it is not delinquent on aFederal Government debt, including any tax debt, and doesnot own any property that is subject to a judgment liensecuring a debt to the Government. If the applicant isunable to make such certification, the applicant should beasked to explain any delinquencies or defaults andinformed that the applicant must resolve the delinquency ordefault, and present evidence of that fact to the agency,before the application process can proceed. The agencyshall stop processing on the application until suchevidence is presented.

Credit Extension

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Pursuant to the Debt Collection Improvement Act of 1996(DCIA), persons owing outstanding delinquent non-tax debtto the United States may not obtain Federal loan assistanceuntil the delinquency is resolved. The DCIA eligibilityrequirement does not apply to disaster loans, or if therequirement is waived by the head of the lending agency. Otherwise, the DCIA eligibility requirement applies to allFederal direct, guaranteed and insured loans regardless ofwhether creditworthiness is an eligibility requirement. Anagency is not required to grant a loan merely because theDCIA does not render an applicant ineligible (for example,in the case of a delinquent tax debt or if the delinquent debthas been resolved but evidences bad credit history);

C to the extent allowed by law, a statement that each applicantdoes not owe delinquent child support obligations. Aspermitted by law, lenders and agencies shall deny Federalloan assistance to individuals who owe delinquent childsupport obligations that have been submitted to theDepartment of the Treasury (Treasury) for collectionthrough the offset of Federal tax refund and other payments. See Executive Order 13109, “Supporting Families:Collecting Delinquent Child Support Obligations.” Anagency that is authorized to deny a loan pursuant toExecutive Order 13109 must provide the loan applicant witha review process described in “Minimum Due ProcessGuidelines: Denial of Federal Financial Assistance” issuedby the Attorney General. The Executive Order and dueprocess guidelines may be found on the web site ofTreasury’s Financial Management Service (FMS) atwww.fms.treas.gov;

C a statement requiring the applicant(s) to affirm that he/shehas been unable to obtain credit from private sector sources(where it is consistent with statutory, regulatory andadministrative eligibility requirements); and

C a “Debt Collection Certification Statement” signed by theapplicant, detailing the consequences of delinquency (forexample, credit bureau reporting, tax refund offset, etc.) andcertifying that the Federal Government's debt collectionpolicies have been discussed with the applicant at the timeof application.

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All applicants and co-applicants must be required to sign anddate the completed application form.

The Application

Application and Origination Fees

The agency should assess a non-refundable application fee that, ata minimum, covers the costs of obtaining credit reports, appraisals,and supplemental data, where applicable. The application feeshould be collected at the time the applicant(s) completes andsubmits the application form. The amount of the application feeshould be reviewed on a regular basis and adjusted accordingly.

Names, addresses,phone numbers

Employername, address,phone numbers

Signed statementcertifying

accuracy ofinformation

Taxpayer IdentificationNumbers

LOANAPPLICATION

Signed debtcollection

certification

Applicantfinancialinformation

Collateral information

Signed non-delinquencycertification

Signed certification of non- delinquency ofchild support payments

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In addition, the agency should charge an origination or funding feewhich covers the costs of making the loan, including an amountsufficient to cover as much of the estimated losses as possible,based on past performance of the portfolio. The agency shouldreassess and adjust, as necessary, the amount of the origination orfunding fee at least annually, where permitted by statute.

The agency must inform the applicant at the time of application ofany application, origination or funding fees. The agency mustcollect the origination or funding fee at the time of application,upon loan approval, or at the time the loan funds are disbursed asagency regulations require.

Verifying Information Provided by the Applicant

After receiving the completed application form and making aninitial determination based on the application alone that theapplicant is eligible for the credit being sought, the agency and/orits lender, as appropriate, should verify the information providedby the applicant by:

C matching the applicant's name and social security numberagainst the Internal Revenue Services’s delinquent tax filesto determine if the applicant has a Federal tax liability. Applicants with such liablity are ineligible until the liabilityis satisfied;

C using, as appropriate, the Department of Housing and UrbanDevelopment’s Credit Alert Interactive Voice ResponseSystem (CAIVRS), the Debt Check program operated byFMS, and other databases including internal agencyinformation systems, to determine if the applicant isdelinquent or has defaulted on a Federal Government loanor has an outstanding Federal judgment;

C obtaining and using credit reports available through theGeneral Services Administration's (GSA) Federal SupplySchedule for Business Information Services. The creditreport will also be used to conduct the credit analysis anddetermine the applicant’s creditworthiness (see “Conductingthe Credit Analysis” in this chapter); and

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C requesting verification of the applicant's employment andincome, credit history, and bank deposits from theappropriate sources. Requests for verification of thisinformation should carry an expiration date. Informationshould be reverified if more than 90 days old at the time ofloan approval, 120 days old at closing, or at any time priorto closing if there is reason to believe that changes haveoccurred since the original verification. These time limitsmay be extended 30 days based upon market conditions ineffect at the time of application. All information receivedduring the origination and underwriting process becomespart of the permanent loan file.

Credit Scoring

Credit scoring is a specific standardized, statistical method ofrating applicants by assigning points to certain attributes andcriteria of the applicant. For example: low consumer debt and nodelinquencies -- 5 points; high consumer debt with 3 delinquencies-- 2 points; or, as a second example, occupancy in the sameresidence for 5 years -- 10 points; occupancy in the same residencefor 2 years -- 3 points. In this example, a higher score wouldindicate greater financial stability and responsibility and,presumably, represent a lower credit risk.

Criteria used in a credit scoring system must be relevant to anapplicant's ability to repay and must be uniformly applied to allapplicants to ensure agency/lender impartiality in its creditanalysis. In developing a credit scoring system, an agency must beable to demonstrate that there is a positive statistical relationshipbetween specific criteria, such as length of time at the sameresidence, and its applicants' creditworthiness. Wherecreditworthiness is a criterion for loan approval, agencies andprivate sector lenders shall determine if applicants have the abilityto repay the loan and a satisfactory history of repaying debt.

Credit scoring may be used to determine whether an applicantmeets baseline creditworthiness requirements prior to conducting afull credit analysis. Credit scoring should not be used as asubstitute for conducting such analysis, nor as the only means fordetermining creditworthiness.

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Using Credit Reports

Agencies and guaranteed loan lenders shall use reports originatingfrom credit bureau repositories as a screening tool. Credit reportsand supplementary data sources, such as financial statements andtax returns, should be used to verify or determine employment,income, assets and credit history. In addition to using a creditreport to verify information supplied by the applicant and wherecreditworthiness is a criterion for loan approval, the agency shallalso use it to answer two key questions: (1) does the applicant havethe ability to repay the loan or credit award in question; and (2) does the applicant have a satisfactory history of repaying debt? Guaranteed loan lenders and agencies need to determine whattype(s) of credit report(s) will best help them answer thesequestions and order the appropriate report. Through the GSA’sFederal Supply Schedule for Business Information Services,Federal agencies have access to a number of different types ofreports, with different types of information.

Depending upon the type obtained, the credit report will reveal:

C the type of credit history that has been established, includingwhether the applicant has met the terms of established creditaccounts;

C whether there have been any recent inquiries about theapplicant's credit status; and

C whether there are any outstanding liens against theapplicant's property.

The credit report will contain information on amounts owed to, andthe status of accounts held by, private sector companies, as well asGovernment agencies, and public record information, such asjudgments, liens and bankruptcies. The agency needs to evaluateall of the information in the credit report in terms of the followingquestions:

C How long has credit been established? A six month credithistory may be acceptable if the applicant just graduatedfrom college, but may be a cause of concern if the applicanthas indicated that he/she has a well-established credit history.

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C Are the credit accounts being paid as agreed? Theanswer to this question will indicate whether the applicant isable to handle the debts he/she incurs, identify potentialproblem accounts, and identify outstanding delinquentamounts owed to the United States or delinquent childsupport obligations that need to be resolved beforeadditional Federal loan assistance may be approved.

C Who is responsible for a given account? Applicant? Co-applicant? Information on the credit report will tell theagency who is liable for paying a given account. Theagency should follow-up with the applicant on any accountswhich show up on the credit report, but which the applicantdid not reveal.

C At the time of application, is there any bad credit? Hasthere been in the past? And, if so, what were thecircumstances -- medical problems, death, divorce,unemployment? If past due accounts have been broughtcurrent, the applicant may be trying to reestablish a goodcredit rating. Repeated one or two month delinquenciesmay indicate a cash flow problem -- or someone who knowshow to "play the system" so that the delinquencies neverlook so serious as to affect the applicant's ability to obtainnew credit.

Agency personnel should exercise judgment when reading anapplicant's credit report and should not hesitate to ask the applicantto clarify or explain any items of concern to the agency. (SeeAppendix 1 for a key to reading credit reports.)

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Credit Ratings

A credit rating may assist the agency in determining thecreditworthiness of the applicant. The rating is based upon theapplicant's financial condition, experience, and credit history. Under a credit rating system, each application is independentlyevaluated using specific standards and acceptable deviations fromthose standards developed by the agency. Ratios, in particularincome ratios, are often used to determine a credit rating. Incomeratios, which indicate the relationship between expenses andincome, are used to assess an applicant's ability to make additionalpayments or absorb future expenses.

To develop and apply a credit rating system, an agency must:

C determine, based on past credit experience, what it considersto be an acceptable level of risk for its loans;

C establish standards, including acceptable ratio levels, that itcan apply to relevant financial information obtained fromthe applicant;

C calculate all applicable ratios; and

C apply the appropriate standards to a loan application for aspecific type of credit to determine the credit rating.

If the agency determines that an applicant has an unacceptablecredit rating, it must decide if there are compensating factorswhich may mitigate the poor rating. Such factors would includethe applicant's:

C demonstrated ability for increased annual earnings, basedupon employment history;

C long-term employment prospect; and

C conservative use of credit or minimal amount of debt.

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Conducting the Credit Analysis

Using the information on the credit report, the verified applicationinformation, and the results of the credit rating, the agency shouldconduct a credit analysis to determine an applicant'screditworthiness, that is, the applicant’s ability and willingness torepay the loan.

A credit analysis for a consumer applicant will consider thefollowing:

C employment history for the past 2 years;

C current and potential income and benefits;

C financial statements including current assets, financialobligations, and liabilities;

C income tax returns for the past 2 years;

C credit rating;

C repayment history of prior debts;

C guarantees and collateral, ensuring that they are not pledgedto other debts;

C value of any pledged collateral; and

C homeownership status and residential stability.

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A credit analysis for a commercial entity will consider thefollowing:

C financial condition, as documented by annual and interimfinancial statements such as the balance sheet, incomestatement, and cash-flow statements. The agency should useaudited statements whenever possible and not requiredocumentation that is cost prohibitive for the applicant toobtain;

C any income tax returns for the past 2 years;

C ratios, such as total liability to total equity, net income tointerest expense, current assets to current liabilities, netincome to assets, and net income to equity;

C profit margin;

C amount and type of working capital;

C evaluation of the actual or potential market for thecommodity or service being offered and the entity'smarketing strategy for expanding or creating that market;

C company ownership (e.g., sole proprietor, partnership,corporation);

C managerial ability and/or experience of key companypersonnel;

C guarantees and collateral, ensuring that they are not pledgedor attached to other debts; and

C credit rating.

Generally, an agency should give particular attention to acompany's cash flow since it will be the source of the debtrepayment. The agency should also consider whether debts owedto the United States by officers, directors, major shareholders andpartners render the commercial entity ineligible for loan assistanceunder the DCIA. See 31 C.F.R. 285.13(c)(2).

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The agency should conduct comparable credit analyses on any co-borrower(s) and guarantor(s) listed on the application form. Theagency must document and maintain the appropriate creditanalyses in the applicant’s file.

Appraisal of Real Property

For many types of loans, the Federal Government can reduce itsrisk of default and potential losses through well managed collateralrequirements. Appraisals of real property serving as collateral fora direct or guaranteed loan (or property required for grantagreements and procurement contracts) must be conducted inaccordance with the following guidelines:

C agencies should require an independent, unbiased appraisalof property used as collateral. The appraisal should beconsistent with the "Uniform Standards of ProfessionalAppraisal Practice" (USPAP), as promulgated by theAppraisal Standards Board of the Appraisal Foundation, andany additional requirements established by the agency; and

C the appraiser should be qualified in accordance with theapplicable State and Federal regulatory requirements.Lenders and/or agencies shall determine whether anappraisal must be performed by a State licensed or certifiedappraiser based on the size of the loan and/or complexity ofthe appraisal. For non-business loans over $100,000 and forbusiness loans over $250,000, lenders and agencies shouldensure that a State licensed or certified appraiser preparesthe appraisal. Agencies may also require the services of aState licensed or certified appraiser for smaller direct orguaranteed loan transactions. The services of a Statelicensed or certified appraiser are not required for loans withno cash out and for those transactions where the collateral isnot a major factor in the decision to extend credit.

The appraisal will establish the fair market value of the propertyand serve as the basis for the agency's decision as to the maximumloan it will make on the property. The property should beappraised close to the commitment date of the lender. Theproperty should be reappraised if the appraisal is more than 6months old.

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Major elements addressed on the appraisal include:

C neighborhood analysis, including data related to theeconomic background of the region, city and neighborhood;

C site analysis, including data related to the size and shape ofthe property, the types of buildings on the property, frontfootage and parking;

C improvement analysis. A lot is considered "improved" if itcontains a structure. The improvement analysis focuses onthe structure or other dwelling(s), such as floor plans,energy efficiency, and age; and

C property condition and appraiser comments. Theappraiser must express an opinion about the condition of theproperty.

The “Subject Property Section” of the appraisal provides acomplete description of the property and its surroundings. A map,floor plan, and photographs of the property reflecting theproperty’s “curb appeal” should also be attached.

The appraiser uses the sales price of similar properties andestimated replacement costs to estimate the property's marketvalue. This estimate will be documented in the report's valuationsection.

In some credit programs, the primary purpose of the loan is tofinance the acquisition of an asset, such as a single family home,which then serves as collateral for the loan. Lenders and Federalagencies should ensure that borrowers assume an equity interest insuch assets to reduce defaults and losses. Federal agencies shouldexplicitly define the components of the loan-to-value ratio (LTV)for both direct and guaranteed loan programs. Lenders andagencies will review and approve the appraisal report containingthe estimated market value in order to determine the maximumavailable loan on the property (loan-to-value ratio). The approvedappraisal report will be placed in the permanent loan file.

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Unless exempted or otherwise authorized by law, agencies shouldestablish:

C a maximum acceptable LTV ratio. This could be in therange of 80 to 95%. Financing should be limited by notoffering terms (including the financing of closing costs) thatresult in a LTV equal to or greater than 100 percent. Further, the loan maturity should be shorter than theestimated useful economic life of the collateral;

C limitations on the proportion of up-front fees or transactionrelated expenses that a borrower can finance;

C an acceptable minimum down-payment amount; and

C a process for assessing higher loan premiums on loans withhigher loan-to-value ratios.

Loan Closing

Processing a Loan to Loan Closing

YES

Application Completed

Credit Analysis acceptable

Appraisal supports loan amount

Applicant Information verified

Private funding available

Non-delinquency verified

Eligible for type of credit

Loan Approved

YES

STOP

STOP

STOP

STOP

STOP

YES

STOP

NO

NO

NO

NO

NO

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Loan closing occurs after the completion of the processing of aloan which results in loan approval. At loan closing, the agency orlender will collect any loan documents or monies due. The agencyis responsible for ensuring that all legal documents including thepromissory note, collateral documents (such as security agreement,mortgage, and/or deeds of trust), loan agreement, certification ofnon-delinquency, and debt collection certification statement, aresigned by both the borrower(s) and co-borrower(s).

Where appropriate, the loan documents will state the terms ofrepayment, including:

C the frequency, due dates, and amount of principal andinterest payments. Generally, loan payments should bemonthly unless the borrower’s projected cash flow wouldmake monthly installments inappropriate;

C the amount of escrow payments, if required;

C the length of the loan - loan maturity should be shorter thanthe useful economic life of the asset being financed;

C the acceptable means of repayment, i.e., checks, money orders, credit cards, pre-authorized debit or electronicpayment via the internet (see, for example, www.Pay.gov);

C an explicit statement of borrower's rights and remedies;

C any special exemptions, such as cases of possibleforbearance or deferment;

C Federal delinquent debt collection policies and procedures;

C agency policies regarding the assessment of late charges ondelinquent payments. Amounts and/or rates to be assessedshould also be provided, when possible; and

C agency policies regarding the acceleration of the debt in theevent of a delinquency.

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Non-Loan Screening

Where financial responsibility is a factor, an agency should screenits potential contractors and grant applicants, in accordance withall statutory and regulatory requirements. Standards in Part 9 ofthe Federal Acquisition Regulations (FAR) apply to the screeningof contractors. As part of the application process, the agency mustobtain the following information from contractors and grantapplicants:

C taxpayer identification number(s); and

C certification of non-delinquent status. The applicant willcertify that he/she is not delinquent on a FederalGovernment debt, including tax debt. Agencies shouldinclude the certification statement on the application form.

Processing of contractor agreements and grant applications shall besuspended when applicants are delinquent on Federal tax or non-tax debts, including judgment liens against property for a debt tothe Federal Government. Processing should continue only whenthe debtor satisfactorily resolves the debt(s) (e.g., pays in full ornegotiates a new repayment plan).

Agencies shall obtain and use credit reports to verify theinformation provided by contractors and grant applicants, assessfinancial condition, and ascertain other financial agreements, ifany, between the applicant and the Federal Government. Theagency should also check the "List of Contractors Indebted to theUnited States" (Army Hold-Up List), published by the DefenseFinance and Accounting Service as part of its contractor eligibilityevaluation and verification process.

When an applicant is listed as debarred or suspended in the "List ofParties Excluded from Federal Procurement or Non-procurementPrograms," the agency will not make an award except asauthorized under agency regulations implementing ExecutiveOrder 12549 or FAR 9.4.

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L O A N AG R E EM E N T

____________________________________________________________________________________________________________________________________ ___________________________________________________________________________________________________ ______________________________________________________________________________________________________________________________________________________________________________________________________

S igned Loan Applica tion

L oan C om m itm ent

C redit R eport

V erification D ocum ents

C A IV R S and D ebt Check

D eb t C ollection Certification

N on-delinquency C ertification

C redit Analysis

Appra isa l

Credit Extension Documentation

Credit Extension Documentation

Loan origination files should contain loan applications, creditbureau reports, credit analyses, loan closing documents, and otherdocuments necessary to conform to private sector standards forthat type of loan. Accurate and complete documentation is criticalto providing proper servicing of the loan, pursuing collection ofdelinquent debt, and, in the case of guaranteed loans, processingclaim payments.

At loan origination, the agency or lender will start building theloan file with the following documents, as applicable:

C original signed loan application including the certificationby the borrower of non-delinquency of Federal debts;certification by the borrower that he/she sought privatesector financing and was denied or a copy of the applicationform for private sector financing with the letter denying theloan; and certification by the borrower of the accuracy of theinformation provided on the loan application;

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• supporting papers including credit approval documentation(credit report(s) and agency analysis of credit information,along with records of subsequent approval action); and anappraisal of the property along with supportingdocumentation;

C statement that the borrower has not been suspended,debarred, or voluntarily excluded from procurement or non-procurement dealings with the Federal Government;

C signed certificate that the borrower was informed of theFederal Government’s debt collection policies andprocedures;

C financial and market analyses for commercial loans;

C copies of all related audits for previous five (5) years forcommercial loans;

C insurance documents;

C copy of the loan commitment and the terms and conditionsof the loan, including a complete payment schedule forprincipal and interest;

C original copy of the accepted loan commitment signed bythe applicant(s);

C all original internal review documents required for financialand legal findings (all letters, memoranda, legal opinionsand requisitions for disbursement concerning negotiationsand closure of the loan, including summary of written,telephone, and electronic mail contacts between lendingofficials and applicant);

C evidence of necessary public record filings securing loancollateral including current Uniform Commercial Codefilings and searches; and

C list of scheduled reports required by the agency, includingfinancial statements from the borrower.

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Lenders and agencies should use a manual or automated checklistto ensure that they have fully documented their credit extensionactivities. (See Appendix 2). While much of this information maybe contained in an automated system, lenders and agencies maystill need to maintain all original documentation to supportpossible future legal action.

Questions regarding this chapter can be directed to the AgencyEnterprise Solutions Division, Federal Finance, FinancialManagement Service at 202-874-6875.

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Chapter 4 Account Servicing

Servicing Government Loans

Accurate and complete documentation is critical to providingproper servicing of debt, pursuing collection of delinquent debt,and in the case of guaranteed loans, processing claim payments. Once credit has been extended or a financial obligation to repay anadministrative debt established, an agency becomes responsible forservicing or controlling the account. This Chapter describesFederal loan and debt servicing requirements as described inOffice of Management and Budget (OMB) Circular No. A-129“Policies for Federal Credit Programs and Non-Tax Receivables,”which may be found online at: www.whitehouse.gov/omb orwww.fms.treas.gov.

The Federal Government can efficiently meet its servicingresponsibilities and reduce its costs in several ways. First, underloan guarantee programs, credit servicing provided by privatesector lenders tends to be more efficient and result in lowerportfolio management costs than direct servicing by Federalagencies. Second, under certain conditions, an agency may find itadvantageous to sell loans or other debts, thus allowing the agencyto shift staff resources from servicing to mission critical functions. Finally, an agency may contract with a private sector firm for all orsome of its servicing activities, as best meets the agency’s needs.

Basic servicing activities include:

C billing the debtor;

C processing and crediting payments;

C monitoring the account;

C documenting servicing action;

C timely responding to borrower inquiries;

C providing agency management with regular aggregatereports on receivables; and

C providing central regulatory agencies with requiredreceivables and debt collection reports.

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Billing the Debtor

An agency shall ensure that invoices are routinely sent toborrowers/debtors and that efficient mechanisms are in place tocollect and record payments. Where appropriate, borrowers shouldbe encouraged to use agency systems established by theDepartment of the Treasury (Treasury) which collect paymentselectronically, such as pre-authorized debits, credit cards, andelectronic payments via the Internet (see, for example,www.Pay.gov). The billing cycle established by a repaymentagreement should be the same as that used by private lendinginstitutions for equivalent types of debts, generally monthly. Thebilling cycle will contain all of the regular mechanisms needed tobill debtors, collect and apply payments to appropriate accounts,and document account activity.

For housing and other long-term real estate loans, an agency or itslender/servicer should establish, at the time of loan origination,escrow accounts to process tax and insurance deposits. Agencyservicing systems must process tax and insurance paymentsthrough escrow accounts.

For installment loans, the agency or its lender/servicer shouldinitiate the billing process upon the first regular payment due fromthe debtor. In the case of administrative debt, the agency shouldinitiate the billing process when it determines that the debt exits,e.g., the debtor owes a fine or penalty or has received anoverpayment.

The initial billing notice or invoice for an administrative debtshould include:

C the amount of the debt;

C the basis of the indebtedness;

C the opportunities available to the debtor to dispute the debt,obtain copies of documents related to the debt, and enterinto a repayment agreement acceptable to the agency if thedebtor is unable to pay the debt in full;

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C the date on which payment is due, usually 30 days after thedate of the billing. The billing notice should also indicatethe agency’s policies with respect to the assessment ofinterest, administrative costs, and penalties, and that ifpayment is not received on or before the due date, theagency will begin assessing such charges as stated;

C the steps the agency will take to enforce collection, such asreporting a debt to a credit bureau; referring the debt toTreasury for collection actions, including offset; referral toa private collection agency; administrative wagegarnishment; and litigation (see Chapter 6, Delinquent DebtCollection). The agency cannot threaten to take collectionaction it is not authorized or does not intend to take;

C if not previously provided by the debtor, the request thatthe debtor provide his/her/its taxpayer identificationnumber, either through the submission of a Form W-9,"Request for Taxpayer Identification Number andCertification" available through the Internal RevenueService website at www.irs.gov/formspubs, or on anypayment or returned correspondence if legally authorized todo so; and

C the name, phone number, and address of an individual tocontact within the agency. It is important for a debtor to beable to contact a person knowledgeable about the agency’sbilling and collection policies and practices and who canrespond promptly to the debtor’s concerns.

Failure of a debtor to respond to the billing notice or indicate adesire to negotiate a reasonable repayment agreement orcompromise should lead the agency to renew the demand forpayment and proceed into the full collection process described inChapter 6, Delinquent Debt Collection.

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Reporting Account Information to Credit Reporting Agencies

An agency or its lender/servicer must be able to identify and reportnon-delinquent and delinquent debts to credit reporting agencies(also known as “credit bureaus”) in accordance with therequirements of 31 U.S.C. 3711(e), OMB Circular No. A-129, andthe “Guide to the Federal Credit Bureau Program” published bythe Treasury’s Financial Management Service (FMS). Copies ofthe statute, OMB Circular, and guide are available on FMS’s website at www.fms.treas.gov.

C Credit extension by lenders. Under the Debt CollectionImprovement Act of 1996 (DCIA), an agency must, as acondition for insuring or guaranteeing any loan, financing,or other extension of credit under any law to a person,require that the lender provide information relating to theextension of credit to credit bureaus. Credit extensionreporting provides a true picture of the borrower’soutstanding obligations with respect to Federal direct andindirect loan assistance.

C Federal agency debts. OMB Circular No. A-129 requiresagencies to report to credit bureaus all non-tax, non-tariffcommercial accounts (current and delinquent). In addition,the DCIA requires agencies to report all delinquent non-tax, non-tariff consumer accounts. Agencies may reportcurrent consumer debts to credit bureaus as well and areencouraged to do so. The reporting of current debts (inaddition to any delinquencies) provides a truer picture of aborrower’s outstanding indebtedness while simultaneouslyreflecting accounts that the borrower has maintained ingood standing.

There is no minimum dollar threshold below which debts cannotbe reported, i.e., accounts for as low as $5 may be reported to acredit bureau. For detailed information on credit bureau reporting,including information concerning the required agency proceduresfor reporting delinquent consumer debts, agencies should refer to FMS’s “Guide to the Federal Credit Bureau Program.”

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Account MonitoringAn agency or its lender/servicer is responsible for monitoring eachof its accounts. As a primary means for monitoring accountactivity for administrative debts in particular, the billing systemshould enable the agency to "flag" or "mark" overdue payments forspecial attention. With overdue payments, the agency shouldcontact the debtor by telephone or letter, in accordance with itscollection procedures and strategies.

A loan classification (or risk rating) system is designed to assist anagency in monitoring and assessing loan performance. Such asystem allows the agency to mark for special monitoring thoseloans which have been identified as potentially or actually weak. Any loan classification system established by the agency should bethe same as, or comparable to, the system established by theComptroller of the Currency.

Systematic monitoring of individual accounts provides an agencywith a mechanism for:

C identifying and correcting potential problems beforeaccounts go into default;

C evaluating the overall quality of its portfolio; and

C identifying trends, such as deficiencies in accountdocumentation.

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Consumer Problemless “good” loan Substandard delinquent loan/ Possible loss Loss “bad” (uncollectible) loan

Commercial Problemless “good” loan Program Standard limited risk Substandard possible loss Doubtful “probable” loss Loss “bad” (uncollectible) loan

Loan Classification

When using a loan classification system, the agency will reassessand reclassify each loan in its portfolio annually. It shouldperiodically examine all accounts within each classification toensure that they meet the standards for that classification. Itshould further ensure that each classification accurately reflects theagency’s historical experience with accounts in that program area.

The following factors should be evaluated in classifying anaccount:

C the debtor’s ability to manage an income-generatingactivity (particularly relevant for some types of commercialloans);

C the debtor's financial position and history, includingemployment history and financial responsibility;

C the type of business and ability to generate profits (forcommercial entities only);

C the structure of the loan and its purpose; and

• the condition and adequacy of the loan's collateral.

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Consumer Loan Classification

An agency will use a three-tiered classification system forconsumer accounts. Substandard and loss categories are adverseclassifications with respect to potential or actual loss to the FederalGovernment. The classifications are:

C Problemless - a loan on which payments are consistentwith the terms of the agreement. Thus, it does not pose anabnormal credit risk to the Federal Government.

C Substandard - a loan which is 90 to 119 days delinquent. If the deficiencies are not corrected, there is a distinctpossibility the Federal Government will sustain some loss.

C Loss - a loan which is 120 days or more delinquent. Thisclass of loan is judged uncollectible and of such little valuethat continuing to record it as a loan receivable is notwarranted even though partial recovery may be possible inthe future.

Agencies should consider using the following more stringentcriteria when classifying single family housing loans:

C Problemless - a loan which is less than or equal to 30 daysdelinquent;

C Substandard - a loan which is 31 to 90 days delinquent;and

C Loss - a loan which is more than 90 days delinquent.

The reason for using more stringent criteria for single familyhousing loans is because the amount of the monthly mortgagepayment must be considered when determining the risk of theseloans. The size of typical mortgage payment is usually about 25 to30 percent of the household's disposable income. When aborrower becomes delinquent by more than 30 days, the likelihoodof full repayment under the original loan terms decreasessignificantly; the agency may wish to move such loans into thesubstandard category earlier than other types of loans.

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Commercial Loan Classification

Commercial loans will be classified using the categories definedbelow. Substandard, doubtful, and loss categories are deemedadverse classifications with respect to potential or actual loss to theFederal Government.

C Problemless - a loan which is performing as expected. Payments are current; the borrower is in generalcompliance with the terms of the loan; and projectedreceipts and expenses show that repayment is very likely. The loan does not pose an abnormal credit risk to theFederal Government.

C Program Standard - the loan does not presently exposethe Federal Government to a sufficient degree of risk towarrant an adverse classification; however, it posessufficient credit risk to deserve more attention than aproblemless loan. Included in this category are loans withinadequate collateral, inadequate written agreements, orother deficiencies indicating deviations from prudentlending practices which expose the Federal Government toa higher than normal credit risk.

C Substandard - a loan in which the borrower's payingcapacity and/or the collateral pledged, if any, jeopardizespayment of the debt in full. If the deficiencies are notcorrected, there is a distinct possibility the FederalGovernment will sustain some loss.

C Doubtful - a loan in which liquidation of an asset(s) for fullvalue is improbable and the possibility of loss, based oncurrently known facts, is highly probable. However,certain conditions exist that may positively affect theasset(s) and increase the possibility of recovery.

C Loss - a loan that is uncollectible and of such little valuethat continuing to record it as a loan receivable is notwarranted even though partial recovery may be possible inthe future.

Account Servicing

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The classification of commercial loans involves a more detailedanalysis than that for consumer loans since commercial loans havedifferent characteristics such as:

C unstable repayment due to heavy impact of economicfactors;

C potential for large dollar loans; and

C shorter repayment periods, with larger monthly payments.

In making a loan classification decision, there are a number ofsignificant factors which should be considered when evaluating thepotential viability of a business:

C cash flow and budget projections;

C past income performance; and

C future economic conditions.

Delinquency, however, remains a key indicator when classifying acommercial loan. (See Appendix 3 for a list of early warning signsof potential problems.)

Allowance Accounts

An agency shall recognize and record its projected debt losses bysetting up allowance accounts, such as a “loan loss reserves”account. Separate accounts should be established for accounts andloans receivable. The agency should establish the amounts in theallowance accounts based on any one of the following:

C Portfolio condition and composition. For loan portfolios,the aggregate totals of all loans classified in the "loss"category and a percentage of those considered to be in the"doubtful" and "substandard" categories should be placedin the allowance account. The agency should determinewhat proportion of its "doubtful" and "substandard" loanscan be reasonably projected as a loss.

Account Servicing

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For administrative debt, the agency should consider thetype of debt (e.g., fines, fees, penalties, etc.) and itsexperiences with collecting a given type of debt, such asthe likelihood of the courts enforcing repayment of punitivecharges.

C Historical experience with losses. Using past accountrecords, the agency should determine the number andpercentage of its accounts that can reasonably beconsidered uncollectible.

C Actual write-offs taken in the preceding year or groupsof years.

By accurately estimating its potential losses and putting thatamount in its allowance accounts, an agency is recognizing that itis unlikely to effect recovery on a portion of its portfolio and thatthe estimated uncollectible amount constitutes a "bad debt"expense to the Government. The agency must subsequentlyrecognize amounts it deems uncollectible as write-offs against theallowance account.

Servicing Documentation

To monitor its accounts successfully, the agency needs to maintainand update, in each account file, all information pertaining to anaccount. During the account servicing phase, the agency orlender/servicer servicing a loan account should simply build uponthe documentation generated during credit extension.

The agency which is servicing an administrative debt begins itsprocess of documenting account activity in the account servicingphase. It is, therefore, critical that the agency document anycontact with the debtor since such contacts may be needed tosupport the legitimacy or legality of the debt.

Account Servicing

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LOAN CLASSIFICATION

1 0 1 1

Account File for Joe E. Doe

Credit Extension Document Account Servicing Documents

PAYMENT HISTORY

$1000……………………………….5/1/00 $1000………………………….……6/1/00 $1000……………………………….7/1/00 $1000………………………….……8/1/00 $1000……………………….….9/1/00 $1000…………………………10/1/00 $1000…………………………12/1/00

Account Servicing Documentation

Information to be incorporated into the account file should include:

C the basis for the creation or establishment of the debt,including any loan documents; or, for administrative debt,assessment of a fine or penalty, a copy of the invoice thatwas overpaid, the supporting payment schedule, and/or anyother documentation that would substantiate and supportthe debt;

C payment history and schedules, including delinquenciesand defaults and subsequent deferrals, rescheduling, orrefinancing, if any;

C loan classification or risk rating, if any;

C documentation of each contact between the servicingofficial and borrower/debtor including demand letters; and

C reports submitted to the agency for monitoring the account,such as financial statements for commercial loans.

Account Servicing

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Agencies should maintain the originals of any documentsgenerated which indicate that the debtor was aware of the loan ordebt obligation, such as the loan commitment or repaymentagreement, since such documents may be required in any futureactions involving litigation to enforce collection. The agency mayuse an automated system to maintain the account and create theaccount history and documentation as the account ages (seeAppendix 2 for servicing checklist).

Contract Servicing

Depending upon the size of the portfolio and the cost ofautomating its functions, it may be cost effective for an agency tohave a cross-servicing agreement with another Federal agency orcontract out its account servicing functions. If the agencycontracts out its account servicing, it is also responsible fordeveloping standards consistent with its needs and with thereporting requirements of OMB and FMS.

Each agency should establish penalties for any contractor that failsto conduct operations in accordance with the established standards. For example, the agency can require a contractor to absorb anydelinquencies caused by negligent servicing.

The agency must ensure that the contractor fully documents allservicing undertaken and require the contractor to promptlycommunicate information on delinquent accounts so that theagency may initiate action. The agency must establish a means tomove and store the servicing information for delinquent accountsinto its debt collection activities.

Account Servicing

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Treasury Report on Receivables

Federal agencies are required to regularly provide informationconcerning their non-tax receivables and delinquent debts to FMSfor inclusion in the “Treasury Report on Receivables” (TROR). See 31 U.S.C. 3719.

The TROR is the Treasury’s only comprehensive means forperiodically collecting data on the status and condition of theFederal Government’s non-tax debt portfolio. The informationcontained in the report is disseminated to Congress, OMB, agencyChief Financial Officers, the Federal Credit Policy WorkingGroup, other officials and representatives of Federal and stateorganizations, private sector organizations, and the public.

The TROR serves as a management report which informs Federaldecision-makers of the gross book value of the debts held by theFederal Government and the actions taken to enforce collection ofthe Government’s receivables. Thus, the debt amounts listed in anagency’s receivables report are not necessarily identical to theamounts reported on an agency’s financial statements, which arepresented in accordance with Credit Reform guidance, i.e., usingnet present value. Agencies are, however, required to reconciletheir TROR reporting with the receivables data reported on theirfinancial statements.

To assist agencies in properly reporting receivable and debtinformation to FMS, FMS has published an “InstructionalWorkbook for Preparing the Treasury Report on Receivables.” The workbook and contact information are available on FMS’swebsite at www.fms.treas.gov/debt.

For further information on this chapter, please contact the AgencyEnterprise Solutions Division, Federal Finance, at 202-874-6875. For information on the TROR, please contact the Agency Liaisonand Reporting Division, Debt Management Services, at202-874-6660.

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Chapter 5 Management of Guaranteed Lenders and Servicers

Managing Risks in Guaranteed Loan Programs

An agency that extends credit through a guaranteed loan programmust take appropriate steps to minimize the risk of loss to theFederal Government. This goal can be efficiently achieved bymonitoring the approved lenders and servicers, rather thanmonitoring the credit extension and servicing actions taken oneach guaranteed loan. Accordingly, an agency should focus itsefforts on assuring that only qualified lenders and servicers takeactions on federally guaranteed loans, and that these qualifiedlenders and servicers continue to adhere to agency rules andstandards concerning credit extension and loan servicing. The keycomponents of a successfully managed guaranteed loan programare:

C lender eligibility, including lender participation criteria,continuing review of a lender's eligibility to participate inthe agency's guaranteed loan programs, decertification of alender that fails to meet an agency's standards, and use ofloan servicers;

C lender agreements, including terms of lender participationagreements, performance standards, reportingrequirements, and terms applicable to loan servicers;

C lender and servicer reviews, including requirements foron-site reviews by the agency on a regular basis (annuallyor biennially, depending on volume and performance); and

C corrective actions, including actions to be taken when alender or servicer is not in compliance with programrequirements.

Agencies responsible for the management of guaranteed lendingprograms must comply with the applicable provisions of the Officeof Management and Budget (OMB) Circular No. A-129, “Policiesfor Federal Credit Programs and Non-Tax Receivables.” Theseprovisions are set out in detail below. The OMB Circular No. A-129 is available in its entirety on line at www.whitehouse.gov/ombor www.fms.treas.gov.

Management of Guaranteed Lenders and Servicers

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Lender Eligibility

Participation Criteria. Federal credit granting agencies shallestablish and publish in the Federal Register specific eligibilitycriteria for lender participation in Federal guaranteed loanprograms. These criteria should include:

C requirements that the lender is not currentlydebarred/suspended from participation in a Governmentcontract or delinquent on a Government debt;

C qualification requirements for principal officers and staff ofthe lender;

C fidelity/surety bonding and/or errors and omissionsinsurance with the Federal Government as loss payee,where appropriate, for new or non-regulated lenders withquestionable performance under Federal guaranteeprograms; and

C financial and capital requirements for lenders not regulatedby a Federal financial institution regulatory agency,including minimum net worth requirements based onbusiness volume.

Review of Lender Eligibility. Agencies shall review anddocument a lender’s eligibility for continued participation in aguaranteed loan program at least every two years. Ideally, thesereviews should be conducted in conjunction with on-site reviewsof lender operations or other required reviews, such as renewal of alender agreement (“Lender Agreements,” see below). Lenders notmeeting standards for continued participation should bedecertified. In addition to the participation criteria above, agenciesshould consider lender performance as a critical factor indetermining continued eligibility for participation.

Fees. When authorized and appropriate for such purposes,agencies should assess non-refundable fees to defray the costs ofdetermining and reviewing lender eligibility.


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Decertification. Agencies should establish specific procedures todecertify lenders or take other appropriate action any time there is:

C significant and/or continuing non-conformance with agencystandards; and/or

C failure to meet financial and capital requirements or othereligibility criteria.

Agency procedures should define the process and establishtimetables by which decertified lenders can apply for reinstatementof eligibility for Federal guaranteed loan programs.

Loan Servicers. Lenders transferring and/or assigning the right toservice guaranteed loans to a loan servicer should use onlyservicers meeting applicable standards set by the Federal creditgranting agency. Where appropriate, agencies may adoptstandards for loan servicers established by a GovernmentSponsored Enterprise (GSE) or a similar organization (e.g.,Government National Mortgage Association for single familymortgages) and/or may authorize lenders to use servicers that havebeen approved by a GSE or similar organization.

Lender Agreements

Agencies should enter into written agreements with lenders thathave been determined to be eligible for participation in aguaranteed loan program. These agreements should incorporategeneral participation requirements, performance standards andother applicable requirements of OMB Circular No. A-129.

Agencies are encouraged, where not prohibited by authorizinglegislation, to set a fixed duration for the agreement to ensure aformal review of the lender eligibility for continued participationin the program.


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General Participation Requirements

Lender participation requirements include:

C requirements for lender eligibility, including participationcriteria, eligibility reviews, fees, and decertification (seeLender Eligibility, Participation Criteria, above);

C agency and lender responsibilities for sharing the risk ofloan defaults (see Chapter 2, Budget and Legislative Policyfor Credit Programs, Financial Standards) and, wherefeasible;

C maximum delinquency, default and claims rates for lenders,taking into account individual program characteristics.

Performance Standards

Agencies should include in their lender agreements due diligencerequirements for originating, servicing, and collecting loans. Thismay be accomplished by referencing agency regulations orguidelines. Examples of due diligence standards include collectionprocedures for past due accounts, delinquent debtor counselingprocedures and litigation to enforce loan contracts.

Agencies should ensure through the claims review process, thatlenders have met these standards prior to making a claim payment. Agencies should reduce claim amounts or reject claims for lendernon-performance.


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Reporting Requirements

Agencies should require certain data to monitor the health of theirguaranteed loan portfolios, track and evaluate lender performanceand satisfy OMB, the Department of the Treasury, and otherreporting requirements. Examples of the data which agencies mustmaintain include:

C activity indicators. The number and amount ofoutstanding guaranteed loans at the beginning and end ofthe reporting period and the agency share of risk; numberand amount of guaranteed loans made during the reportingperiod; and number and amount of the guaranteed loansterminated during the period; and

C status indicators. A schedule showing the number andamount of past due loans by age of the delinquency, andthe number and amount of loans in foreclosure orliquidation (when the lender is responsible for suchactivities).

Agencies may have several sources for such data, but some or allof the information may best be obtained from lenders andservicers. Lender agreements should require lenders to reportnecessary information on a quarterly basis (or other reportingperiod based on the level of lending and payment activity).

Loan Servicers

Lender agreements must specify that loan servicers meetapplicable participation requirements and performance standards. The agreement should also specify that servicers acquiring loansmust provide any information necessary for the lender to complywith reporting requirements to the agency. Servicers may notresell loans except to qualified servicers.


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Lender and Servicer Reviews

To evaluate and enforce lender and servicer performance, agenciesshould conduct on-site reviews on a biennual basis, except asnoted below. Agencies should summarize review findings inwritten reports with recommended corrective actions and submitthem to agency review boards. (See Chapter 1 - Introduction,Responsibilities of Departments and Agencies.)

Agencies should conduct annual on-site reviews of all lenders andservicers with substantial loan volume or whose:

C financial performance measures indicate a deterioration intheir guaranteed loan portfolio;

C portfolio has a high level of defaults for guaranteed loansless than one year old;

C overall default rates rise above acceptable levels; and/or

C poor performance results in monetary penalties imposed onthe lender or servicer or an abnormally high number ofreduced or rejected claims.

Agencies are encouraged to develop a lender/servicer classificationsystem which assigns a risk rating based on the above factors. This risk rating can be used to establish priorities for on-sitereviews and monitor the effectiveness of required correctiveactions.

Reviews should be conducted by guarantor agency programcompliance staff, Inspector General staff, and/or independentauditors. Where possible, agencies with similar programs shouldcoordinate their reviews to minimize the burden onlenders/servicers and maximize the use of scarce resources. Agencies should also utilize the monitoring efforts of GSEs andsimilar organizations for guaranteed loans that have been“pooled.”


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Corrective Actions

If a review indicates that the lender/servicer is not in conformancewith all program requirements, agencies should determine theseriousness of the problem. For minor non-compliance, agenciesand the lender or servicer should agree on corrective actions. Formore serious and frequent offenses, agencies should establishpenalties. Penalties may include loss of guarantees, reprimands,probation, suspension and decertification.

For further guidance or information, agencies should contact theAgency Enterprise Solutions Division at 202-874-6875.

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Chapter 6 Delinquent Debt Collection

Overview

Agencies should have fair but aggressive programs to recoverdelinquent debt, including defaulted guaranteed loans acquired bythe Federal Government. Each program should include a debtcollection strategy, consistent with governmentwide and agencyrequirements, to restore the delinquent debts to current status or, ifunsuccessful, maximize collection on the agency's accounts. Thestrategy should further promote the resolution of delinquencies asquickly as possible, since the ability of an agency to collect itsdelinquent debts will generally decrease as the debts become older. The strategy should take into account that debts within thejurisdiction of the bankruptcy courts are subject to the provisionsof the United States Bankruptcy Code (see page 6-56). When adebtor has filed for bankruptcy protection, legal counsel should beconsulted prior to continuing any collection activities, includingthose described in this Chapter.

This Chapter describes the collection techniques and toolsavailable to assist agencies in collecting delinquent debts, andsupplements the debt collection requirements contained in statutesand regulations. In this Chapter, a Federal agency that is owed adebt is sometimes referred to as a “creditor agency.”

Delinquent Debt Collection

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STATUTES

REGULATIONS

GUIDANCE

Agency StatutesFederal Claims Collection Act

Debt Collection ActDeficit Reduction Act

Debt Collection Improvement Act

Agency RegulationsTreasury Regulations (31 CFR 285)

OPM Salary Offset Regs (5 CFR part 550)Federal Claims Collection Standards (31 CFR parts 900-904)

OMB Circular No. A-129

Managing Federal ReceivablesAgency Policies

Guide to the Federal Credit Bureau Program

Debt Collection Rules and Guidance Hierarchy

This Chapter is divided into three parts:

Part I, Managing Delinquencies, provides information on debtcollection strategies and principles;

Part II, Debt Collection Tools and Programs, discussesdelinquent debt collection tools, such as cross-servicing (transferof debts to FMS for collection), offset, administrative wagegarnishment, collateral liquidation, and litigation; and

Part III, Miscellaneous Topics, describes several techniques anagency uses to support the debt collection process.


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This Chapter applies to debts owed to the United States, includingloans, fines, penalties, overpayments, and fees, but does not applyto the collection of Federal tax debts, debts owed by Federalagencies, or debts owed by foreign countries. Debts based inwhole or in part on conduct in violation of the antitrust laws orinvolving fraud, the presentation of a false claim, ormisrepresentation on the part of the debtor or any party having aninterest in the claim must be referred to the Department of Justice(DOJ) for action. At its discretion, DOJ may return the debt to theagency for handling in accordance with the procedures describedin this Chapter.

The policies and procedures detailed in this Chapter do not createany right or benefit, substantive or procedural, enforceable at lawor in equity by a party against the United States, its agencies, itsofficers, or any other person. The failure of an agency to complywith any of the provisions in this Chapter shall not be available toany debtor as a defense, except as otherwise allowed by law.


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Part I – Managing Delinquencies

Background

Delinquency Defined. A debt becomes delinquent when:

C payment is not made by the due date or the end of the“grace period” as established in a loan or repaymentagreement, in the case of a debt being paid in installments. The date of delinquency is the payment due date.

Example: Borrower’s loan payment is due January 1. Theloan agreement allows a grace period of 15 days, meaningthat the lending agency will not assess late charges ordeclare the loan delinquent if the payment due on January 1is made before January 16. If Borrower makes his or herpayment before January 16, the loan is not delinquent. However, if Borrower fails to make a payment by January16, then the loan is delinquent and the date of delinquencyis January 1 (the payment due date).

C payment is not made by the due date specified in the initialbilling notice, in the case of administrative debts such asfines, fees, penalties, and overpayments. The due date isusually 30 days after the agency mailed the notice. Thedate of delinquency is the date the agency mailed ordelivered the billing notice.

Example: Agency discovers that duplicate payments weremade to beneficiary and seeks to recover the overpayment. On March 1, the Agency mails a notice to beneficiaryinforming him about the overpayment. The notice statesthat payment must be made by March 31 to avoidassessment of late charges and enforced collection action. If beneficiary pays the amount requested before March 31,the debt is not delinquent. However, if beneficiary fails topay by March 31, then the debt is delinquent, and the dateof delinquency is March 1 (the date of the initial noticeabout the debt).


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Changes in Governmentwide Debt Collection in 1996. With thepassage of the Debt Collection Improvement Act of 1996 (DCIA),Congress provided Federal agencies with new and enhanceddelinquent debt collection tools. The DCIA:

C centralized delinquent debt collection at the Department ofthe Treasury (Treasury), requiring Treasury to pursuedelinquent debts that are not actively being collected byFederal creditor agencies, a program known as “cross-servicing”;

C established a centralized offset process at Treasury, knownas the “Treasury Offset Program”;

C authorized Treasury to manage a governmentwide,performance-based private collection agency contract forreferral of delinquent debts for collection;

C requires Federal agencies to report delinquent consumerdebts to credit bureaus;

C permits Federal agencies to administratively garnish thewages of non-Federal employees; and

C requires credit-granting agencies to bar debtors fromreceiving Federal direct, guaranteed, or insured loans untiltheir delinquent debts owed to the United States areresolved.

Debt Collection Statutes. A list of the Federal statutes applicableto governmentwide debt collection, including the provisions asenacted by the DCIA, is found at Appendix 4.

Governmentwide Debt Collection Regulations. The followingregulations apply to governmentwide debt collection:

• The Federal Claims Collection Standards (FCCS) are thegovernmentwide debt collection standards published jointlyby Treasury and DOJ in Title 31 of the Code of FederalRegulations (CFR), Parts 900 through 904 (31 CFR Parts900 – 904);


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• The debt collection regulations issued by Treasury’sFinancial Management Service (FMS) at 31 CFR Part 285govern Treasury’s cross-servicing procedures; Treasury’scentralized offset program, including administrative, taxrefund, and salary offset programs; administrative wagegarnishment; and, the barring of delinquent debtors fromreceiving Federal loans and loan guaranties; and

• Salary offset regulations published by the Office ofPersonnel Management at 5 CFR Part 550.

• The Office of Management and Budget (OMB) has issuedOMB Circular No. A-129, “Policies for Federal CreditPrograms and Non-Tax Receivables.”

Governmentwide Debt Collection Guidance. FMS has issuedthis document and other debt collection guidance, such as the“Guide to the Federal Credit Bureau Program.”

Debt collection statutes, regulations, and guidance are found at theFMS website at www.fms.treas.gov/debt. Agency and program-specific statutes, regulations, and policies are not covered in thisChapter, but they also govern the debt collection programs of aspecific agency. Agency personnel should contact agency counselfor information about agency-specific laws and requirements.

Key Debt Collection Principles

Federal agency personnel who collect debts for the governmentshould understand the following key principles:

Agency Regulations. Regulations are rules and proceduresgoverning an agency’s programs or administrative processes. Inmany cases, an agency is required to publish rules and proceduresin the Federal Register. After publication in the Federal Register,regulations are codified in the Code of Federal Regulations (CFR). Federal Register and CFR documents may be accessed online atwww.gpoaccess.gov/fr/index.html.


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The governmentwide regulations mentioned above (Part I,Background) provide general rules and standards for a Federalagency to follow when using various debt collection tools. Eachagency must promulgate its own debt collection regulations. An agency should adopt the governmentwide debt collection rulesand standards for its own programs, when appropriate. Additionally, an agency’s rules and standards should cover anyadditional debt collection tools the agency intends to use. Agencycounsel should be consulted to determine when an agency’s rulesand procedures must be published in the Federal Register.

Program Goals and Debt Collection. Delinquent debts arisefrom various Federal Government programs and actions. For sometypes of debts, the government’s interests may be best served byresolving debts in a way that achieves an important goal of aspecific program. For example, it may be in the government’s bestinterest to lower a debtor’s monthly payments to allow a debtor toremain in his or her own home, keep a business, or to recover froma disaster. An agency may agree to reduce fines and penalties inexchange for the correction of the health and safety violations thattriggered the debt. Perhaps it is in the government’s interest tocompromise a medical profession debt if the debtor completes aservice agreement that would allow the medical needs of anunderserved community to be met. An agency should determineearly in the debt collection process (normally, in the first 60 days)whether a debtor is willing and able to work with the agency toachieve the important government objective associated with thedebt. If not, the agency’s primary objective should be to maximizethe collection of the debt and minimize potential losses.

Due Process. The Fifth Amendment to the United StatesConstitution provides that no person shall “be deprived of life,liberty or property without due process of law.... ” In the contextof Federal debt collection, the constitutional right of “due process”requires an agency to provide debtors with notice of, and theopportunity to dispute, a debt or intended debt collection action.

C Notice must include the amount and type of debt owed, andthe actions to be taken by an agency to collect the debt,such as adding interest and late charges, offset orgarnishment, foreclosure of collateral property, and creditbureau reporting.


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C Opportunity to dispute the debt or the adverse collectionaction to be taken includes, at a minimum, an opportunityfor the debtor to challenge (1) the existence of all or part ofthe debt, and/or (2) whether the agency has met thestatutory or regulatory prerequisites for using the collectionaction mentioned in the notice.

The minimum “due process” required is generally established bythe statutes that authorize the use of a specific debt collection toolor by implementing regulations. As the chart below indicates, thenotices and opportunities to be provided to the debtor are notuniform for all debt collection actions and tools. Additionally, anagency, through its regulations and procedures, can requireadministrative processes in excess of the minimum due processstandards (that is, processes that are more beneficial to the debtor).

Minimum Due Process Requirements

Debt Collection Tool Notice Opportunity to Dispute

Non-centralized administrative offset

Prior to offset, no specifictime frame Review with an agency official

Salary offset (non-centralized) 30 days prior to offset

Hearing with hearing officialnot under the control of theagency

Tax refund offset 60 days prior to offset Review with an agency officialTreasury Offset Program(TOP) (centralized offsetincludes administrative, salary& tax refund offset)

60 days prior to submittingthe debt to TOP

Review and/or hearing, asappropriate

Administrative wagegarnishment

30 days prior togarnishment

Hearing with agency official orany qualified individual

Credit bureau reporting 60 days prior to report toconsumer credit bureau Review with an agency official

Additional details on due process requirements are discussed laterin this Chapter.


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Privacy Protections. Many of the debt collection tools discussedin this Chapter require disclosure of personal informationconcerning debtors to individuals and entities outside the creditoragency. For example, disclosures of information about debtorsmight be made to FMS for offset or cross-servicing, to privatecollection agencies, to credit bureaus, to employers to effectuatewage garnishment, and/or to DOJ for litigation or concurrence inthe agency’s termination of collection action.

The Privacy Act of 1974 provides certain protections forindividuals whose information is contained in records maintainedby the Federal Government. Among other things, an agency maynot improperly disclose information about individuals whoserecords are maintained in a “system of records” (a group of recordswhere information about an individual can be accessed by name orpersonal identifier, such as a taxpayer identification number). Anagency is required to publish notices in the Federal Register toidentify its systems of records and to describe permissibledisclosures, known as “routine uses,” for those records.

When implementing its debt collection strategy, an agency shouldreview its debtor records and consult with agency counsel todetermine if:

C the records are a “system of records” as defined in thePrivacy Act;

C a system of records notice has been published in theFederal Register and updated, where necessary; and

C the routine uses listed in the system of records or otherlegal authorities permit disclosures necessary for allappropriate debt collection tools.

Within governmentwide rules and standards and an agency’s ownstatutory authority, an agency has some flexibility in determiningwhat collection techniques and tools to use and in what order. Thebest mix of tools for collecting delinquent debts at one agency mayvary from that of another agency. However, all agencies mustcomply with Federal laws that require the use of certain debtcollection tools, such as cross-servicing, offset, and credit bureaureporting.


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Determining the Appropriate Collection Technique to Use

Key factors to consider when determining the technique or tool touse include:

C whether the agency is required by law to use the debtcollection tool;

C the size and age of the debt;

C the type of debt, particularly whether commercial orconsumer;

C the availability of the debt collection tool. For example,the Treasury Offset Program is not available until theagency knows the debtor’s taxpayer identifying number;

InstallmentPayments

License Revocation

AccelerationCompromiseRescheduling

Cross-servicing

LiquidatingCollateral

Litigation

LateCharges

Treasury Offset

Program

Private CollectionAgencies

Credit BureauReporting

Agency WorkoutGroup

Non-centralizedOffset includingInternal Offset

COLLECTIONTECHNIQUES

AdministrativeWage Garnishment

Barring Delinquent Debtors


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C the requirements for use of the debt collection tool, such asminimum dollar thresholds;

C whether one tool can be used concurrently with anothertool, such as private collection agencies and the TreasuryOffset Program;

C the time and resources required to use the collection tool;

C the feasibility of using each tool, including any legal orcontractual constraints; and

C the cost of each tool relative to the size of the debt. Thecosts would include administrative costs, as well as feescharged by a private collection agency or FMS. Theagency should weigh costs against the probability ofcollecting the debt.

Establishing a Collection Strategy

A collection strategy is an organized plan of action incorporatingthe various collection tools to be used by an agency to recoverdebt. Each agency should establish and implement effectivecollection strategies that suit the agency’s programs and needs. Collection strategies must meet all statutory requirements. Acollection strategy will facilitate debt collection by providing asystematic, uniform method for collecting accounts.

An agency should first seek to collect delinquent debts in one lumpsum. If a debt cannot be collected in a lump sum, an agencyshould next attempt to collect the full amount in installmentpayments within a reasonable time (generally, less than threeyears). Finally, if a debt cannot be collected in full in a lump sumor through installments, an agency should consider partialcollection of the debt through a compromise agreement.


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Debt collection strategies will be based on the decisions made byan agency in determining what tool or technique to use at differentpoints in the debt collection cycle. An agency’s strategies willtake into account that debts over 180 days delinquent must bereferred to FMS for cross-servicing and offset. An agency shouldperiodically (e.g., every three to five years) evaluate the soundnessof its strategies and collection activity. Samples of collectionstrategies are contained in Appendix 5.

Collection Action Documentation

During the debt collection phase of the credit cycle, the agencywill build upon the documentation created during its creditextension and account servicing activities. It is essential that theagency continue to document all agency contacts with a debtor andactions taken to enforce collection in order to protect thegovernment's interests. Documentation will also be critical if theagency decides to pursue litigation and for subsequent agencydecisions to write-off and ultimately close-out a debt. An agency’sautomated systems may be used to document contacts with thedebtor and other debt collection activities so long as the manner inwhich the information is retained is sufficient for evidentiarypurposes in a court or administrative proceeding. See Appendix 6for a list of collection activities that should be documented.

An agency should also consider using digital imaging as a way tomaintain copies of debt collection documentation. Digital imagingallows an agency to electronically maintain copies ofdocumentation in various formats.

Agency Workout Groups

Agency workout groups are established for the sole purpose ofresolving troubled debts, primarily loans. As such, agencyworkout groups should have the authority to decide on appropriateactions necessary to maximize debt recovery, includingrescheduling debt. Strategies developed by workout groups shouldbe case specific; however, the workout group should establishpolicies which outline options for handling different debtproblems.


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The agency may want to establish a workout group if the volumeand amount of its debts are large enough to warrant a special“problem account” department or if extraordinary effort or specialexpertise is required to enforce recovery. A workout groupconsists of loan officers, legal staff, and accounting personnel.Team members should have working knowledge of and abilities inthe following areas:

C credit management and debt collection;

C business law;

C accounting;

C agency policies and procedures;

C liquidation proceedings;

C collateral appraisal;

C communication and interpersonal skills; and

C management policies and procedures.

Contact With the Debtor

Contact with the debtor is critical because contact:

C provides the debtor with notification of the existence of thedebt and the amount of the debt if the debtor is otherwiseunaware (for example, a beneficiary receives a benefitpayment for more than the amount statutorily authorized, ora person is liable to the Federal Government for propertydamage but the amount of damage has not beendetermined);

C provides the debtor with the opportunity to repay the debtin full, or, if the debtor cannot pay the debt in full, to workout a satisfactory repayment arrangement with the agency;


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C provides the debtor with information on the agency’spolicies regarding accrual of interest, penalties, andadministrative costs;

C if in writing, can provide evidence of due processcompliance when the letter advises the debtor of theagency’s intent to use certain debt collection tools, as wellas any rights the debtor may exercise to avoid the use of thedebt collection tools;

C provides a means of responding to debtors who exercisedue process rights; and

C for some programs, provides the opportunity to resolve thedebt by meeting a specific program objective or goal (suchas a medical professional complying with an agreement topractice in an underserved area, or an employer correctinga health and safety violation).

An agency must provide appropriate guidelines and training to itsemployees whose duties include contacting debtors. While Federalagencies are not subject to the Fair Debt Collection Practices Act(FDCPA), 15 U.S.C. § 1681 et seq., the FDCPA provides valuableguidance on appropriate practices in communicating with debtorsand can be used as a source in developing an agency’s guidelines. See Appendix 7 for a sample list of appropriate practices.

It is critical for an agency to take action on a delinquent debtimmediately to prevent the delinquency from becoming moreserious. Acting on the delinquency quickly will greatly enhancethe probability that the delinquency can be “cured” or the debtfully collected. Within 20 days after the payment due date or atthe end of any grace period contractually established, the agencyshould contact the debtor, by letter or phone, in an attempt toresolve the non-payment. The agency should utilize personalcontact with the debtor when such practice has proven to beeffective. It is critical that all contact with the debtor bedocumented in the account files.


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In the case of an administrative debt (for example, a fine, fee,penalty, overpayment, or other non-loan type of debt), the agencyshould have covered most of the items listed below in its initialbilling notice, but may find it effective to contact the debtor toinform the debtor of the delinquency, remind the debtor of theagency’s policies and procedures for collecting a delinquency,renew the request for payment, and attempt to resolve thedelinquency. Although form letters are useful and can bedispatched quickly, the agency may find that a personalized letteror a phone call is more effective in emphasizing the seriousness ofa delinquency, especially for those debtors who are routinelydelinquent.

If the delinquency is not resolved after the initial contact with thedebtor, the agency must notify the debtor of the debt’s delinquentstatus through a demand letter or dunning notice. One demandletter sent no later than 30 days after delinquency should besufficient. Except in rare circumstances, the agency should notsend any more than two demand letters, no more than 30 daysapart, as established in its debt collection strategy. The agencyshould terminate the process of sending demand letters at anytime that it determines that the letters are no longer serving anyuseful purpose. Any contacts beyond the first demand lettershould be tailored to the circumstances of the debt, i.e., the size,type, and age of the debt, and the debtor’s response to the initialcontact. Each succeeding demand for payment must beprogressively stronger and firmer in tone.

When not already covered in a prior invoice or letter, the demandfor payment, which should be sent no later than 30 days after thedate of delinquency, must include:

C the status of the debt as overdue;

C the amount owed;

C the basis of the indebtedness;

C policies on assessing interest, penalties, and administrativecosts, and the applicable rates and amounts, especially ifnot provided in a loan agreement;


6-16

C the agency’s intention to use various collection tools tocollect the debt, including referral of the debt to FMS forcollection (known as “cross-servicing”), offset, privatecollection agencies, administrative wage garnishment, andlitigation. The agency should not threaten to take acollection action it is not authorized or does not intend totake;

C opportunities for the debtor to review the debt records,contest the debt and provide evidence to support thecontentions, and enter into a reasonable repaymentagreement;

C the need for the debtor to make immediate payment orcontact the agency within a specified period of time fromthe date of the demand letter in order to avoid enforcedcollection; and

C the name, phone number, and address of an individual tocontact within the agency to resolve the delinquency. It isextremely important for a debtor to be able to contact aperson who is knowledgeable about the agency’s debtcollection policies and practices and who can respond tothe debtor’s questions and concerns.

In developing its demand letter procedures, an agency mustconsider that, for debts that will be referred to FMS for cross-servicing, the information listed in the Demand Letter Checklistfound at Appendix 8 must be sent to the debtor at least 60 daysprior to referral.

If possible, the agency should respond to any communication fromthe debtor within 30 days. The agency should develop clearpolicies and procedures on how to respond to a debtor’s request forcopies of records related to the debt, consideration for a voluntaryrepayment agreement, or a review or hearing on the debt.


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Assessing Interest, Penalties and Administrative Costs

The Debt Collection Act of 1982, as amended (codified at 31 U.S.C. § 3717), requires agencies, unless expressly prohibitedor restricted by statute or contract, to assess three separate anddistinct types of late charges on all delinquent debts, includingdebts owed by state and local governments. Late charges arecategorized as interest, penalties, and administrative costs.

(1) Interest, sometimes referred to as additional interest,compensates the government for the loss of use of fundswhen the debt is not paid timely and accrues from the dateof the delinquency. At a minimum, the interest rate will beset at the same rate as Treasury's Current Value of FundsRate (prescribed and published annually by the Secretary ofthe Treasury in the Federal Register and available on theFMS website at www.fms.treas.gov/debt) for the period inwhich the debt became delinquent. The rate is publishedannually, but is subject to quarterly revisions if the annualaverage changes more than 2%. The agency may assess ahigher rate if necessary to protect the government'sinterests.

The rate of interest remains fixed for the duration of thedelinquency. The agency may not compound the interestor assess interest on administrative costs and penalties.

(2) Penalties discourage delinquencies and encourage earlypayment of the delinquent debt in full. As set by statute,the penalty to be assessed to a delinquent debt is an amountnot to exceed 6% per year. An agency should not charge apenalty of less than 6% without a compelling reason. Accruing from the date of delinquency, the penalty charge is assessed on any portion of a debt that is outstanding formore than 90 days, including any interest andadministrative costs.


6-18

(3) Administrative costs cover the costs associated withcollecting a debt from the date of the delinquency. Theagency will set the amount at either the actual costsincurred for the individual debt or the average cost incurredat similar stages of delinquency for similar types of debt. Costs may be assessed as a percentage of the amountcollected.

Administrative costs should include the staffing andresources costs incurred to recover delinquent debts andother costs associated with using various collection tools toenforce recovery, including, but not limited to, the costs ofobtaining a credit report and collection fees charged byFMS, DOJ and private collection agencies. To the extentallowed by law, an agency should add to the debtas administrative costs all fees charged by FMS, DOJ,private collection agencies and other entities that collectdebt for creditor agencies.

The agency will continue assessing these late charges at the ratesestablished by the agency until final payment is received, unlessdebt collection activity is suspended or terminated, the debt iscompromised, the late charges are waived, or the late charges arealtered as the result of a court judgment.

If a debtor defaults on an agreement to repay the delinquent debt,the agency should add all late charges to the principal amount. The agency should start anew to accrue late charges, at the rate ineffect at the time of default, on the new principal amount.

Waiver of Interest, Penalties, and Administrative Costs. Theagency is required to waive interest and administrative costs on adebt paid within 30 days of the date of delinquency. The agencyhas discretion to waive interest, penalties, and administrative costsin accordance with its regulations, either (1) pursuant to acompromise or settlement agreement, or (2) when collection ofthese charges is against equity and good conscience or is not in thebest interests of the United States. For example, a waiver may beappropriate when an agency cannot conduct a hearing within thestatutorily required time frame (e.g., 60 days for salary offset). Awaiver may be in whole or in part for each separate type of charge.


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COLA Alternative to Assessment of Late Charges. In limitedcircumstances, an agency may increase an administrative debt bythe cost of living adjustment (COLA) in lieu of charging interest,penalties, and administrative costs. The COLA alternative can beused only: 1. when the debt is an administrative debt (e.g., a fine,penalty, fee or overpayment), not a loan or debt arising from a loanguaranty; and 2. when assessment of late charges is not costeffective or technically feasible, and a complete waiver of latecharges is not supportable. Before using the COLA alternative, anagency should determine if charging interest alone and waivingpenalties and administrative costs could accomplish the sameobjective as using the COLA. Agencies should ensure that newdebt collection systems are developed with the capabilities toassess late charges in accordance with the requirements notedabove, rather than using the COLA alternative.

The COLA is the percentage by which the Consumer Price Indexfor the month of June of the calendar year preceding theadjustment exceeds the Consumer Price Index for the month ofJune of the calendar year in which the debt was determined or lastadjusted.

Increases to administrative debts using the COLA alternative shallbe computed annually as of the date the COLA is published duringeach calendar year.

Each agency must publish regulations establishing agency policyregarding the accrual and waiver of interest, penalties andadministrative costs, including the circumstances under whichthese charges will not be imposed when collection action issuspended because of an appeal or other reason. An agency mustinform debtors of its policies prior to accruing interest and othercharges, either through incorporating the policies in a loanagreement or through inclusion of appropriate language in theinitial demand letter.


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Installment Payments

Whenever possible, an agency should try to collect an overduedebt in a single lump sum. In the event that the debtor claimsfinancial inability to repay the debt in a single lump sum, theagency may consider collecting the overdue debt in installments. Before using certain collection remedies, such as offset andadministrative wage garnishment, an agency must provide adelinquent debtor with the opportunity to enter into a reasonablerepayment agreement. See Demand Letter Checklist at Appendix 8.

Prior to entering into an installment agreement, an agency shouldobtain a financial statement or credit report to verify the debtor'sclaim of inability to repay in a lump sum. See Appendix 9 for asample financial statement. Additionally, an agency should enterinto such agreements only when there is evidence the debtor has(1) a willingness to abide by the terms of the agreement, includingthe repayment schedule; and (2) an ability to make the agreed uponpayments. When determining the debtor's ability to pay, an agencyshould consider the following factors:

C age and health of the debtor;

C present and potential income;

C inheritance prospects;

C possibility of hidden assets or fraudulent transfers;

C assets/income available through enforced collection; and

C reasonable and necessary living expenses for the debtor andthe debtor's dependents.

An agency may wish to consult the Collection Financial Standardsused by the Internal Revenue Service to determine reasonableamounts that an individual or family needs for living expenses. The Collection Financial Standards may be found at www.irs.gov.


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The installment agreement should provide for as large an initiallump sum payment as the debtor can afford. While paymentsnormally should be sufficient in size and frequency to liquidate thedebt in three years or less, a greater amount of time may beappropriate based on the size of the debt and the debtor’s ability torepay. The agency should seriously consider requiring the debtorto use pre-authorized debit to make the required installmentpayments. The agency may also require the debtor to post new or additional collateral to secure the outstanding balance of theaccount, especially in cases where the debtor’s willingness to abideby the terms of the agreement is questionable, or where the amountof time to liquidate the account exceeds three years.

The installment agreement will be a legally enforceable writtenagreement in which all the terms and conditions of the installmentarrangement, including those governing the assessment offinancing interest and late charges, are stated. The interest rate tobe charged on installment agreements of one year or less is theCurrent Value of Funds Rate in effect at the time of the agreement;for installment agreements of more than one year, the rate is therate for a Treasury security of comparable length. If a debtor hasdefaulted under a previous repayment agreement, late charges thataccrued but were not collected under the defaulted agreement mustbe added to the principal under the new agreement. The writtenagreement should provide for the acceleration of the debt(declaring the full amount of the debt due and payable) in the eventthat the debtor defaults. Where the term for payment ofinstallments exceeds one year, an agency should considerincluding a clause that allows the agency to re-evaluate the amountof the installment payment on a periodic basis, with the goal ofincreasing the installment amount or requesting an additional lumpsum payment, in order to collect the debt sooner.


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Acceleration

Acceleration of a debt occurs when an agency calls the full amountof the debt due and payable. When a debt is accelerated, theagency demands that the debtor pay the entire debt (both thedelinquent and non-delinquent portions of the debt), and considersthe total amount of the debt delinquent. The agency shoulddelineate circumstances in which acceleration is appropriate anddevelop procedures to incorporate acceleration into its debtcollection activities. For example, acceleration is particularlyappropriate when a debtor has failed to repay a debt in accordancewith an installment agreement.

Rescheduling

Rescheduling signifies a change in the existing terms of a loan. Anagency should consider rescheduling a debt when it has determinedthat the rescheduling is in the government's interests and thatrecovery of all or a portion of the debt is reasonably assured.

As with installment payments, before rescheduling a debt, theagency should reassess the debtor's financial position and ability torepay the debt if rescheduled. The agency should also determine ifit should require the debtor to use pre-authorized debit to makepayment. As with any repayment arrangement, the terms andconditions of the rescheduling, including the acceleration clause,must be in writing and signed by the debtor. The agency shoulddiscourage informal workout arrangements with debtors.

Each agency should establish uniform policies, procedures andcriteria for rescheduling and other types of workouts for eachprogram area. Its policies and procedures should provide for therecognition of gains and losses on rescheduled accounts inaccordance with the provisions of OMB guidance and changes insubsidy amounts as required under the Federal Credit Reform Act.


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COSTS OF C OLLECTIONDO NOT JUSTIFY

ENFORCED RECOVERY

AGENCY U NABLE TOCOLLECT W ITHIN

REASON AB LE TIME

DEBTOR U NABLETO PAY IN FULL

GOV ’T C AN NOT PR OVECASE IN COURT

C OM PR OM ISE AC C OU N T

Write-off

Close out

Compromise

An agency compromises a debt whenever it accepts less than thefull amount of the outstanding debt in full satisfaction of the entireamount.

A compromise may be considered (but is not required) when one ormore of the following criteria apply:

1. the debtor is unable to pay the debt within a reasonabletime period, as verified through credit reports or otherfinancial statements (see sample financial statement inAppendix 9);

2. the agency is unable to enforce collection within areasonable time period. This may be the case when theagency cannot determine the amount it may realize if itforces the liquidation of available collateral;


6-24

3. the cost of collection does not justify enforced collectionof the full amount. An agency may compromise statutorypenalties, forfeitures, and claims established as an aid toenforcement and to compel compliance, if the agency’spolicies in terms of deterrence and securing compliancewill be adequately served. Conversely, an agency maydetermine that enforced collection is justified regardless ofthe cost in order to ensure compliance with the agency’spolicies or programs; or

4. there is real doubt concerning the government's abilityto prove its case in court. In this situation, the agencymay be in dispute with the debtor over the amount or haveserious concerns related to the agency's ability to legallyprove its case in court.

Using the Claims Collection Litigation Report, an agency mustrefer compromise proposals where the principal amount of the debtexceeds $100,000 (or such larger amount as may be determined bythe Attorney General) to DOJ for its concurrence in thecompromise. DOJ has delegated to FMS the authority tocompromise a debt with a principal amount of $500,000 or lesswhen the debt is being serviced by FMS in its cross-servicingprogram. It is not necessary for the agency to refer proposals forcompromise that do not meet the agency requirements forcompromise and that the agency does not, therefore, intend or wantto accept.

Compromise agreements should be in writing and signed by thedebtor and the agency, whenever feasible. The agency shoulddiscourage the use of installment agreements to pay compromises.If, however, an agency does accept an installment agreement, theagreement must provide that, in the event of default, the full amountof the debt (less any amounts paid) will be reinstated andimmediately due and payable. To further protect its position, theagency may also ask the debtor to pledge collateral to secure thedebt.


6-25

Where two or more persons are jointly and severally liable on thesame delinquent debt, an agency should ensure that a compromisewith one debtor does not inadvertently release the agency’s claimagainst the remaining debtor(s). The amount of a compromise withone debtor shall not be considered a precedent or binding indetermining what the appropriate compromise amount and termsmight be with other co-debtors.

The agency needs to clearly indicate to the debtor that thecompromise agreement applies to the amount of the debt and thatthe agency is not authorized to release the debtor from any otherliabilities owed to the United States, including tax liability whichmay be incurred on the compromised amount. Depending on thetype and amount of debt being compromised, the agency may berequired to report the difference between the full amount of the debtand the amount paid by the debtor in a compromise agreement toIRS as potential income on Form 1099-C. See Chapter 7, Termination of Collection Action, Write-off and Close-out/Cancellation of Indebtedness, for information on Form 1099-Creporting.

Taking Action Against Co-borrowers/Guarantors An agency should take action to recover a debt from secondarydebtors (co-borrowers or guarantors) when it becomes apparent thatthe primary debtor cannot or will not repay a debt. The agencyshould employ the same debt collection techniques and tools inpursuing secondary debtors as it uses for primary debtors. Tosuccessfully pursue secondary debtors, the agency must haveobtained sufficient identifying information, including taxpayeridentifying numbers, on all co-borrowers and guarantors. It is notnecessary to allocate the amount of the debt among the secondarydebtors in proportion to any investment or pursuant to anyagreement or court order in a case to which the agency is not a party(for example, a partnership agreement or divorce judgment). Enforced collection should be taken against each debtor for the fullamount of the debt, unless otherwise prohibited. In certain caseswhere a primary debtor has filed for bankruptcy protection, anagency may be precluded from pursuing the non-bankruptsecondary debtor. Whenever a debtor has filed for bankruptcyprotection, an agency should consult with counsel to determinewhether a bankruptcy stay is in effect and must be lifted beforeproceeding with collection action against a secondary debtor.


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Application of Payments

Except as otherwise contractually provided, payments made by adebtor towards a delinquent debt are applied to the outstandingbalance of the debt in the following order:

1. penalties;

2. administrative costs;

3. additional interest;

4. financing interest; and

5. principal.

If the debt is being collected by FMS through cross-servicing orTOP, or if a private collection agency is collecting the payment foran agency, each payment will first be applied to the amount of thecontingency fee due FMS or the private collection agency. The rest of the payment would then be applied asindicated, to liquidate in full penalties, other administrative costs,interest, and principal. Other than the application of payment of theaforementioned fees, the agency may alter this order of payment ifit determines that such a change is in the government's interests.


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Part II – Debt Collection Tools and Programs

One of the major purposes of the DCIA is to “maximize collectionsof delinquent debts owed to the government by ensuring quickaction to enforce recovery of debts and the use of all appropriatecollection tools.” An agency is required to aggressively collect alldebts arising out of the agency’s activities. If a debtor fails to payor otherwise resolve a delinquent debt, an agency must reactquickly to determine the appropriate debt collection tools to be usedto enforce collection. An agency may use more than one of theavailable tools at the same time in order to maximize its recoveryon a bad debt. This part explains how to use the various debtcollection tools and programs.

Transfer of Debts to FMS for Collection - Cross-Servicing The DCIA requires that related debt collection activities beconsolidated within the government, to the extent possible, tominimize the government’s delinquent debt collection costs. Oneway that the government’s delinquent debt collection operationshave been consolidated is through the cross-servicing programoperated by FMS. Once an agency refers its delinquent debts to thecross-servicing program, FMS then uses a variety of collection toolsto collect the debt. Information on FMS’s cross-servicing programis available on the FMS website at www.fms.treas.gov/debt or bycalling the Manager, FMS Cross-Servicing Relations Branch, (202)874-8700. FMS will provide an overview of the debt collectionservices available to an agency and will assist the agency in takingthe steps necessary to participate in the cross-servicing program.

Debt Referral Requirements. An agency should send itsdelinquent debts to FMS as early as possible in the debt collectioncycle. See Appendix 5 for sample debt collection strategies. If adebtor has not paid the debt, entered into a repayment arrangement,or otherwise resolved the debt within 60 days after the agency’s lastdemand letter, the agency should refer the debt to FMS. The lastdemand letter, together with prior notices sent to the debtor, mustinclude all of the items described in the Demand Letter Checklist(see Appendix 8). An agency could refer its debts to FMS as earlyas 61 days after the delinquency date assuming that the appropriatedemand letter was sent to the debtor on the delinquency date andthat all other due process pre-requisites have been met.


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As required by the DCIA, an agency must refer any eligible debtmore than 180 days delinquent to FMS for cross-servicing. At least60 days before a debt is submitted to FMS, an agency must havesent to the debtor one or more notices with the information in theDemand Letter Checklist in Appendix 8. Therefore, to meet thestatutory debt referral requirement, an agency must send the finaldemand letter to the debtor no later than 120 days after the date ofdelinquency.

A debt is eligible for referral to FMS for cross-servicing if the debtis:

C past due;

C legally enforceable;

C owed by an individual or entity (including a state or localgovernment) other than a Federal agency; and

C $25 or more (including interest, penalties andadministrative costs).

A debt is considered legally enforceable for purposes of referral toFMS if there has been a final agency determination that the debt isdue and there are no legal bars to one or more of the collectionactions to be taken by FMS, as described beginning on page 6-30.

Exceptions to Referral Requirements. A debt is not eligible forreferral to FMS for cross-servicing if the debt is:

C not past due or legally enforceable;

C owed by a debtor who has died;

C owed by a debtor who has filed for bankruptcy protectionor the debt has been discharged in a bankruptcyproceeding;

C owed by a Federal agency;


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C the subject of an administrative appeal, until the appeal isconcluded and the amount of the debt is fixed; or

C less than $25 (including interest, penalties andadministrative costs).

An agency is not required to refer a debt to FMS for cross-servicingif the debt is:

C delinquent for 180 days or less (however, an agency maysend such debts to FMS if they are otherwise eligible forreferral);

C in litigation, that is, the debt has either been referred toDOJ for litigation, or is the subject of proceedings pendingin a court of competent jurisdiction, including bankruptcyand post-judgment matters;

C in foreclosure, that is, the debt is secured by collateral thatis being foreclosed, either through a court proceeding ornon-judicially (see page 6-54 for information on liquidatingcollateral);

C scheduled for sale within one year under an asset salesprogram approved by OMB;

C at a private collection agency with the approval of FMS;

C at a Treasury-designated debt collection center;

C expected to be collected from payments issued to the debtorby the creditor agency within three years of the date ofdelinquency (commonly referred to as “internal offset”);

C less than $100 and the agency is unable to obtain thedebtor’s taxpayer identifying number; or

C otherwise exempt from the statutory referral requirementby law or official action of Treasury.


6-30

Requirements for Agency Participation in Cross-Servicing. Before an agency may participate in the FMS cross-servicingprogram, an agency must sign a letter of agreement detailing theterms of the cross-servicing arrangement between FMS and theagency. To find out whether a particular agency has signed a letterof agreement or to obtain a sample letter of agreement, agencypersonnel should contact their chief financial officer’s office orfinance office. Agency personnel also may contact FMS [email protected] or (202) 874-8700.

An agency must provide the debtor with proper due process beforesubmitting a debt to FMS for cross-servicing. This means that, at aminimum, the agency has sent the debtor one or more demandletters with the information contained in the Demand LetterChecklist at Appendix 8, and has provided the debtor with theopportunity to dispute or challenge the debt. For each debtsubmitted to FMS for cross-servicing, an agency is required tocertify that the debt is eligible for cross-servicing and all pre-requisites to collection have been met.

NOTE: Once a debt is referred to FMS, the agency must stop itsown collection activity related to the referred debt. Any paymentsreceived by an agency for a debt that has been referred to FMSmust be reported to FMS as a payment (not as an adjustment to thedebt balance) to allow FMS to properly assess its fees.

Debt Collection Actions at FMS. When a debt is referred tocross-servicing for collection, the debt remains a debt owed to thereferring agency and the referring agency shall continue to maintainall the official records, including accounting records, pertaining tothe debt.

Debts referred to FMS are subject to the following actions, asappropriate, and consistent with the letter of agreement betweenFMS and the referring agency:

C Treasury demand letter within five business days ofreferral;

C telephone calls between debtors and FMS personnel andrepayment negotiations;


6-31

Cross ServicingCross ServicingCollection Process OverviewCollection Process Overview

Debt is referred to FMS

Treasury Offset Program20 DAYS after referral

(if TIN is available)

2 Private CollectionAgencies

30 DAYS after referral(270 days each PCA)

Credit Bureau ReportingCommercial:Begin 30 DAYS after referralConsumer:Begin 60 DAYS after referral

FMS Uses Collection Tools FMS Resolution

DepartmentOf Justice

Return to

Agency

1099-C

Leavein TOP for

passive collection until statute of

limitations expires

FMS Attempts to

Collect (first 30 Days)

Admin.Wage

Garnishment1

C submission of debt to the Treasury Offset Program (TOP)within 20 days of referral if the debtor’s taxpayeridentifying number (TIN) is available. The debt remains inTOP until the debt is returned to the agency (see page 6-33 for a description of TOP);

C credit bureau reporting;

C referral to at least one private collection agency. In mostcases, the debt is referred to a second agency if the first oneis unable to resolve the debt;

C administrative wage garnishment, if the debtor is employedby an entity other than a Federal agency;

C referral to DOJ for litigation; and

C unpaid debt is reported to the Internal Revenue Service aspotential income to the debtor on Form 1099-C.


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If a debtor offers to compromise a debt or enter into a repaymentagreement, FMS decides whether such offer is acceptable based onthe FCCS and the parameters set by the creditor agency, i.e., theterms under which FMS may compromise an agency’s debts orenter into repayment agreements. An agency must respond timely(as described in the agency’s letter of agreement) to FMS’s requestfor approval of any compromise or repayment offers to ensure thatvalid offers are promptly acted upon by the government.

While the debt is in the cross-servicing program, FMS maintainsdebt balance information, collects the funds paid by the debtor, andreturns the funds to the creditor agency for proper deposit andaccounting. The creditor agency must maintain its original debtorrecords and remains responsible for any and all financial reporting associated with the debt. The creditor agency is responsible for theaccuracy of the debt information submitted to FMS, and mustprovide updates and corrections of debtor information on a regularbasis. Among other things, the creditor agency must immediatelynotify FMS when it learns that a debtor referred to FMS has filedfor bankruptcy protection.

Agency personnel should contact the FMS liaison assigned to assisttheir agency or FMS’s Cross-Servicing Relations Branch at (202)874-8700 for questions related to agency debts that have beenreferred to cross-servicing.

Cross-Servicing Fees. FMS charges fees to cover its costs forcollections through cross-servicing. The fee is a percentage of allcollections received from the debtor after the debt is referred forcross-servicing. Fees are collected from amounts recovered orbilled to the creditor agency. The creditor agency should add thisfee to the debt as an administrative cost to the extent allowed bylaw.


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Administrative Offset (Including the Treasury Offset Program)

Administrative offset occurs when the government withholds orintercepts monies due to, or held by the government for, a person tocollect amounts owed to the government. Offsets may occuragainst tax refund payments, salary payments, military and civilianretirement pay, contractor payments, grant payments, taxoverpayments, benefit payments, travel reimbursements and otherFederal payments.

An agency may offset a debtor’s payments using two methods –centralized offset via the Treasury Offset Program (TOP) operatedby FMS and non-centralized offset, that is, ad hoc offset on a case-by-case basis. An agency should use TOP to effectuate offsetexcept in certain limited circumstances as explained on page 6-39.

Centralized Offset Through TOP

As required by the DCIA, an agency must submit an eligibledelinquent debt to TOP once the debt is more than 180 daysdelinquent. Agencies are encouraged to submit delinquent debts toTOP as early as 60 days after the required demand letter is sent tothe debtor. (See the Demand Letter Checklist at Appendix 8.) Foran agency that refers its debts to FMS’s cross-servicing program,FMS will submit the referred debts to TOP on behalf of thereferring agency.

The information in this Chapter about TOP applies only to theoffset of Federal payments to collect delinquent non-tax debts owedto the United States. The collection through TOP of Federal taxdebts and state debts, such as delinquent child support and stateincome tax debts, is not discussed in this Guide.


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Creditor Agency

Payment Agency

Debtor Files

Payment Files

FMS’s Delinquent

Debtor Database

Federal Disbursing

Office

Does Payment Match?

Issue whole or partial payment to payee

Payee Notified of Offset

Offset

Creditor Agency

Notification /Payment

Payment Agency

Notification

No

Yes

Update Delinquent Debtor Database

Partial Offset

How TOP Works

TOP allows agencies to submit debts to one centralized location foroffset of all eligible Federal payments. Creditor agencies submitinformation about delinquent debts to FMS, which maintains theinformation in its delinquent debtor database. Federal paymentagencies prepare and certify payment vouchers to FMS and otherFederal disbursing agencies (such as the Department of Defense(DOD) or the United States Postal Service (USPS)). The paymentvouchers contain information about the payment, including thename and taxpayer identifying number (TIN) of the recipient. Before an eligible Federal payment is disbursed to a payee, FMScompares the payment information with debtor information inFMS’s delinquent debtor database. If the payee’s name and TINmatch the name and TIN of a debtor, the disbursing agency offsetsthe payment, in whole or part, to satisfy the debt, to the extentallowed by law. FMS notifies the debtor, the creditor agency, andthe payment agency when an offset occurs. The debtor is instructedto contact the creditor agency to resolve any issues related to theoffset. An agency should respond promptly to a debtor’s questionsrelated to TOP collections.


6-35

FMS transmits amounts collected through offset to the appropriatecreditor agencies after deducting the fees that FMS charges thecreditor agencies to cover the cost of conducting the offset throughTOP. The creditor agency should add such fees to the amount ofdebt to the extent allowed by law. FMS maintains informationabout a delinquent debt in the TOP delinquent debtor database andcontinues to offset eligible Federal payments until the debt is paidin full or the creditor agency suspends or ceases debt collection oroffset activity for the debt.

Debts Eligible for TOP. A debt is eligible for referral to TOP ifthe debt is delinquent and legally enforceable. A debt is consideredlegally enforceable for TOP purposes if there has been a finalagency determination that the debt is due and there are no legal barsto collection through the offset of Federal payments.

Exceptions to Referral Requirements. A debt is not eligible forreferral to TOP if the debt is:

C owed by a debtor who has filed for bankruptcy protectionor the debt has been discharged in a bankruptcyproceeding;

C owed by a Federal agency;

C the subject of an administrative appeal, until the appeal isconcluded and the amount of the debt is fixed;

C less than $25 (including interest, penalties andadministrative costs); or

C more than 10 years delinquent; except for student loans andjudgment debts, or as otherwise allowed by law.


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An agency should not refer directly to TOP those debts that havebeen referred to FMS or another Treasury-designated debtcollection center for cross-servicing, or to DOJ for litigation. FMS,debt collection centers, and DOJ are responsible for submittingthese referred debts to TOP on behalf of the creditor agency. Debtsthat are not referred to FMS for cross-servicing may be eligible forTOP. If an agency does not submit its debts to FMS for cross-servicing, agency personnel may contact FMS’s Treasury OffsetDivision at (202) 874-0540 for information on how an agencysubmits debts directly to TOP.

An agency should carefully review its portfolio of debts that are notsent to FMS for cross-servicing and submit all TOP-eligible debtsfor offset. Agency personnel should contact their agency’s legalcounsel for questions regarding whether a debt is eligible forreferral to TOP.

Due Process Requirements. Before submitting a debt to TOP, anagency must provide due process to the debtor(s) owing the debt. Ifnot already completed through the demand letter process, an agencymust send notice to the debtor, at the debtor’s most current addressknown to the agency, at least 60 days in advance of referring theaccount to TOP. For information on how to obtain a currentaddress, see “Locating the Debtor”on page 6-70.

The Demand Letter Checklist at Appendix 8 includes theinformation that must be sent to the debtor prior to submitting adebt to TOP. For each debt submitted to FMS for TOP, an agencyis required to certify that the debt is eligible for TOP and all pre-requisites to collection through offset have been met.

Types of Federal Payments Eligible for Offset Under TOP. AllFederal payments may be offset under TOP except as prohibited bylaw or exempted by action of Treasury. This includes paymentsdisbursed by FMS, DOD, USPS, and other government disbursingagencies. The following types of Federal payments are eligible foroffset under TOP:

C Internal Revenue Service tax refunds;

C retirement payments issued by the Office of PersonnelManagement (OPM);


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C vendor payments;

C Federal salary payments;

C travel advances and reimbursements;

C certain Federal benefit payments, such as Social Securityretirement and disability payments;

C grant payments; and

C active military and military retirement payments.

For some types of payments, the government may not offset theentire payment. Limitations apply to OPM retirement payments(25%); Federal salary payments (15% of disposable pay); and socialsecurity, railroad retirement, and black lung benefit payments(15%). In addition, a debtor’s social security, railroad retirement,or black lung benefit payment may not be reduced to less than $750per month after offset. These limitations apply to offset only. When a debtor’s payment is subject to reduction via other legalprocesses to collect debts, such as tax levy or garnishment, thedebtor’s payment could be reduced by more than the limitationdescribed here.

Payments Exempt from Offset Under TOP. Federal lawprohibits the offset of certain types of payments. Additionally,Treasury has granted requests by payment agencies to exempt fromTOP other types of payments. A complete list of payments that areexempt from offset under TOP is available on the FMS website atwww.fms.treas.gov/debt.

Special Provisions for Certain Recurring Payments. For certaintypes of recurring payments, such as monthly retirement or socialsecurity benefit payments, TOP sends the debtor at least onewarning notice before the offset occurs. The debtor is advised tocontact the creditor agency to resolve the debt or to discussalternatives to offset. An agency should be prepared to respondpromptly to a debtor’s request to discuss alternatives to offset,especially in those cases where the debtor presents evidence offinancial hardship.


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Offset of Federal Salary Payments Under TOP. Before Federalsalary payments may be offset, the agency must send to the Federalemployee/debtor, at least 30 days in advance, notice in writing ofthe intent of the agency to collect the debt by offsetting the debtor’ssalary payments. The written notice must provide opportunities forthe debtor to (1) inspect the relevant records, (2) enter into a writtenrepayment agreement, and (3) to have an administrative hearingconcerning the existence and amount of the debt and/or terms of therepayment schedule. Additionally, if the debtor requests a hearing,the hearing official must be someone who is not under the controlof the creditor agency.

An agency may opt to temporarily exclude a debt from Federalsalary offset if the agency has not completed the special due processpre-requisites for Federal employees. If, through TOP, the agencylearns that the debtor is a Federal employee, the agency mustprovide the necessary due process immediately in order to certifythe debt as eligible for Federal salary offset through TOP as soon aspossible.

TOP offsets of Federal salary payments are limited to 15% of adebtor’s disposable pay (as defined in 5 CFR Part 550.1103). Forjudgment debts, travel advance recoveries, and other debts that maybe collected by offsetting more than 15% of a debtor’s Federalsalary, the creditor agency must initiate non-centralizedadministrative offset, discussed below, by directly contacting thedebtor’s employing Federal agency.

TOP Fees. FMS charges fees to cover its costs for collectionsthrough TOP. The fee is set annually and is collected from amountsoffset. The creditor agency should add this fee to the debt as anadministrative cost to the extent allowed by law.

Computer Matching and Privacy Protection Act of 1988. TheComputer Matching and Privacy Protection Act of 1988 regulatescertain matching activities of the Federal government where theintent of the match is to take an adverse action against anindividual. The Act does not apply to tax refund offsets. Inaddition, the Act’s requirements to enter into matching agreementsand to provide post-match notice and verification to the debtor havebeen waived for debts properly certified to TOP for offset purposes.


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Non-Centralized Administrative Offset In cases where offset through TOP is not available or appropriate,

an agency may request that another agency offset a Federalpayment to satisfy a debt. This type of ad hoc case-by-case offset isknown as “non-centralized administrative offset.” Another type ofnon-centralized administrative offset occurs when the paymentagency is the same as the creditor agency, referred to as “internaloffset.” Non-centralized offset can be used for internal offset, orwhen the payment to be offset is not processed through TOP or thecreditor agency is unable to meet the 60-day notice requirement fordebt submission to TOP (see Due Process Requirements, on page 6-36), but is otherwise able to comply with the due process pre-requisites for offset (see “Minimum Due Process Requirements” onpage 6-8). Agencies should be aware that some payment types thathave been exempted from TOP by Treasury may be eligible fornon-centralized offset.

In order to use non-centralized offset, an agency must identify thepayment that can be offset and the agency responsible for makingthe payment. Financial statements and copies of tax returnssubmitted by the debtor or credit reports may be a source ofinformation about any relationship(s) between the debtor and otherFederal agencies, which may help identify payments available foroffset. For example, the creditor agency may learn that the debtorreceives regular grant payments (that are not processed throughTOP) from another agency. If the payment agency is not the sameas the creditor agency, then the creditor agency should contact thepayment agency directly and request the offset. Prior to requestingthe offset, the creditor agency must certify to the payment agencythat all due process pre-requisites have been met except asotherwise allowed by law. This means that the creditor agency hassent the debtor advance notice of the nature and amount of the debtto be collected and its intent to administratively offset payments tocollect the debt. In addition, the notice must give the debtor theopportunity to:

• make voluntary repayment;

C inspect and copy records related to the debt;


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C request a review of the debt; and

C enter into a repayment agreement.

Prior notice and an opportunity for a review may be omitted, asauthorized under an agency’s regulations, in cases when the agencyfirst learns of the existence of a debt owed by a debtor when there isinsufficient time before payment would otherwise be made toprivde notice and opportunity to the debtor. When omitted prior tooffset, the agency shall give the debtor notice and an opportunityfor review as soon as practicable. The agency is required topromptly refund any money ultimately found not to have been owedto the agency.

Another method of identifying payments available for offset is toconduct computer matches (outside of TOP) to determine if there isa payment available for offset. Before conducting such matches, anagency should consult with its legal counsel to determine if thecomputer matches contemplated are subject to the requirements ofthe Computer Matching and Privacy Protection Act.

When evaluating the feasibility of pursuing non-centralizedadministrative offset, an agency may also take into consideration adebtor's financial condition and whether offsetting the paymentwould create significant financial hardship for the debtor andhis/her family. If an agency decides to pursue offset, the agencymust do so within the time period established by any applicablestatute of limitations, usually 10 years from the date of delinquency. The payment agency should honor the request of the creditoragency for offset or, at a minimum, put a hold on funds if feasible.

Types of Non-Centralized Administrative Offset

Examples of circumstances for which non-centralized offset wouldbe appropriate include internal offset and the offset of contractorpayments when the creditor agency is the same as the paymentagency; collection of travel advances and training expenses througha Federal employee’s pay, retirement or other amounts due; offsetof future retirement pay; and offset of Federal salary pay whenoffset is not available through TOP.


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Internal Offsets. An internal offset occurs where an agency that isowed a delinquent debt is also making one or more payments to itsdebtor and the agency determines that the payments can be offset tocollect the debt. Internal offsets are most effective when thecreditor agency routinely offsets its own payments made to its owndebtors early in the collection process. An agency shouldincorporate internal offset in its debt collection strategy and providenotice of intent to collect the debt by offset at the earliest possibletime.

Contractor Payments. An agency cannot offset a contractpayment if the contract is being disputed under the ContractDisputes Act (CDA) or Federal Acquisition Regulations (FAR). Once the dispute is settled under the CDA or FAR, then offset canbe initiated against any balance of funds still owed the contractor. This does not preclude an agency from offsetting non-disputedcontract payments to a contractor involved in a CDA adjudication.Recoupment is a special type of administrative offset, where, withinthe terms of a given contractual relationship, the agency can offsetamounts it is owed against payments due the contractor for servicesrendered.

Collection of Travel Advances and Training Expenses fromFederal Employees. An agency should follow administrativeoffset notification requirements when attempting the collection of delinquent travel advances and training expenses -- not thoseassociated with Federal employee salary offset. Once thesenotification procedures have been followed, the agency has theauthority to withhold all or part of an employee/debtor's salary,retirement benefits, or any other amounts due the employee,including lump sum payments, to recover amounts owed. There areno statutory or regulatory limitations on the amount that can bewithheld or offset. The agency should, in fact, withhold or offset asmuch as necessary to fully liquidate or satisfy the amount of thedebt.


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Retirement Pay. Generally, administrative offset against adebtor’s current civilian retirement pay [whether Civil ServiceRetirement Fund (CSRS) or the Federal Employees RetirementSystem (FERS)] is conducted through TOP. If the agency knowsthat the debtor will be receiving a retirement payment that is notavailable for offset under TOP, the agency must notify the Office ofPersonnel Management (OPM) of its intention to use itsadministrative offset authority to collect on the delinquent debt. OPM will respond by “flagging” the account and will initiate offsetwhen the debtor requests retirement pay or the release of theretirement funds (if the debtor is departing Federal service),regardless of the age of the debt itself. If the request for offset isoutstanding for more than one year at the time the debtor files forretirement or requests the funds, then OPM will contact the agencyto determine if the debt is still outstanding and the offset still valid,allowing enough time for the agency to contact the debtor to try toresolve the debt. In the case of lump sum payments, OPM willoffset up to 100% of the payment amount; if an annuity payment isinvolved and the debt is too large to collect in one offset, OPM willoffset the dollar amount or percentage requested by the agency, upto 50% of the amount of the payment. Agencies should use SF2805, “Request for Recovery of a Debt Due the United States,” inmaking requests to OPM for these types of offsets (see CSRS andFERS Handbook, Chapter 4 - Debt Collection, available atwww.opm.gov).

For offset against military retirement pay, the agency must contacteach military service's finance and accounting center.

Federal Employee Salary Offset. Federal employee salary offsetshould be conducted through TOP, except in three circumstances:(1) where the debtor is employed at the creditor agency, (2) salaryoffset cannot be accomplished through TOP because the debtor’ssalary payments are not processed through TOP, or (3) the amountof offset can legally exceed 15% of the employee/debtor’sdisposable pay. Only in these limited circumstances should anagency use non-centralized offset of the debtor’s Federal salary torecover delinquent debts owed by current Federal employees. Theagency must comply with the provisions of the Privacy Act, asamended, and OMB guidelines on implementing the Privacy Act, aswell as the salary offset regulations issued by OPM.


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If the agency does not know if the debtor is a Federal employee ordoes not participate in TOP, the agency can identify delinquentdebtors who are Federal employees by matching its delinquentdebtor files with current and retired employee files of OPM, theDOD's Manpower Data Center (DMDC), the USPS, or othercontrol sources. Once a debtor is identified on such a file, theagency must:

C provide due process notification to the debtor and requestvoluntary repayment of the debt;

C if the debt is still unresolved, contact the agency employingthe debtor to arrange a salary offset, and certify the debt asbeing delinquent; or

C contact OPM or the DOD for offset against retirement pay.

Under the following circumstances, the agency does not need toprovide a Federal employee with notice and an opportunity for ahearing prior to offset of Federal pay:

C any adjustment to pay arising out of an employee’s electionof coverage or a change in coverage under a Federalbenefits program requiring periodic deductions from pay, ifthe amount to be recovered was accumulated over four payperiods or less;

C a routine intra-agency adjustment of pay that is made tocorrect an overpayment of pay attributable to clerical oradministrative errors or delays in processing paydocuments, if the overpayment occurred within the fourpay periods preceding the adjustment and, at the time ofsuch adjustment, or as soon thereafter as practical, theindividual is provided written notice of the nature andamount of the adjustment and point of contact for suchadjustment; or

C any adjustment to collect a debt amounting to $50 or less,if, at the time of such adjustment, or as soon thereafter aspractical, the individual is provided written notice of thenature and the amount of the adjustment and a point ofcontact for contesting such adjustment.


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As with administrative offset cases, an agency must honor therequest of another agency to arrange for a salary offset. As much as15% of the debtor's disposable pay can be collected each pay periodthrough offset until the full amount of the debt is repaid. If theagency has obtained a judgment against the employee, it mayrequest the employing agency to offset up to 25% of the debtor’sdisposable salary and no hearings are required. However, in thecase of military employees, even if a judgment has been obtained,the amount of the offset cannot exceed 15%. At no time can theemploying agency unilaterally change or adjust the amount beingwithheld, without the consent of the creditor agency. Theemploying agency must remit the amount offset within each payperiod; it cannot accumulate offset amounts until the entire debt iscollected.

Reporting Delinquent Debts to Credit Bureaus

Reporting delinquent debts to credit bureaus is an essential part ofan agency’s debt collection efforts. The DCIA requires Federalagencies to report to credit bureaus information on all delinquentFederal consumer debts. Federal agencies have been required, as amatter of policy, to report all delinquent commercial debts sinceSeptember 1983. This requirement is incorporated into OMBCircular No. A-129 and the FCCS.

Specific requirements that govern the reporting of consumer andcommercial debts to credit bureaus are set forth in the “Guide to theFederal Credit Bureau Program,” issued by FMS and available onthe FMS website at www.fms.treas.gov/debt. An agency shouldreview the guide for detailed information on reporting current anddelinquent debts to credit bureaus. The guide provides informationon topics such as:

C distinction between the reporting of consumer andcommercial debts;

C legal requirements;

C handling disputed information;


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C agreements known as Memoranda of Understanding(MOUs) with credit bureaus;

C reporting formats for debts, including the use of Metro 2format and frequency of reporting;

C credit bureau reporting on consumer debts when the debtschange from “current” to “delinquent” status; and

C reporting of debts being collected by FMS through cross-servicing.

NOTE: An agency that elects to use expedited referral to cross-servicing, i.e., referral of debts within 60 days of the date ofdelinquency, does not need to report its debts to credit bureausbecause FMS will report the debts on the agency’s behalf. SeeAppendix 5 for a debt collection strategy that includes expeditedreferral to FMS.

The Demand Letter Checklist at Appendix 8 includes theinformation that must be sent to the debtor prior to reporting aconsumer debt to a credit bureau.

Private Collection Agencies

In its efforts to recover a delinquent debt, an agency may use theservices of private collection agencies (PCAs). As mandated by theDCIA, FMS maintains a list of PCAs eligible for referral of debtsfrom FMS. In order to minimize the government’s collections costsand avoid duplication of efforts, an agency should, wheneverpossible, refer debts to FMS for cross-servicing in order to obtainthe services of a PCA. FMS monitors the performance of its PCAsin accordance with the terms of a task order for PCA services undera contract administered through a General Services Administration(GSA) Federal Supply Schedule (FSS). The terms of the task orderreward better performing PCAs (based on collections and debtresolutions) with additional referrals and bonus monies.


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Debts that are referred to FMS for cross-servicing will be referredto a PCA on FMS’s list. When using PCAs on FMS’s list, fundscollected by the PCAs are remitted to the creditor agency by FMSwith supporting detailed debt information. Under the terms of theFMS task order, PCAs charge fees, which are paid out of amountscollected. The creditor agency retains the final authority to resolvedisputes, compromise debts, suspend or terminate collection action,and refer accounts to DOJ for litigation. FMS provides guidanceand standards for PCAs to follow when negotiating acceptablerepayment plans and compromise agreements with debtors based oncreditor agency parameters contained in the agency’s letter ofagreement with FMS.

An agency may refer debt that is less than 180 days delinquent to aPCA pursuant to a contract between the creditor agency and thecontractor, as authorized by law. Further, in some cases, a creditoragency may not be able to use the services of PCAs through FMSbecause such services are materially insufficient to collect theagency’s debts. For example, if an agency has unique debtcollection tools, the agency may justify establishing its owncontract with PCAs for assistance in utilizing those tools. Acreditor agency that independently contracts for PCA servicesshould use GSA’s FSS contract to obtain collection services. Anagency should ensure that the following terms are required underany PCA contract:

C The contract should allow the agency to contract with anumber of PCAs who receive referrals based onperformance, unless this is not cost-effective or not in thebest interest of the government.

C The referral period for sending debts to any single PCAshould not exceed 180 days and must not interfere with thestatutory requirement to refer debts to FMS for cross-servicing unless the debts are exempt from suchrequirement. Unless exempt, an agency should considerthat all debts at a PCA that are not subject to an acceptablerepayment arrangement must be referred to FMS for cross-servicing no later than 30 days after the debt is eligible forreferral (generally at 180 days delinquent).


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C The contract must include provisions to clearly indicatethat the collection efforts of PCAs are governed by thePrivacy Act and Federal and state laws related to debtcollection practices, including, but not limited to, the FairDebt Collection Practices Act and the FCCS (as applicableto the agency).

C The contract should include controls to ensure that debtorsare treated fairly, such as periodic monitoring of contractorperformance, investigation and resolution of complaints,and a requirement that the PCA submit to periodic audits ofits work.

C The agency must retain the final authority to resolvedisputes, compromise debts, suspend or terminatecollection action, and refer accounts to DOJ for litigation(it should be clear that the PCA is not authorized to retainlegal counsel to represent the United States in anylitigation).

C The agency should establish procedures to monitor theperformance of the PCAs it uses and develop aninformation tracking system to account for cases referred.

Administrative Wage Garnishment

In the absence of extenuating circumstances, if a debtor isemployed, the debtor should be repaying his or her debt to thegovernment. The DCIA (as codified at 31 U.S.C. § 3720D)authorizes an agency to collect a delinquent debt by administrativegarnishment of the pay of a delinquent debtor who is employed byany organization, business, state or local government, or otherentity other than a Federal agency. See pages 6-38 and 6-42 forprocedures on how to offset the salary of a Federal employee tocollect a debt. FMS has issued regulations governing theadministrative wage garnishment process (see 31 CFR 285.11).


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Administrative wage garnishment is a process whereby a Federalagency issues a wage garnishment order to a delinquent debtor’snon-Federal employer. No court order is required. The employerwithholds amounts from the employee’s wages in compliance withthe order and pays those amounts to the Federal creditor agency towhich the employee owes a debt.

Requirements for Agency Use of Administrative WageGarnishment. Generally, an agency should use the services ofFMS, through its cross-servicing program, to implementadministrative wage garnishment proceedings. An agency may,however, implement administrative wage garnishment directly ifthe agency has the appropriate procedures in place.

Before using administrative wage garnishment, an agency must dothe following:

C adopt hearing procedures as described in, or consistentwith, the procedures described in FMS’s wage garnishmentregulations; and

C to authorize FMS to implement administrative wagegarnishment for the agency through the cross-servicingprogram, modify its letter of agreement with FMS, as wellas related documents such as the agency profile.

Notice Requirements. For debts referred to FMS for cross-servicing, FMS or its PCA will send to a debtor, on behalf of thecreditor agency, proper notice of the government’s intent to collecta debt through deductions of his or her pay. Otherwise, at least 30days before issuing a wage garnishment order, an agency must sendwritten notice to the debtor, at the debtor’s most current addressknown to the agency, informing the debtor of:

C the nature and amount of the debt;

C the intent of the agency to collect the debt throughdeductions of pay; and

C an explanation of the debtor’s rights.


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The debtor’s rights include an opportunity to:

C inspect and copy the agency’s records pertaining to thedebt;

C enter into a repayment agreement acceptable to the agency;and

C receive a hearing concerning the existence or amount of thedebt and the terms of the repayment schedule.

Hearing Requirements. An agency’s procedures foradministrative wage garnishment hearings must, at a minimum,provide for the following:

C If a request for a hearing is received within 15 businessdays following the mailing of the written notice to thedebtor, a hearing must be held prior to the issuance of awage garnishment order. If a request for a hearing isreceived after 15 business days, a hearing must still beheld; however, the garnishment order may be issued beforethe hearing is concluded.

C The hearing official may be any qualified person, asdetermined by the creditor agency, who will maintain anofficial summary record of the hearing. There is norequirement that the hearing official be an administrativelaw judge or someone outside the agency.

C Oral hearings are not required unless the matter cannot beresolved based on written evidence.

C A final written decision on the hearing must be issuedwithin 60 days of the date of receipt of the request. If awage garnishment order has been issued and a finaldecision has not been issued by the 61st day, the agencymust notify the employer to suspend collection on thatorder. An agency may begin collecting on thatgarnishment order again only after a final written decisionin the agency’s favor is mailed to the debtor.


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Administrative Wage Garnishment Form (SF-329). Anauthorized agency official issues an administrative wagegarnishment order using a standard form known as AdministrativeWage Garnishment Form SF-329, which may be obtained throughFMS’s web site at www.fms.treas.gov/debt. The form consists ofthe following four parts:

C Letter to Employer & Important Notice to Employer (SF-329A) which is sent to the employer with the garnishmentorder to explain why a garnishment order is being issued;

C Wage Garnishment Order (SF-329B) which describes theterms of the garnishment and the amount the employermust garnish;

C Wage Garnishment Worksheet (SF-329C) which assists theemployer in calculating the amount to be garnished; and

C Employer Certification (SF-329D) which is completed andreturned to the agency by the employer with informationrelated to the garnishment.

After the wage garnishment order is completed and signed by anauthorized agency official, all four parts of form SF-329 should besent to the debtor’s employer. For debts referred to FMS for cross-servicing, FMS will sign the wage garnishment order on behalf ofthe creditor agency. FMS or its private collection contractor willthen send the order to the employer and monitor the employer’scompliance with the order.

Amount of Garnishment. Generally, an agency may garnish up to15% of a debtor’s disposable pay. “Disposable pay” is the debtor’snet pay after deductions for taxes and health insurance premiums asdescribed in the Wage Garnishment Worksheet (SF-329C). Forexample, if the gross amount paid to an employee is $500 per week,and taxes and insurance deductions total $150 per week, theemployee’s disposable pay is $350, and the amount of thegarnishment should not exceed $52.50 (15% of $350). Theemployer is responsible for calculating the amount of thegarnishment, and may use the Wage Garnishment Worksheet tocalculate the amount available for garnishment. Below is anexample of how the amount of garnishment would be calculatedusing the Wage Garnishment Worksheet (see the following page).


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WAGE GARNISHMENT WORKSHEET Pay Period Frequency (Select One): Weekly or less Every other week Two times per month Monthly Other (Specify: )

DISPOSABLE PAY COMPUTATION1. Gross Amount paid to Employee 500.00

2. Amount Withheld:

a. Federal Income tax 75.00

b. F.I.C.A. (Social Security) 20.00

c. Medicare 5.00

d. State tax (including income tax, unemployment, disability) 20.00

e. City/Local tax

f. Health insurance premiums 30.00

g. Involuntary retirement or pension plan payments

3. Total allowable deductions [Add lines a - g] 150.00

4. DISPOSABLE PAY [Subtract line 3 from line 1] 350.00

WAGE GARNISHMENT AMOUNT COMPUTATIONIf the Employee’s wages are not subject to any withholding orders with priority, skip to line 8.

5. 25% of Disposable Pay [Multiply line 4 by .25]

6. Total Amounts Withheld Under Other Wage Withholding Orders with Priority. See section 2(b) of the Order.

7. Subtract line 6 from line 5 [If line 6 is more than line 5, enter zero]

8. Multiply the percentage from section 2(b)(1) of the Order by line 4. (Thepercentage from section 2(b)(1) of the Order may not exceed 15%). Example: Ifthe percentage from section 2(b)(1) of the Order is 15%, multiply .15 by line 4.

52.50

9. Amount equivalent to 30 times the Fed. min. wage ($5.15) If the employee is paid Line 9 is If the employee is paid Line 9 is Weekly or less 154.50 2x per month 334.75Every other week 309.00 Monthly 669.50

154.50

10. Subtract line 9 from line 4 [if line 9 is more than line 4, enter zero] 145.50

11. WAGE GARNISHMENT AMOUNT Line 7, 8, or 10, whichever amount is the smallest 52.50

****************************************************************************


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An agency may issue multiple garnishment orders for the samedebtor, but the total may not exceed 15% of the debtor’s disposablepay.

Limitations on Amount of Garnishment. If a debtor owesmultiple debts and the debtor’s pay is already subject to othergarnishments, the total amount garnished, including othergarnishment orders, may not exceed 25% of the debtor’s disposablepay. For example, if the pay of the debtor in the example above wassubject to a prior withholding order of 15%, then the amountavailable for garnishment would be limited to $35 (10% of thedebtor’s disposable pay). An example of how this would becalculated within the Wage Garnishment Worksheet is detailedbelow.

******************************************************************************WAGE GARNISHMENT AMOUNT COMPUTATIONIf the Employee’s wages are not subject to any withholding orders with priority, skip to line 8.

5. 25% of Disposable Pay [Multiply line 4 by .25] 87.50

6. Total Amounts Withheld Under Other Wage Withholding Orders with Priority. See section 2(b) of the Order.

52.50

7. Subtract line 6 from line 5 [If line 6 is more than line 5, enter zero] 35.00******************************************************************************

The amount to be garnished may be limited further if withholding15% of the debtor’s disposable pay would reduce the debtor’s pay toan amount less than $154.50 per week (30 times the minimum wageof $5.15 per hour). For example, if the disposable pay of a debtor is$160.00 per week, deduction of 15% ($24) would leave the debtorwith $136.00 per week. Since the debtor’s pay cannot be reduced toless than $154.50 per week, the garnishment amount would belimited to the amount by which the debtor’s pay exceed theminimum, or $5.50. This would be calculated on the WageGarnishment Worksheet as follows:

4. 160.00******************************************************************************

9. Amount equivalent to 30 times the Fed. min. wage ($5.15) If the employee is paid Line 9 is If the employee is paid Line 9 is Weekly or less 154.50 2x per month 334.75Every other week 309.00 Monthly 669.50

154.50

10. Subtract line 9 from line 4 [if line 9 is more than line 4, enter zero] 5.5011. WAGE GARNISHMENT AMOUNT

Line 7, 8, or 10, whichever amount is the smallest 5.50


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Assuming wage garnishment is cost-effective and available, thishighly effective collection tool should be used whenever anemployed debtor fails to meet his or her obligations to thegovernment.

Financial Hardship. At any time during the garnishment process,a debtor may ask the creditor agency for a review of the amountbeing garnished based on a claim of financial hardship due tomaterially changed circumstances. If an agency finds that a debtorhas properly documented financial hardship, the agency shoulddownwardly adjust the amount of garnishment, or terminate orsuspend collection through administrative wage garnishment, asappropriate.

Eligibility for Administrative Wage Garnishment. An agencymay not garnish a debtor’s wages if:

C The debtor earns less than 30 times the Federal minimumwage. Based on a minimum wage of $5.15 per hour, thewages of a debtor who earns less than $154.50 per weekare not eligible for garnishment. Information about adebtor’s wages may not be available until after thegarnishment order is served on the employer. Theemployer would inform the agency that the debtor earnsless than the minimum required for garnishment;

C The debtor is in a repayment agreement with the agencyand is meeting his or her obligations under the agreement;or

C The agency knows that the debtor has not been working inhis or her current job for at least 12 months and the debtorwas involuntarily separated from his or her prior job. Thedebtor is required to inform the agency that he or she isineligible for wage garnishment based on this requirement.


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Termination of the Wage Garnishment Order. The agencymust terminate the wage garnishment order when:

• the debt is paid in full, or otherwise resolved throughcompromise or other agreement with the agency;

• the debtor files for bankruptcy and the automatic stay is ineffect, or the agency learns that the debt has beendischarged in bankruptcy;

• the agency, a hearing official, judge or other appropriateadjudicator determines that the debt is not valid; or

• the agency otherwise determines that the wage garnishmentorder should be terminated due to the debtor’s financialhardship or other appropriate reason.

The agency must send a letter or use Form 329E, Notice ofTermination of Wage Garnishment, to inform the employer that thegarnishment is terminated and that all withholdings from theemployee’s pay should stop.

Liquidating Collateral

For a secured debt, an agency should take action to liquidate thecollateral, in accordance, with its specific statutory authority, whenit becomes apparent that a debtor will not or cannot repay theamount owed and collateral liquidation is the best method forprotecting the government's financial interests. The agency mustensure that the account was properly serviced prior to deciding toproceed with foreclosure or voluntary conveyance of the property;that is, the debtor was provided reasonable opportunity to cure thedelinquency, including forbearance and rescheduling, inaccordance with agency-specific statutes and regulations.


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As a general rule, an agency should avoid taking title to thecollateral property as part of its liquidation strategy; rather, anagency’s goal should be to force a sale of the collateral to a thirdparty so that the sales proceeds may be applied to the debt. However, if taking title to the collateral property would result in abetter collection result or would further an agency’s programpurpose(s), the agency may seek to secure title to a collateralizedproperty through voluntary conveyance by the debtor or enforcedforeclosure proceedings, as it determines best in any givensituation.

If an agency obtains title to a property, the agency is responsiblefor maintaining and insuring the property from the time it assumestitle to the property until final property disposition. Each agencyshould establish procedures for the acquisition, management, anddisposition of property acquired as a result of direct or guaranteedloan defaults.

If the amount of the debt is not fully satisfied by either thevoluntary conveyance of the collateral or its liquidation, then theagency may decide to obtain a deficiency judgment or otherwisecontinue to pursue collection on the unrecovered portion of thedebt, using the appropriate collection techniques, such as cross-servicing. Under certain circumstances, the agency mayalternatively consider a debt “compromised” for the market valueof the collateral, and report the unrecovered amount to the IRS aspotential income to the debtor on Form 1099-C if required by IRS(see Chapter 7, Termination of Collection Action, Write-off andClose-out/Cancellation of Indebtedness). It is an agency'sresponsibility to liquidate any collateral, when appropriate, prior toreferral of the debt to FMS for cross-servicing.


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Bankruptcy

Generally, when a debtor files for bankruptcy protection, anagency is prohibited from pursuing further collection action whilethe bankruptcy is pending because of the automatic stay. Anagency or individual found to have violated the automatic staycould be held in contempt by the bankruptcy court. The automaticstay is effective as of the date of the filing of a bankruptcy. Inmost cases, an agency will not be able to recover funds from adebtor in bankruptcy. However, there are cases in which fundsmay be available in the debtor’s estate to pay some of the debtor’sdebts. Therefore, it is important for an agency to file a Proof ofClaim form when allowed to do so by the bankruptcy court inorder to ensure that the agency will receive its share of anyproceeds available to pay creditors from the bankruptcy estate. The appropriate Proof of Claim form may be found atwww.uscourts.gov/bankform.

An agency should determine whether other steps must be taken ina bankruptcy matter to protect the agency’s position and to complywith the law. An agency probably will have to return fundsinadvertently collected while the automatic stay is in effect, butagency counsel should be consulted for specific legal advice. Insome cases, an agency may ask the bankruptcy court for “relieffrom the automatic stay,” that is, permission to pursue collection. An agency must obtain relief from the automatic stay to pursuecollection on all types of debts, including “non-dischargeabledebts,” that is, those debts that survive bankruptcy. An agencymust also seek relief from the automatic stay in order to retainfunds upon which the agency places a temporary freeze. See“Litigation” below for information on how to refer a matter toDOJ, which is responsible for legal representation of agenciesbefore U.S. Bankruptcy Courts.


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The debtor is released, or discharged, from having to repay mosttypes of debts after the bankruptcy process is completed, unless thebankruptcy case is dismissed. In certain types of bankruptcy cases,however, the debtor is obligated to pay creditors according to theprovisions of a bankruptcy plan before being discharged. In mostcases, after a debtor is discharged in bankruptcy, an agency isforever precluded from pursuing collecting on most types of debtsincurred by the debtor prior to filing for bankruptcy protection. Agency personnel should consult with agency counsel todetermine whether the debtor’s debts are dischargeable inbankruptcy, whether the agency should take any action to protectits right to recover funds from a debtor in bankruptcy, and for otherinformation concerning bankruptcy laws and procedures.

Litigation

Unless an agency has specific statutory authority to litigate its owndebts, it must refer debts to DOJ for litigation, includingbankruptcy litigation. Debts for which the principal amount is$1,000,000 or less must be referred through DOJ's NationwideCentral Intake Facility (NCIF):

DOJ/NCIFAttn: Case Processing1110 Bonifant Street, Suite 220Silver Spring, MD 20910-3358.

The NCIF tracks, by agency, the number and dollar value ofreferred debts, their age at referral, and case rejection rates. TheNCIF will acknowledge receipt of debts referred by the agencies,route the debts to the appropriate U.S. Attorney or private counselfor litigation, and provide the referring agency with contactinformation for the office receiving the referral. The NCIF willreturn incomplete referrals with a letter specifying the reason forthe declination. Debts greater than $1,000,000 should be referreddirectly to the Civil Division at DOJ:

U.S. Department of JusticeCivil DivisionAttn: Corporate/FinancialLitigation BranchP.O. Box 875Ben Franklin StationWashington, DC 20044


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The agency must make every effort to refer a debt within one yearof the date of delinquency, and only in limited circumstancesshould the agency delay referral to a time when less than one yearremains on the applicable statute of limitations for litigation. FMSwill refer to DOJ for litigation, debts that have been referred toFMS for cross-servicing, when appropriate. When referring a debtto DOJ for litigation, an agency must provide a fully completedClaims Collection Litigation Report (CCLR). The CCLR shouldinclude the following:

C Copies, not originals, of the relevant accountinformation. Originals may be requested by DOJ at a laterdate so the agency must be prepared to produce thempromptly;

C A fully completed Certificate of Indebtedness,submitted as part of the CCLR package. The Certificateof Indebtedness must be an original document, not a copy,and must be signed by an authorized official of the agency;

C A checklist or report of prior collection actions taken. If the agency has not taken an appropriate collection action,then the checklist or report must explain why;

C The current address of the debtor. This may be obtainedthrough various types of research (see page 6-67); and

C Credit data for the debtor. The data must have beenobtained within the past 6 months and can be in any of thefollowing formats:

- A credit report. The credit report may be obtainedthrough GSA’s Federal Supply Schedule forBusiness Information Services (see page 6-70);

- an investigative report stating the debtor's assets,liabilities, income, and expenses;

- an individual's financial statement indicating assets,liabilities, income, and expenses. This statementmust be signed by the debtor and certified as correctunder penalty of perjury; and/or

- an audited balance sheet for a corporate debtor.


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Credit data may be omitted only if:

• the referring agency

- has a surety bond sufficient in amount to satisfy thefull amount of the debt;

- seeks liquidation of the collateral by means ofjudicial foreclosure, but does not intend to obtain adeficiency judgment;

- can document that the debtor is in receivership orbankruptcy; or

- wants DOJ to obtain a judgment against a debtorand return the case to the agency for lienenforcement;

• the value of collateral in a forced sale is sufficient to satisfythe full amount of the debt. If the agency has any doubtwhether the value of the collateral covers the outstandingamount of the debt, including all late charges assessed, thenit must provide credit data;

• the outstanding amount of the debt is fully covered byinsurance and the agency can provide all pertinentinformation, including name and address, on the insurer;and/or

• the debt is owed by an entity for which credit data areunavailable. For example: the debt is owed by a StateGovernment.

The agency must provide the equivalent of the above informationwhen transmitting accounts through an automated system. Thefailure to provide adequate information, as called for in theCCLR, may result in the return of the case from DOJ. Youmay contact DOJ to discuss the information available if you areunsure whether it meets these standards.

Further agency collection actions must cease at the point anaccount is referred for litigation. DOJ will submit an agency’seligible debts to TOP on behalf of the creditor agency. The agencyshould not do so once the account is referred for litigation.


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Fraud/False Claims. In cases of fraud, the account should bereferred immediately to the Fraud Section of the Civil Division atDOJ for action. It is the responsibility of the party who first learnsof the fraud to notify DOJ so that such cases can be acted onpromptly. If DOJ advises the agency that it does not intend topursue fraud or False Claims Act litigation, the agency shouldpursue collection of the debt just as it would any other debt.

Statute of Limitations. Federal law limits the time period withinwhich an agency may file a lawsuit to collect a debt. If the “statuteof limitations” has expired, the agency is barred from initiatinglitigation to collect its debt; however, other debt collection tools,such as administrative offset and referral to a private collectionagency, may be available. Generally, a lawsuit to collect a debtbased on a contract must be initiated within six years after the dateof delinquency (see page 6-4 for the definition of the “date ofdelinquency”). A lawsuit for money damages based on propertydamage or personal injury caused by the debtor must be initiatedwithin three years after the date of the damage or injury. Otherstatutes of limitations may apply to a particular type of debt beingcollected. Therefore, referrals to DOJ for collection throughlitigation or for termination of collection action should be madetimely, that is, at least one year before the applicable statute oflimitations expires. Also, it is extremely important that agencypersonnel consult with agency counsel to determine the statute oflimitations applicable to the debts being collected by the agency.

Further, agency counsel should be consulted to determine whetherthe statute of limitations has been extended in a particular casebased on the debtor’s written acknowledgement of the debt, avoluntary payment made by the debtor, the debtor having fled thecountry, the fact that the agency did not know and reasonablycould not have known about its claim when it first accrued, orsome other reason that allows the time period to be extended.


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Potentially Ineligible Referrals. The agency should not refer adebt for litigation if:

• the debt, exclusive of interest, penalties, and administrativecosts, is less than $2,500. However, debts less than $2,500may be referred if, after consultation with DOJ, the agencydetermines that -

- litigation to collect small claims is important toensure compliance with the agency’s policies orprograms,

- the debt is being referred solely for the purpose ofsecuring a judgment against the debtor, or

- the debtor has the clear ability to pay the debt andthe government effectively can enforce payment;

• the statute of limitations for initiating litigation has expired. However, the debt may be referred if there is a possibilitythat the time to sue has been extended or legislation hasbeen enacted abolishing or waiving the statutes oflimitations as a defense to suits to collect its debts;

• the debt has been written-off/closed-out and collectionaction terminated;

• it is unlikely that litigation will result in full or partialrecovery of the amount owed;

• all available assets have been liquidated and the debtor isunemployed, unless the agency believes that the debtor’sfinancial situation will substantially improve and the statuteof limitations is about to expire;

• the current address of debtor cannot be provided, except inrare circumstances where, after consultation with DOJ, anagency deems it advisable to commence litigation topreserve the agency’s claim;

• the documentation necessary to prove that the debtor isliable for the debt or otherwise support the litigation effortcannot be provided; or


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• the estimated costs of pursuing litigation will probablyexceed the amount recoverable. In this case, the agencyshould consider terminating collection action and writingoff the debt Only when it is critical to an agency'senforcement efforts and is in the government's bestinterests should litigation be pursued regardless of cost. Ifthe agency wishes to pursue enforced collection action forthese reasons, then the checklist or report must explainwhy.

Pre-Referral Requirements. The agency may elect to refer adelinquent debt to DOJ for litigation before referring the debt toFMS’s cross-servicing program or pursuing other administrativedebt collection activities. This may be desirable, for example, ifthe debtor refuses to pay in response to the agency’s demand letterand the debtor owes a large debt, or an important enforcementprinciple is at stake. At a minimum, before referring a debt to DOJfor litigation, an agency must send a final demand letter to thedebtor. See Demand Letter Checklist at Appendix 8 for a list ofthe information that should be sent to the debtor before referringthe debt to DOJ for litigation. The letter should be tailored to thespecific case when a debt is being referred to DOJ prior to referralto FMS for cross-servicing and/or offset.

Post-Referral Activities. Upon referral by an agency andacceptance by DOJ, the U.S. Attorney's office will try to initiatesuit within 45 days of receipt of the case. The U.S. Attorney’soffice will notify the agency when a complaint is filed and when ajudgment is entered, and provide the post-judgment interest ratefor the debt as well as any other information necessary for theagency to properly update its account and maintain an accuratebalance. Interest is compounded on post-judgment debts. DOJmust notify the agency when it closes its case. If DOJ closes thecase and returns the debt to the agency for surveillance (i.e.,monitoring), the agency should write-off the debt and characterizeit as “currently not collectible.”


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If DOJ advises that the debt is uncollectible, the agency shouldwrite-off and “close-out” the debt, and if appropriate, report theuncollectible debt to the IRS as potential income to the debtor onIRS Form 1099-C. See Chapter 7, Termination of CollectionAction, Write-off and Close-out/Cancellation of Indebtedness; andOMB Circular No. A-129 for an explanation of “currently notcollectible” and “close-out.” If the U.S. Attorney’s office has fileda judicial lien for the debt, the agency must submit a request to thatoffice to release the lien at the time the agency closes out the debt. In consultation with DOJ, the agency should establish a trackingsystem to account for cases referred to and returned from DOJsince the agency remains responsible for monitoring accountactivity. DOJ will assess a 3% administrative fee on amountscollected while the case is at DOJ. The agency should pass thiscost along to the debtor whenever possible. See Appendix 10-Afor more information on assessing and accounting for the DOJ fee.

In consultation with DOJ and the U.S. Bankruptcy Courts, theagency will establish bankruptcy notification procedures to ensurethe lien position of the Federal Government is protected. DOJ isresponsible for the legal representation of agencies before U.S.Bankruptcy Courts. Notice of a bankruptcy filing should be sentby the bankruptcy court to both the creditor agency and to the U.S.Attorney’s office in the district where the bankruptcy is filed. Inorder to assure that the government’s proof of claim can be filedwith the bankruptcy court, the agency’s procedures must ensurethat the notice of bankruptcy is sent to the appropriate contactwithin the agency, and that there is consultation where necessarywith the U. S. Attorney's office. This will allow the review ofbankruptcy plans to ensure secured property is recovered for theFederal Government. See Appendix 10-B for documentationrequired for the referral of debts to DOJ.


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Barring Delinquent Debtors from Obtaining Federal Loans, Guaranties andLoan Insurance

As required by the DCIA, a delinquent debtor is ineligible forFederal financial assistance until the delinquency that triggers thebar is resolved. Federal financial assistance includes any Federalloan (other than a disaster loan), loan insurance, or loan guaranty. This eligibility requirement applies to all Federal loan programseven if creditworthiness or credit history is not otherwise a factorfor eligibility purposes, and may be waived only by the head of anagency, or if properly delegated, the Chief Financial Officer orDeputy Chief Financial Officer.

It is extremely important for creditor agencies to properly reportdelinquent debt to appropriate databases so that lending agenciesmay enforce the DCIA loan bar against persons who owe debts tothe government. Delinquent debt databases accessed by lendingagencies as part of loan origination processes include creditbureaus, the Department of Housing and Urban Development’sCredit Alert Interactive Voice Response System (CAIVRS), andthe TOP delinquent debtor database (parts of which are madeavailable to lending agencies and their lenders through a programknown as “DebtCheck”).

Delinquent Status. A debt is considered to be in “delinquentstatus” for purposes of the DCIA loan eligibility requirement if thedebt has not been paid by the payment due date or by the end ofany grace period. A debt is not in delinquent status for purposes ofthe DCIA requirement if:

• the debtor has been released from any obligation to repaythe debt or there has been an adjudication or determinationthat the debtor does not have to pay the debt;

• the debtor is the subject of, or has been discharged in, abankruptcy proceeding, including if the debtor is current onany court authorized repayment plan; or

• the existence of the debt is the subject of an administrativeappeal that has been filed on a timely basis.


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A debt may be considered “delinquent” for other purposes, such asmaking a claim in a bankruptcy proceeding, even though the debtis not in “delinquent status” for purposes of the DCIA loaneligibility requirement.

Delinquency Resolution. A delinquent debtor may be eligible forloan assistance once the delinquent debt is resolved in accordancewith regulations issued by FMS at 31 CFR 285.13. A creditoragency should respond promptly to debtors who seek to resolvetheir debts in order to become eligible for Federal loan assistance. For purposes of the DCIA loan eligibility requirement, a debt isresolved only if the person:

• pays or otherwise satisfies the delinquent debt in full;

• pays the amount of a compromise reached with the creditoragency;

• cures the delinquency (that is, brings the loan or agreementcurrent) under terms acceptable to the creditor agency; or

• enters into a repayment agreement under terms acceptableto the creditor agency.

A debt is not resolved if:

• collection action is suspended or terminated;

• the debt is written off on the agency’s accounting records;or

• the debt has been reported to the Internal Revenue Serviceas a discharge of indebtedness (“closed-out”).


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Revoking/Suspending Licenses or Eligibility

An agency, in accordance with its policies and procedures, shouldconsider suspending or revoking Federal licenses (e.g., pilotlicenses, concession licenses, etc.) or the eligibility of debtors whowillfully fail to pay forfeitures, penalties, or other debts. This mayinclude suspending guaranteed lenders from participation inguaranteed loan programs or not allowing a company to bid on acontract, if the organization is itself delinquent on a governmentdebt. In cases where the creditor agency has no other relationshipwith the debtor, it may be able to implement a suspension orrevocation through an agreement with another agency which does.

An agency may also enter into agreements with state agencies towithhold or revoke state-issued licenses, such as for doctors orattorneys, to the extent allowed by law. The agency shouldconsider taking such actions, particularly for prolonged or repeatedfailures to repay a debt.

In bankruptcy cases, before advising the debtor of an agency’sintention to suspend or revoke licenses, permits or privileges,agencies should seek legal advice from their agency counselconcerning the impact of the Bankruptcy Code.


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Part III – Miscellaneous Topics

Purchasing Credit Reports and Locating the Debtor

An agency may need to obtain additional information about thedebtor to:

• locate the debtor;

• determine the debtor's ability to repay the debt in full andassess the likelihood that the debtor will do so;

• evaluate compromise offers;

• determine a reasonable installment payment plan;

• decide whether to reschedule an account;

• verify information provided by the debtor in support ofrequests for compromise, repayment in installments, orrescheduling;

• determine if an opportunity for administrative offset orsuspending/revoking licenses exists; and

• support litigation.

Credit Reports. There are two types of credit reports available,consumer and commercial. A consumer credit report containscredit information about an individual person. The DCIA expresslyauthorizes a Federal agency to obtain a consumer report on anyperson who is liable for a debt being collected or compromised bythe agency, or for which an agency is terminating collection action. A Federal agency may also obtain a commercial credit report,which contains credit information for a business entity.


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Consumer Credit Report. A typical consumer credit reportincludes an individual’s name, possible aliases, current andprevious addresses, social security number, year of birth, currentand previous employer information, and if applicable, spouse’sname. A consumer credit report will list credit accounts withbanks, retailers, credit card issuers and other lenders. For eachcredit account the report will list the type of loan (revolving credit,student loan, mortgage, etc.) The report will also include the datethe account was opened, the credit limit or loan amounts, accountbalances, any co-borrowers responsible for paying the account, andthe pattern of payment made by the consumer over the previous twoyears (noting the timeliness of payments). The consumer creditreport includes public record information such as Federal, state andcounty court records related to bankruptcies, tax liens or monetaryjudgments. In some states child support payments are reported.

Commercial Credit Report. A commercial credit report includesgeneral information about a business such as the business name,current address and telephone number, if available. The report mayname the principal officers involved in the business, their titles andaddresses.

A commercial credit report will provide trade payment history,including the business’ credit capacity, credit rating, high credit,worth, payment history, and trends for payment. The report alsowill provide financial data on the business, and provide commercialand/or banking relationships, if this information is available. Thecommercial credit report, like the consumer credit report, includespublic record information such as state and county court recordsrelated to bankruptcies, tax liens or monetary judgments.

The commercial credit report also contains information pertainingto Uniform Commercial Code (UCC) filings. UCC filings are doneat the state or county level, and indicate when a business haspledged personal property assets as collateral (such as inventoryand machinery & equipment) to secure credit or debts owed by thebusiness.


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Reviewing Credit Report and Other Financial Information. Anagency should obtain credit reports to verify or determine a debtor’semployment, income, assets, and credit history. To the extentpossible, an agency should also request financial statements, copiesof tax returns, and other supplementary data sources from thedebtor. When using a credit report and other supplementary datasources to determine the debtor’s ability to pay or whether to pursuethe enforced collection of the debt, the agency should review andevaluate the information on the credit report or other financial datain terms of the following questions:

• Does the debtor have other delinquent accounts? If thesole delinquency is a Federal debt it may indicate that thedebtor is giving priority to paying other creditors first. Thedebtor may be able to restructure payment to other creditorsto secure payment in full of the outstanding Federal debt.

• Does the debtor own any assets that are available torepay the debt, such as equity in real property, a secondcar or a boat? If the debtor has sufficient equity in realproperty or other assets, the debtor may be able to secure aloan against an asset to pay his or her debt in full. Non-essential assets such as a boat could be liquidated to pay thedebt in full or to reduce the balance.

• Is the debtor employed? If so, by whom? If employed byanother Federal agency, then the creditor agency couldpursue collection through salary offset. If privatelyemployed, collection may be obtained through anadministrative wage garnishment.

• Are there any current accounts that may soon be paid infull? The money earmarked for payment of these accountsshould be taken into consideration when determining thedebtor’s ability to make payments in installments.

• Does the debtor have too much debt? It may reflect thedebtor's inability to handle the debt incurred and must beviewed as a potential for the filing of bankruptcy,jeopardizing the collection of the delinquency. Conversely,it may indicate the debtor has access to hidden income orassets to pay debt in excess of the debtor’s apparent abilityto pay.


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• Has the debtor declared bankruptcy? The type andtiming of the bankruptcy filing could, in effect, force theagency to stop or suspend all efforts to collect.

Credit reports, as well as other services (such as locating the debtor)are available through GSA’s Federal Supply Schedule for BusinessInformation Services (Special Item Number 520-16). Each agencyneeds to identify the types of reports that will best suit its needs in agiven situation and order the reports accordingly. The costs ofpurchasing a credit report, or obtaining other services, to assist anagency in collecting a debt should be passed along to the debtor aspart of the agency's administrative costs. See Appendix 1 for a keyto reading credit reports.

Locating the Debtor. If an agency cannot locate a debtor, the toolsdescribed below may be used to locate the debtor and/or thedebtor’s assets. When contacting third parties to obtain informationabout a debtor, an agency should ensure that such contacts are incompliance with the Privacy Act and other Federal laws. Anagency should review its procedures with agency counsel to ensurethat any disclosures of information to a third party, as may benecessary to identify a debtor about whom an agency seeksinformation, do not violate Privacy Act requirements.

Depending on the circumstances and the information desired, thefollowing tools may assist the agency in locating the debtor.

GSA’s Federal Supply Schedule for Business InformationServices (Special Item Number 520-16). Contractors on GSA’sschedule are available to supply debtor location services.

Internet Resources. The Internet is a resource for obtaininginformation at no cost to the requestor. Information sourcesgenerally available include telephone directories and addresslocator services.


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Internal Revenue Service. The Internal Revenue Service (IRS)will provide mailing addresses of taxpayers to a Federal agencycollecting debt. Agencies that wish to participate in a computermatching program with IRS to obtain mailing addresses of debtorsin batches of 100 or more should contact:

IRS Office of Governmental Liaison Taxpayer Address Request (TAR) Program Manager 1111 Constitution Avenue, NW CL:GLD:GL Room 1611 IR Washington, DC 20224 Facsimile Number: (202) 622-3041

For a detailed description of computer matching and applicableagency requirements, refer to the Privacy Act of 1974, as amended,which may be found at www.usdoj.gov/foia/privstat.html.

Agencies that wish to obtain mailing addresses from IRS forindividual debtors should contact the local disclosure officer in theIRS office in the State where the agency is located. You can accessyour local IRS office information from www.irs.gov.

Contact with the TAR Manager must include the following:

• Description of your agency's purpose for requesting theinformation and how your agency will use the taxpayers'addresses;

• The Internal Revenue Code section which permits youragency to request address information from the IRS(generally 26 U.S.C. § 6103(m) for debt collectionpurposes);

• The approximate number of annual requests for addressesyou anticipate will be made; and

• Name, title, address, phone and fax number of the personresponsible for administering and maintaining this programif/when your agency begins computer matching.

Note: Participation in computer matching requires the agency toprovide IRS with the taxpayers' social security numbers and names. The IRS advises that taxpayer information, such as name and socialsecurity number, should not be sent by fax.


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An agency should review IRS Publication 1075, Tax InformationSecurity Guidelines for Federal, State, and Local Agencies, forrequirements on how the IRS information must be safeguarded.

For debts being collected through TOP, FMS will assist agencies inrequesting taxpayer mailing address information from the IRS. Forinformation on how to obtain the addresses for debts in TOP, anagency should contact FMS’s Treasury Offset Division at (202)874-0540.

Post Office Trace. A letter on agency letterhead, sent to the UnitedStates Postmaster located at the debtor’s last known post office, canbe used to validate an address or obtain an updated address if aforwarding address was provided. A letter format is available at 39CFR 265.6.

Department of Motor Vehicles. The Department of MotorVehicles may provide a current home address for the debtor and alist of any vehicles registered to the debtor. The identity of thevehicle lien holder may be provided if there is an outstanding lien. The lien holder may be able to provide information to locate thedebtor or his/her assets.

Place of Employment. If the debtor’s employer is known, theemployer may provide information about a debtor, such as a currentaddress and telephone number.


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Automated Collection Services

Automated collection services provide an agency with a means to:

• immediately contact a delinquent debtor by telephone after apayment due date has passed without payment;

• set collection priorities;

• document contacts with a debtor and/or the results of anycollection actions taken;

• generate management reports; and

• track an individual collector's performance.

Automated collection services that are commercially available canbe adapted to meet individual agency or program needs. They canbe designed to provide an automated dialing capability and torequire a minimum of human intervention. An agency with a largevolume of debt should evaluate the feasibility of using automatedcollection services to facilitate debt collection.

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Termination of Collection Action, Write-off Chapter 7 and Close-out/Cancellation of Indebtedness

Overview

An agency has the affirmative responsibility to try to collectdelinquent debts that are owed to the agency, or referred to theagency for collection. However, at some point in the collectionprocess it may become evident that a debt is “uncollectible,” and itmay be appropriate to terminate collection action, and/or write-off the debt.

An agency fulfills its affirmative responsibility to try to collectdelinquent debts by engaging in “active collection.” “Activecollection” means that the debt is being collected through the useof all appropriate debt collection remedies, including, but notlimited to, demand letters, credit bureau reporting, offset,garnishment, foreclosure, litigation, and referral to the Departmentof the Treasury’s (Treasury) Financial Management Service (FMS)for collection (known as cross-servicing). See Chapter 6,Delinquent Debt Collection.

Termination of collection action occurs when “it appears [to anagency] that no person liable on the claim has the present orprospective ability to pay a significant amount of the claim or thecost of collecting the claim is likely to be more than the amountrecovered.” See 31 U.S.C. § 3711(a)(3). Termination ofcollection action is a decision to cease active collection action ona debt, in accordance with criteria set out in the Federal ClaimsCollection Standards, because such action is not economicallyworthwhile or is otherwise inappropriate. Suspension ofcollection action occurs when an agency decides to temporarilycease collection action.

Once an agency terminates collection action, it may pursuepassive collection activities to try to collect the debt. “Passivecollection” means that the debt is no longer being activelycollected; that is, the debt remains secured by a judgment lien orother lien interest, has not been removed from the Treasury OffsetProgram (TOP) or is otherwise being collected by offset, and/or isscheduled for future sale.

Termination of Collection Action, Write-off and Close-out/ Cancellation ofIndebtedness

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Except for agencies with independent statutory authority toterminate collection activity on its own debts, Department ofJustice (DOJ) concurrence is required before an agency terminatesor suspends active collection on a debt over $100,000 (principalonly). DOJ has delegated to FMS the authority to approvetermination of collection action on a debt with a principal amountof $500,000 or less when the debt is being serviced by FMS in itscross-servicing program.

Write-off of a debt is an accounting action that results in reportingthe debt/receivable as having no value on the agency’s financialand management reports. The agency does not need DOJ approvalto write-off a debt since the agency is only adjusting its accountingrecords. Generally, write-off is mandatory for debts delinquentmore than two years, unless documented and justified to the Officeof Management and Budget (OMB) in consultation with Treasury. However, in those cases where material collections can bedocumented to occur after two years, debt cannot be written offuntil the estimated collections become immaterial. See OMBCircular No. A-129, Section V.5.

Currently Not Collectible (CNC) and close-out areclassifications for writing-off the debt that indicate whether or notthe agency will continue debt collection actions after write-off. See OMB Circular No. A-129, Section V.5. At the time of write-off, an agency should classify the debt as CNC when it intends tocontinue cost effective debt collection action. An agency closesout a debt when it determines that further debt collection actionsare prohibited (for example, a debtor is released from liability inbankruptcy) or the agency does not plan to take any future actions(either active or passive) to try to collect the debt.

When a debt is classified as closed-out, an agency must determineif the amount due on the debt should be reported to the InternalRevenue Service (IRS) as potential income to the debtor underSection 6050P of the Internal Revenue Code (26 U.S.C. § 6050P).An agency reports such debts to the IRS using IRS Form 1099-C.


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The program decision to terminate collection action and theaccounting decision to write-off a debt often coincide. Forexample, an agency that refers debts to FMS for cross-servicingnormally should take concurrent actions to terminate collectionaction, write-off the debt and classify it as CNC when:

C the agency is notified by FMS that active collection actionis no longer being taken through cross-servicing; and

C the debt will remain in TOP.

Similarly, an agency should terminate collection action, write-offthe debt, and classify it as close-out when the debt is discharged inbankruptcy, and there are no other debtors from whom collectioncan be sought. However, agencies should be aware that thedeterminations to terminate collection action and to write-off adebt are made for different reasons, and where appropriateand consistent with the agency's debt collection strategy for aparticular class of debts, may be made at different times.

The following charts provide some basic information concerningtermination of collection action, write-off, and the classification ofdebts as CNC and close-out.


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Debt Collection Process Action

Description Authority Timing Comment

TERMINATION/SUSPENSIONOFCOLLECTIONACTION

Termination: Agencystops all active debtcollection action; maycontinue passivecollection action. Suspension: Agency islikely to resume activecollection action at afuture time.

31 USC 3711(a)(3);31 CFR Part 903

Not tied to write-off, but must occurbefore close-out.

Agency decision toterminate/suspendmust comply withFederal ClaimsCollection Standards(31 CFR Part 903). DOJ concurrencerequired for debtsover $100,000.

Accounting Action

Description Authority Timing Comment

WRITE-OFF

Agency reports debtas having no value onfinancial andmanagement reports.

OMB Circular No.A-129

Usually no laterthan 2 years afterdebt delinquency;not tied totermination orsuspension.

At time of write-off,agency must classifythe debt as CNC orclose-out.

CURRENTLY NOTCOLLECTIBLE(CNC)

A classification afterwrite-off when theagency hasdetermined that debtcollection effortsshould continue.


Can only occur atthe time the debt iswritten-off.

CNC classificationdoes not affectagencies’ statutoryand regulatoryresponsibilities topursue debtcollection.

CLOSE-OUT

A classification afterwrite-off when theagency hasdetermined that nofurther active orpassive debtcollection action willbe taken.


Must occur afterwrite-off andtermination ofcollection action;can occur afterCNC classification,if debt was initiallyclassified as CNCat time of write-off.

Agency will not takeany collectionaction after close-out; if required byInternal RevenueCode andregulations, agencymust report closed-out debt to IRS onForm 1099-C aspotential income tothe debtor.


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Termination of Collection Action Criteria

An agency should terminate active collection when one or more ofthe following criteria apply:

1. The agency is unable to collect any substantial amountthrough its own efforts or through the efforts of others. The following items detail factors an agency shouldconsider in determining the likelihood of recovering asubstantial amount of a debt:

C the results of previous collection action taken bythe agency. A good indication that the debt isuncollectible is the return of a debt by a privatecollection agency or from FMS’s cross-servicingprogram without collection and with therecommendation for write-off, or the inability of DOJ to collect on a judgment.

C the present and future financial condition of thedebtor, taking such factors into account as assetsand liabilities (as verified by a credit bureaureport or a current financial statement),employment history and potential for futureearnings, and inheritance prospects. See Chapter6, Delinquent Debt Collection, InstallmentPayments, page 6-20. In some circumstances, thedebtor’s future financial prospects may warrantsuspension rather than termination of collectionaction. See page 7-11 of this Chapter.

C the debtor’s age and health, including disabilitystatus. If the debtor is deceased, the agency shouldfile a claim against the debtor’s estate forliquidation of the debt at the time the estate issettled and all assets disposed.


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C the assets available for liquidation, including thepossibility that assets were fraudulentlytransferred or concealed to avoid liquidation. Agency personnel should consult with agencycounsel regarding fraudulent transfers orconcealments.

C any state law restriction that applies, in theabsence of Federal law, to collections takenwithin a state’s borders. Where a debtor isemployed in a state that prohibits wagegarnishment, an agency should consider the use ofadministrative wage garnishment under the DebtCollection Improvement Act of 1996 (DCIA),which authorizes wage garnishmentnotwithstanding state law. See Chapter 6,Delinquent Debt Collection.

2. The agency is unable to locate the debtor. The agencyshould attempt to locate the debtor using available sourcesas described in Chapter 6, Delinquent Debt Collection,pages 6-67 through 6-72.

3. Costs of collection are anticipated to exceed the amountrecoverable. An agency should not spend more to recovera debt than what is owed, unless a significant enforcementprinciple is at stake. For example, an agency should notspend $200 to collect a $100 debt. The agency’s collectionstrategy should dictate what is reasonable in determiningthe costs and benefits of continuing enforced collectionefforts. The items below contain factors the agency shouldconsider when balancing the costs of collection againstprobable recoveries.

C The amount of any fees associated with using aparticular collection tool. For most collectiontools, such as FMS’s cross-servicing program,TOP, and private collection agencies, the agencywill not pay a fee unless there are collections. Inmany cases, the agency may recover fees by addingthese costs to the debt.


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C Agency expenses associated with the time andresources required to prepare and follow-up on adebt. Costs may be minimal when most of theexpenses are associated with operating anautomated system for tracking account activity.

C The agency’s “success” rates for the availabledebt collection tools. If a given tool has not beenused successfully to collect a particular type ofdebt, then it may not be appropriate for the agencyto require the use of that tool prior to termination,unless use of the tool is mandated by law.

C The probability that the agency will be able torecover its collection costs.

C The need to pursue collection when a significantenforcement principle is at stake.

4. The debt is legally without merit or enforcement of thedebt is barred by applicable statute of limitations. Adebt that is legally without merit is one that was neverowed in the first place and should not have been classifiedas a debt. For example, a court determines that theagency’s interpretation of a statute was incorrect andshould not have resulted in a receivable to the agency. Forpurposes of receivables reporting on the Treasury Reporton Receivables Due from the Public, the agency would“reclassify” the amount.

An agency should not terminate debt collection activitybased solely on the expiration of the statute of limitationsfor initiation of a lawsuit. An agency should consider theavailability of other debt collection remedies that may notyet be time-barred, such as offset and administrative wagegarnishment. For information on statute of limitations, seeChapter 6, Delinquent Debt Collection, page 6-60.


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5. The debt cannot be substantiated. The agency does notor cannot produce the evidence, witnesses, or supportingdocumentation necessary to validate the debt and was notable to obtain a voluntary repayment of the debt. Forexample, the debtor signed a repayment agreement, but theagency cannot locate it in its files, has no record that thedebtor ever agreed that the debt was owed, and the debtorrefuses to repay or compromise the debt.

6. The debt against the debtor has been discharged inbankruptcy. The filing of a petition for bankruptcy is aclear sign that the debtor is either unable or unwilling torepay his/her debts; this by itself often justifies terminationof collection action. All collection activity outside thebankruptcy process must cease upon the debtor’s filing of abankruptcy petition, except as allowed by law or by thebankruptcy court. The agency can, concurrently withterminating active collection, take action to protect itsinterests by filing a proof of claim with the bankruptcycourt. However, an agency may determine that monies torepay the debt are available through the bankruptcyprocess. An agency should consult with its agency counselto determine this. See Chapter 6, Delinquent DebtCollection, page 6-56. For example, the agency may beable to pursue collection on payments provided under abankruptcy reorganization plan, or may be able to obtainthe court’s permission to continue a foreclosure action.

In general, an agency shall terminate collection activity ona debt that has been discharged in bankruptcy, regardless ofthe amount, where there are no other debtors or guarantorsfrom whom collection may be sought. However, ifpayments to the agency are provided for under a plan ofreorganization, an agency may continue collection activityregarding those payments, subject to the provisions of theBankruptcy Code. Offset and recoupment rights maysurvive discharge of the debtor in bankruptcy and undersome circumstances, debts also may survive discharge. Agency personnel should seek legal advice from theagency’s counsel to determine whether the agency’s debtshave survived a debtor’s discharge.


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Exception to Termination of Collection Activity. When asignificant enforcement policy is involved, or recovery of ajudgment is a prerequisite to the imposition of administrativesanctions, agencies may refer debts for further collection action,including litigation, even though termination of collection activitymay otherwise be appropriate.

Before terminating collection activity, the agency should havepursued all appropriate means of collection and determined, basedupon the results of the collection activity, that the debt isuncollectible. Termination of collection activity ceases activecollection of the debt. The termination of collection activity doesnot preclude the agency from retaining a record of the debt forpurposes of:

C selling the debt, if, in consultation with or at the request ofthe agency, the Secretary of the Treasury determines thatsuch a sale is in the best interest of the United States;

C pursuing collection at a subsequent date in the event thereis a change in the debtor’s status or a new collection toolbecomes available;

C offsetting against future income or assets not available atthe time of termination of collection activity; or

C screening future government loan applicants for priorindebtedness.

Agency procedures should require that terminating collectionaction of progressively higher dollar amounts be authorized byprogressively higher-level agency officials. These proceduresshould also require that the signatures of all agency officialsparticipating or concurring in each termination of collection actiondecision be obtained before the action is taken.


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DOJ Concurrence for Terminating Collection Action

Each agency determines when it will terminate collection action onits debts in accordance with governmentwide policy, its ownregulations, authorities, and debt collection strategy. Each agencyis authorized to terminate active collection on debts with principalamounts of $100,000 or less. An agency may terminate activecollection on debts with principal amounts in excess of $100,000only with the concurrence of DOJ, unless the agency has its ownstatutory authority for terminating collection action. If theprincipal amount of the debt is $500,000 or less, and the debt hasbeen serviced by FMS in its cross-servicing program, FMS mayapprove the termination of collection action.

If DOJ concurrence is necessary, an agency should make everyeffort to request such concurrence at least one year before theexpiration of the applicable statute of limitations for collectionlitigation. DOJ concurrence is requested by submitting acompleted Claims Collection Litigation Report to the Departmentof Justice, Civil Division, Commercial Litigation Branch, 1100 LStreet NW, Room 10057, Washington, D.C., 20530. For a copy ofa Claims Collection Litigation Report, see Appendix 10.

As a practical matter, the agency does not need to requestconcurrence from DOJ for termination of collection action if:

• the agency referred the debt to DOJ for litigation and DOJreturned the debt to the agency;

• DOJ determined that litigation is not appropriate andreturned the debt to the agency;

• the debt has been discharged or terminated in bankruptcy;

• the statute of limitations for initiating litigation has expired;or

• the agency determines that the debt is legally without meritor cannot be substantiated.


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The agency should establish:

C a method to track and follow up on the debts referred toDOJ for its concurrence with termination of collectionaction; and

C procedures to ensure that proper action will be taken basedon the agency’s decision to terminate collection, with DOJconcurrence. Such action may include passive collection,write-off, and/or cancellation of indebtedness.

Suspension of Collection Action

An agency may determine that certain circumstances warrantsuspending, rather than terminating, collection action. Whencollection efforts are suspended, the agency, in effect, decides todefer its attempts to enforce collection, for a period of timespecified in its regulations and/or collection strategy. During aperiod of suspension, passive collection action may continue whenappropriate.

Collection action should be suspended only when the agency hasreason to believe that the suspension will enhance the chances ofrecovery, or, at minimum, will not endanger the recovery of thedebt. Such would be the case if the debtor agrees to repay the debtwhen the debtor’s financial condition improves, as would occur ifthe debtor has been only temporarily laid-off from a permanentjob.


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The agency should suspend collection action when one or more ofthe following criteria apply:

1. The agency cannot locate the debtor at the present time. The agency should attempt to locate the debtor usingavailable sources as described in Chapter 6, DelinquentDebt Collection, pages 6-67 through 6-72.

2. The debtor’s financial condition is expected to improve. Suspension would be appropriate if the debtor owns nosubstantial equity in property and is unable to makepayments, but: (a) the debtor’s future financial prospectsjustify retaining the debt and the statute of limitations hasnot expired or has been tolled; or (b) future collections maybe realized through administrative offset; or (c) the debtorhas agreed to pay the interest accruing on the debt duringthe suspension. For example, suspension might beappropriate where the debtor has indicated that he/she isthe recipient of a trust fund or inheritance and would bewilling to pay interest until receipt of the trust fund orinheritance, at which time the debt would be repaid in full. Suspension may also be appropriate when the agency hasevidence that the collectibility of the debt will improve asthe debtor’s income potential improves over time (as hasbeen the general case with education loans).

3. The debtor has requested a waiver or administrativereview of the debt. If the waiver review or administrativereview is considered mandatory, and if suspension ismandated by law or regulation pending such review, thenthe agency must suspend collection action until the reviewis completed or the waiver granted. Otherwise, the agencymay decide on a case-by-case basis whether to suspendcollection action for the duration of the review. Theagency should not suspend collection when an agencydetermines that the request for waiver or review is frivolousor was made primarily to delay collection.


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4. The debtor has filed a petition in bankruptcy. When anagency learns that a bankruptcy petition has been filed withrespect to the debtor, in most cases the collection activityon a debt must be suspended unless the agency can clearlyestablish that the automatic stay has been lifted or is nolonger in effect. Agencies should seek legal adviceimmediately from their legal counsel and, if legallypermitted, take the necessary legal steps to ensure that nofunds or money are paid by the agency to the debtor untilrelief from the automatic stay is obtained. In such cases,the agency may then be able to offset such funds to collecton the debt. See also Chapter 6, Delinquent DebtCollection, page 6-56.

The agency’s procedures for suspending collection action should:

C distinguish between the definition and treatment ofsuspended and terminated debts;

C describe the specific circumstances in which suspension isappropriate;

C provide for the review and monitoring of suspended debtson a regular basis;

C require that progressively higher-level agency officialsauthorize the suspension of progressively higher dollaramounts of debt, with the signature of each agency officialparticipating or concurring in the decision included on theauthorizing document;

C provide for obtaining the concurrence of DOJ with thesuspension of any debts whose principal amounts exceed$100,000, or from FMS for debts in cross-servicing whoseprincipal amounts are $500,000 or less; and

C provide for ending the suspension and for either: (1)reinstating active collection on the debt, or (2) terminatingcollection action on the debt, when circumstances warrantand after review of the specific details at the highestappropriate agency level.


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Note that where a statute requires that the agency suspendcollection action or when the debtor files for bankruptcy, as apractical matter, the agency does not need DOJ or FMSconcurrence to suspend collection action. In these instances, theagency should seek the review of its agency counsel to assure thatsuspension of collection action is mandated by law.

Termination and Suspension of Collection Action and Compromise RegardingFraud Claims

When an agency has a debt arising from fraud, false statements, ormisrepresentations by a debtor, the agency must ask DOJ forauthority to terminate or suspend collection action, or compromisethe debt, regardless of the amount. An agency should consultwith agency counsel to determine whether action under Title 31,Chapter 38, “Administrative Remedies for False Claims andStatements” (31 U.S.C. §3801 - 3812) is appropriate.

Regarding write-off and reporting discharges of indebtedness toIRS, the same rules apply to fraud debts as apply to generally allother types of debts. DOJ approval is not needed by the agency towrite-off the debt as currently not collectible. Similarly, no furtherDOJ approval is needed to close-out the debt or report the debt toIRS as potential income to the debtor once the agency is given theauthority to terminate collection action on the debt by DOJ.

Write-off

Write-off of a debt should occur when the agency determines thatthe debt has no value for accounting purposes. As previouslyindicated in the overview of this chapter, write-off may occurbefore, concurrently with or after the agency determines thatcollection action should be terminated. Generally, write-off ismandatory for debts delinquent more than two years, unlessdocumented and justified to OMB in consultation with Treasury. However, in those cases where material collections can bedocumented to occur after two years, debt cannot be written offuntil the estimated collections become immaterial. See OMBCircular No. A-129, Section V.5.


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All debt must be reserved for in the allowance account, and allwrite-offs must be made through the allowance account. Under nocircumstances are debts to be written off directly to expense. SeeOMB Circular No. A-129, Section V.5

Once the agency determines that a debt has no value foraccounting purposes, it must determine whether or not collectionaction on the debt should continue. Specifically, at the time thedebt is written-off, the agency must determine whether the debtshould be further classified as one of the following:

C Currently Not Collectible (CNC): If the agencydetermines that cost effective collection efforts shouldcontinue after write-off, then the debt will be classified asCNC. Debt collection activities, such as referral to FMSfor collection action for cross-servicing or TOP, shouldcontinue.

C Close-out: If the agency determines that collection actionis legally barred or it is no longer cost effective to pursuecollection, the debt should be classified as close-out. Inmost cases, the closed-out debt must be reported to IRS aspotential income to the debtor.

Cost effective collection efforts should continue if an agencydetermines that continued collection efforts after mandatory write-off have some potential to result in collections. This is especiallytrue if the debt has not yet been referred to FMS for collectionaction, as required by the DCIA. See Chapter 6, Delinquent DebtCollection.


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In summary, within two years of the date of delinquency, theagency should be able to evaluate the likelihood that it will collecton a delinquent debt and either:

C write-off and classify the debt as CNC, which will allowfor further collection action;

C write-off and classify the debt as close-out, which meansthat the agency will cease all debt collection activities onthe debt; or

C document and justify why the debt is not being written-off.

If the debt is written-off and classified as CNC, the debt maybe reclassified as close-out in the future, when all collectionactivities pertaining to the debt cease.

The agency does not need DOJ approval to write-off a debt sincethe agency is only adjusting its accounting records. Except foragencies having independent statutory authority, DOJ concurrenceor FMS concurrence as applicable, is required, however, when anagency suspends or terminates debt collection action on debts over$100,000. See page 7-10 of this Chapter.


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Pursuit of Collection After Write-off/CNC

When pursuing collection of a debt after write-off andclassification as CNC, an agency should:

C if material to its financial statements, disclose its actionsregarding the pursuit of collection on its written-off debtsin a note to its financial statements (i.e., the agency shouldspecifically state the amount of written-off debts undercollection and whenever possible based upon historicalexperience, the amount it expects to collect); and

C establish accounting procedures to account for collectionson written-off debts (e.g., if the agency receives a one-timepayment on a written-off debt, it may restore the amountcollected as a receivable at the time of collection or creditthe amount to a recovery account; and/or if the payment ona written-off debt is recurring and/or regular, the agencyshould restore the total amount of the debt as a receivablein both its General and Subsidiary Ledgers and record eachcollection as if the debt had never been written-off).

Write-Down

Rather than writing-off the entire amount of a collateralizeddebt, an agency may write-down the debt to the collateral’s netrealizable value. The agency may not write-down non-collateralized debts. The agency must appraise the value of thecollateral in relation to the amount of the debt. If the value of thecollateral has declined to the point where its liquidation would notsatisfy the debt in full and there is no other source for thecollection of the debt, then the agency should reduce the amount ofthe debt to the new appraised value of the collateral. The written-down amount should be recognized as a loss. For information onreal estate appraisals, see Chapter 3, Credit Extension, page 3-13.

As is true for write-off, the agency does not need DOJ concurrenceto write-down a debt since the agency is simply adjusting itsrecords to more accurately reflect the amount it expects to collectthrough the liquidation of the collateral.


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Close-out Classification and Discharge of Indebtedness/Issuance of Form 1099-C

Close-out Classification.

As previously stated, the classification of a debt as close-outoccurs when an agency, after determining that additional futurecollection efforts on a debt are prohibited or would be futile,determines to cease all collection activities on the debt. Thisaction may occur concurrently with the initial write-off of a debt,or at a later date, depending upon the agency’s own collectionstrategy and its determination that no further collection activity iswarranted. The determination that a debt should be classified asclose-out is different than the determination that collection actionshould be terminated or suspended. When collection action for adebt is terminated or suspended, there is a determination to ceaseactive collection action on the debt. The agency may still pursuedebt collection activities at its discretion, for example, maintainingthe debt in TOP. The determination that the debt should beclassified as close-out occurs only after the agency hasdetermined to cease all collection activity on the debt.

The decision to classify a debt as close-out triggers the need todetermine if the debt must be reported to the IRS as potentialincome to the debtor on Form 1099-C, “Cancellation of Debt.” Close-out and Form 1099-C reporting are linked because bothactions occur as a result of the agency's decision to cease allcollection activity. Additionally, the two actions are linkedbecause further collection action on the debt is generallyprohibited once the agency reports the uncollected amount tothe IRS on Form 1099-C as potential income to the debtor.


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Therefore, before making the decision to cease all collectionactivity and to classify the debt as close-out, an agency must takeall appropriate steps to collect the debt, including, as applicable:(1) TOP, (2) non-centralized administrative offset, (3) referral toFMS, Treasury-designated debt collection centers or privatecollection contractors, (4) credit bureau reporting, (5) administrative wage garnishment, (6) litigation, and (7) foreclosure. Typically, once a debt has been through FMS’scross-servicing process (as described in Chapter 6, DelinquentDebt Collection) and returned to the agency, any remainingbalance due will be classified as close-out.

Discharge of Indebtedness.

After it is determined that the debt will be classified as close-out,the amount of indebtedness is reported to the IRS as potentialincome to the debtor via Form 1099-C, “Cancellation of Debt.” Under the Internal Revenue Code (26 U.S.C. § 61(a)(12)), incomefrom discharge of indebtedness is defined as “gross income.”Section 6050P of the Internal Revenue Code, as amended by theDCIA, requires all Federal agencies and private financialinstitutions to report certain discharged debts to the IRS. Thereporting requirement covers debts owed by individuals, soleproprietorships, partnerships, and corporations. Types of debtsinclude those arising from loan programs, as well as administrativeactions such as the assessment of fines, fees, and penalties.

The discussion that follows concerning reporting discharges ofindebtedness to IRS contains some of the general rules. Formore detailed information, agencies should refer to IRSregulations 26 CFR 1.6050P-l and any other applicable IRSpublications and guidance.

Section 6050P(a) of the Internal Revenue Code requires the filingof Form 1099-C for discharges of indebtedness of $600 or more. IRS regulations list eight identifiable events that trigger thereporting requirement. Note that these identifiable events, listedbelow, generally dovetail with the reasons an agency would ceaseall collection activity on a debt and classify the debt as close-out.


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The following are identifiable events that trigger reportingdischarge of indebtedness to IRS on Form 1099-C:

C a discharge of indebtedness under Title 11 of the UnitedStates Code (bankruptcy). Note that reporting is requiredonly if the agency knows from information included in itsbooks and records pertaining to the debt that the debt wasincurred for business or investment purposes;

C a cancellation or extinguishment of an indebtedness thatmakes a debt unenforceable in a receivership, foreclosure,or similar Federal or state court proceeding;

C a cancellation or extinguishment of an indebtedness wherea debtor's affirmative statute of limitations defense isupheld and can no longer be challenged by appeal, or acancellation or extinguishment upon expiration of astatutory period for filing a claim or commencing adeficiency judgment proceeding. Note that Federalagencies may still have the ability to collect by offset afterthe statute of limitations for enforcing a claim in court hasexpired; no Form 1099-C should be filed if collecting byoffset;

C a cancellation or extinguishment of an indebtedness thatoccurs when the creditor elects foreclosure remedies thatby law extinguish or bar the creditor's right to collect thedebt;

C a cancellation or extinguishment of an indebtedness thatrenders a debt unenforceable pursuant to a probate orsimilar proceeding;

C a discharge of indebtedness pursuant to an agreementbetween the creditor and the debtor to dischargeindebtedness at less than full consideration (a“compromise,” see page 7-23 of this Chapter);

C a discharge of indebtedness pursuant to a decision by thecreditor, or the application of a defined policy of thecreditor to discontinue collection activity and discharge thedebt; and


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C the expiration of the non-payment testing period (generallya rebuttable presumption of this identifiable event occurswhen the creditor agency does not receive any payment ona debt for a 36 month lookback period as of December 31).

See 26 CFR § 1.6050P-1(b)(2) for more information onidentifiable events.

When reporting a debt to the IRS, the agency is responsible for allof the actions detailed below:

C the agency should capture and provide to the IRS allinformation required by the statute and IRS regulations,including taxpayer/debtor taxpayer identification number,date of the final debt disposition/discharge, and amount ofthe debt. To obtain a taxpayer identification number, theagency should request that the debtor complete and return aForm W-9, “Request for Taxpayer Identification Numberand Certification” available through the Internal RevenueService website at www.irs.gov/formspubs or otherapplicable form, to the extent authorized by law. Thedebtor is obligated to provide this information under theInternal Revenue Code;

C the agency must report the debt after all collection effortshave been exhausted. The agency is not obligated to waitto report a debt until the statute of limitations (SOL) hasexpired, even though the expiration of the SOL constitutesa reason for the debt to be considered discharged;

• the agency must report amounts of $600 or more, but hasthe option of reporting amounts less than $600;

• the agency must report the outstanding principal,administrative costs (but not contingency fees), andpenalties for non-lending transactions. In the case oflending transactions, only the principal must be reported. In both lending and non-lending transactions, reportinginterest is at the discretion of the creditor;


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• the agency must report any deficiency judgment once theagency has stopped its attempts to collect on the judgment(note that once the agency determines to file a Form 1099-C, the agency must officially release anyjudgment relevant to the debt);

• the agency should not report a debt if it has a lien againstthe debtor’s property, unless it decides to release that lien. The agency must notify and obtain the concurrence of DOJprior to closing-out a debt with an outstanding lien if theprincipal amount of the debt is $100,000 or more;

• the agency must provide the debtor with a copy of the Form1099-C to be filed or a written statement of the impendingForm 1099-C report by January 31 of the year followingthe agency’s decision to stop all collection on the debt; and

• the agency must send the Form 1099-C to the IRS byFebruary 28 of the year following the calendar year inwhich the identifiable event occurs (March 31 if filedelectronically).

Note that IRS regulations provide that reporting is notrequired for the release of one debtor if the remaining debtorsare liable for the full unpaid amount of the debt.

For debts referred to FMS’s cross-servicing program, an agencymay request FMS to report the debt to the IRS on the agency'sbehalf.

Once a debt is reported to the IRS, the agency can take no furthercollection action. It may, however, accept voluntary repaymentsof the debt at any time, without any obligation to notify IRS of achange in the debt. For example, voluntary payments may occurwhere a delinquent debtor seeks to satisfy the debt and remove thestatutory bar from receiving Federal loans or loan guarantees. SeeChapter 6, Delinquent Debt Collection, page 6-64. The agencydoes, however, have an obligation to notify IRS of debts that werereported in error. The agency would handle voluntary payments asit would payments received before classification of the debt asclose-out.


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Compromise of Debts

When an agency accepts less than full payment—or in other words“compromises” the debt—it may have to follow the requirementsfor termination, write-off, and close-out for the portion of the debtreleased/discharged. When compromising, the agency mustdetermine whether the proposed compromise meets appropriatestandards. See Chapter 6, Delinquent Debt Collection, page 6-23.

In compromising a debt, the agency must: (a) get approval fromDOJ to compromise the debt when the principal balance of thedebt before compromise exceeds $100,000, or, if the debt is$500,000 or less and the debt is in FMS’s cross-servicing program,get approval from FMS unless the agency has independentstatutory authority to compromise the debt; (b) write-off as close-out the amount of the debt forgiven by compromise; and (c) reportthe discharged amount to the IRS on Form 1099-C, assuming therequirements of IRS regulations are otherwise met. For example,if an agency agrees to accept anything less than the full amountowed for a $300,000 debt because the debtor claims an inability topay, the agency must seek DOJ approval for such compromise. IfDOJ decides not to seek enforcement and approves thecompromise, then the amount discharged should be written-off asclose-out and reported to the IRS on Form 1099-C.

If, however, an agency determines that part of the debt is not owed,then the agency does not need to seek DOJ approval to terminatecollection or compromise such amounts, and the filing of a Form1099-C is not required. For example, if a debtor argues that theamount of the debt should be $150,000, instead of $300,000, basedon the debtor's records, and the agency accepts the debtor'sanalysis, then the amount may be adjusted without seeking DOJapproval or filing a Form 1099-C. In addition, the agency shouldmake an adjustment to the total receivables on the “TreasuryReport on Receivables Due From the Public” to account for thelesser amount owed, rather than report the amount of the reductionas a write-off.

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Chapter 8 Portfolio Sales

Interim Guidance

An updated Chapter on loan portfolio/asset sales will be forthcomingfrom the Office of Management and Budget (OMB) and Treasury’sOffice of Domestic Finance. In the interim, agencies should consult themost recent versions of OMB Circular No. A-11, “Preparation,Submission, and Execution of the Budget” and OMB Circular No. A-129 - “Policies for Federal Credit Programs and Non-TaxReceivables.” These documents are available at:

http://www.whitehouse.gov/omb/circulars

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Appendix 1 Credit Bureau Report Key

Account Status Codes

Information on commercial accounts should be obtained by contacting the respectivecommercial credit reporting agency. The account status codes best describe whether theaccount is current or past due. For codes not described here, contact the credit bureau/creditreporting agency from which the report was generated. The following information is containedin the Metro 2 Format for reporting consumer accounts found athttp://www.cdiaonline.org/data.cfm.

Code Description

05 Account transferred to another office.11 Current account (for installment and mortgage loans, the account should be

current and have a non-zero balance amount). 13 Paid or closed account/zero balance (for installment and mortgage loans, the

account should be paid with a zero balance account).61 Account paid in full was a voluntary surrender.62 Account paid in full was a collection account, insurance claim or government

claim.63 Account paid in full was a repossession.64 Account paid in full was a charge-off.65 Account paid in full was a foreclosure.71 Account 30 days past the due date.78 Account 60 days past the due date.80 Account 90 days pas the due date.82 Account120 days past the due date.83 Account 150 days past the due date.84 Account 180 days past the due date.88 Claim filed with government for insured portion of balance on defaulted loan.89 Deed received in lieu of foreclosure on a defaulted mortgage.93 Account seriously past due and/or assigned to internal or external collections.94 Foreclosure/credit grantor sold collateral to settle defaulted mortgage.

Credit Bureau Report Key

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95 Voluntary surrender.96 Merchandise was repossessed by credit grantor; there may be a balance due.97 Unpaid balance reported as a loss by credit grantor (charge-off).DA Deletes entire account.

NOTE: In order to maintain the integrity of credit information, it is importantthat credit grantors not ask for a subsequent deletion of account history unlessan actual error was reported. Paid derogatory accounts, such as collections,should be reported as paid; they should not be deleted.

Equal Credit Opportunity Act (ECOA) Codes

The ECOA code defines the relationship of the primary consumer to the account anddesignates the account as joint, individual, etc., in compliance with the Equal CreditOpportunity Act.

Code Description

O Undesignated (Not used on accounts opened after 06/1977)1 Individual (Individual primarily responsible for the account)2 Joint contractual Liability (customer and joint borrower contractually liable)4 Joint (Shared account which cannot be more narrowly defined by code 2)6 On-Behalf-Of (Secured credit for another individual other than spouse)7 Maker (Account for which subject is liable but a co-maker is liable if maker

defaults.)T Association with account terminatedW Business/Commercial (Identifies that the company reported in the name fields is

contractually liable for the account.)Z Deletes borrower from account

NOTE: Only inaccurately reported consumers should be deleted.

Credit Bureau Report Key

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Other Reporting Codes Used

The following codes may also be found on a debtor’s credit report:

Code Description

Reporter Name Name of processing company sending the data, i.e, creditgrantor or processor.

Date Opened Date the account was originally opened.Highest Credit orOriginal Loan Amount Line of Credit - highest balance ever attained

Installment Mortgage - original amount of loan (excludinginterest payments)Open - highest balance ever attainedRevolving - highest balance attained

Terms Duration Duration of credit extended (usually stated in months or years)Current Balance Current balance of the accountAmount Past Due Amount past dueOriginal Credit Name Name of company or agent who originally opened accountAccount Type R=Revolving, O=Open, I=InstallmentKOB Kind of Business - For commercial accounts, see credit reportDate of Last Payment Date of last activity on accountEmployer Name Name of Place of EmploymentEmployer Address Address of EmployerOccupation Job Classification

A2-1

Appendix 2 Credit Extension /Servicing Checklist

Agency:__________________________________

Program:_________________________________

Amount Owed:____________________________

Date Debt Incurred:________________________

The Application

1. Has the application been completed and does it contain:

a) Identifying Information:

full name of applicant? YES NOaddress of applicant? YES NOtelephone number of applicant? YES NOtaxpayer identification number (TIN)/certification? YES NOfull name(s) of all co-borrower(s)? YES NOco-borrower(s)' address? YES NOco-borrowes(s)' telephone number? YES NOco-borrower(s)' TIN? YES NO

b) Financial Information:

amount of annual income and sources? YES NOaccount numbers of bank accounts? YES NOname(s) and address(es) of employer(s)? YES NOreal and personal assets? YES NOnames and addresses of creditors? YES NOaccount numbers of amounts owed? YES NOschedule of payments including frequency? YES NOtotal amount of outstanding debt? YES NO

Credit Extension/Servicing Checklist

A2-2

c) Information on Collateral:

location? YES NOestimated value? YES NOdescription? YES NO

d) Statements/Signatures:

all required certifications signed and dated? YES NO

Screening and Analysis

2. Has the application been screened against:IRS' delinquent tax files? YES NOCAIVRS? YES NOTreasury/FMS Debt Check Program? YES NO

If no, was a reason given as to why it has not been documentedin the files? YES NO

3. Has a credit report been purchased? YES NOIf no, has a reason been documented in the files? YES NO

4. Has the information on the application been confirmed using:credit reports? YES NOverification of employment and benefits? YES NOsuppliers? YES NOreferences? YES NO

5. Has the credit report been used to assist in performing a credit analysis? YES NO

6. Has a credit analysis been performed? YES NOIf not, has a reason been documented in the files? YES NOHave the results of the credit analysis been documentedin the files? YES NO


A2-3

7. Has the statement/form certifying that the borrower was informed of the Government's debt collection policies (i.e., debt collection certification) been signed and dated by the borrower? YES NO

8. Has the loan been rated? YES NOIf not, has a reason been given and documented in the files? YES NOHas the documentation supporting the loan rating been maintained? YES NO

9. Has an independent collateral appraisal been obtained? YES NOHas that appraisal been documented in the files? YES NO

10. Have audited financial statements or income tax returns been used to evaluate the loan? YES NO

11. For a commercial loan, has analysis been conducted on:balance sheet and income statement? YES NOmarket share and marketing strategy? YES NOmanagement ability? YES NOworking capital? YES NOthe strength of competition? YES NO

If not, have reasons been given for specific omissions and havethese reasons been documented in the files? YES NO

12. Are the following documents in the file:application? YES NOcredit report? YES NOverification documents? YES NOanalyses of the application? YES NOappraisal of collateral? YES NOlegal documents relating to the loan? YES NOnon-delinquency certification (if not contained on application)? YES NOdebt collection certification? YES NOrecord that applicant has paid all origination/application fees? YES NOloan or services agreement with the debtor containing:

all applicant identifying information? YES NOcollateral description, location and worth? YES NOterms of the agreement? YES NO


A2-4

notification of rights of debtor and Government? YES NOright to call full amount due and payable upon delinquency/default? YES NOrequirements for maintenance/insurance of collateral? YES NOprovisions for assessment of late charges? YES NOcopies of checks or receipts for payment of loan? YES NOapplication or origination fees? YES NO

Servicing

13. Is the following information in the file:identifying information for the borrower and co-borrower(s)? YES NOamount and nature of the debt? YES NOstatus of the account? YES NOsummaries of contacts with the debtor(s)? YES NO

14. If required, has an escrow account been established? YES NO

15. Is there a record of regular billings and payments? YES NO

16. If a new receivable, has the debtor been informed ofagency policy on:

accrual of all late charges? YES NOhis/her due process rights? YES NO

amount of debt and basis of indebtedness? YES NOdeadline for payment? YES NOpossible collection actions? YES NOrequirement to provide taxpayer identification number? YES NO

17. Is the condition of the collateral regularly determined? YES NOAre regular reports on the condition of collateral documented? YES NOIs insurance coverage being maintained on the collateral? YES NOIs adequacy of the insurance coverage being regularly

reassessed and changed as needed? YES NO

18. Has the loan been classified annually? YES NOIf not, has a reason been given and documented in the file? YES NOHas the basis for the classification been maintained in the file? YES NO


A2-5

19. Is financial information updated annually, where appropriate? YES NO

20. Has the account information been reported to the appropriate consumer and commercial credit bureaus? YES NOIf the debt has been referred, has the date of initial referraland the names of the credit bureaus to which the debtwas referred been indicated in the files? YES NOIf no, has the reason been given and documented? YES NO

A3-1

Appendix 3 Early Financial Warning Signs

Balance Sheet

C Failure to submit financial statements in a timely fashionC Slowdown in the collection period for receivablesC Deterioration in customer’s cash positionC Share increases in dollar amounts or percentage of accounts

receivableC Share increases in dollar amounts or percentage of inventoryC Slowdown in inventory turnoverC Decline in current assets as a percentage of total assetsC Deterioration of the liquidity/working capital positionC Marked changes in mix of trading assetsC Rapidly changing concentrations in fixed assetsC Large increase in reversesC Concentrations in noncurrent assets, other than fixed assetsC High concentration of assets in intangiblesC Disproportionate increases in current debtC Substantial increases in long-term debtC Low equity relative to debtC Significant changes in the structure of balance sheetC Presence of debt due to/from officer/shareholdersC Qualified auditC Change of accountants

Income Statement

C Declining sales/rapidly expanding salesC Major gap between gross and net salesC Rising cost percentages/narrowing marginsC Rising sales and falling profitsC Rising levels of bad debt lossesC Disproportionate increases in overhead, relative to salesC Rising levels of total assets, relative to sales/profitsC Operating losses

Early Financial Warning Signs

A3-2

Receivables Aging

C Extended average age of receivablesC Changes in credit policiesC Extended termsC Replacement of accounts receivable with notes receivableC Concentrations of salesC Compromise of accounts receivableC Receivables from affiliated companies

Early Management Warning Signals

C Change in behavior/personal habits of key peopleC Marital problemsC Change in attitude toward bank or banker, especially a seeming

lack of cooperationC Failure to perform personal obligationsC Changes in management, ownership, or key personnelC Illness or death of key personnelC Inability to meet commitments on scheduleC Recurrence of problems presumed to have been solvedC Inability to planC Poor financial reporting and controlsC Fragmented functionsC Venturing into acquisitions, new business, new geographic area, or

new product lineC Desire and insistence to take business gambles and undue riskC Unrealistic pricing of goods and servicesC Neglect or discontinuance of profitable standard linesC Delay in reacting to declining markets or economic conditions C Lack of visible management successionC One-person operations showing growth patterns that strain the

capacity of the owner to manage and controlC Change in business, economy, or industryC Labor problemsC Change in the nature of the company’s businessC Poor financial records and operating controlsC Inefficient layout of plant and equipment

Early Financial Warning Signs

A3-3

C Poor use of people C Loss of key product lines, franchises, distribution rights, or sources

of supplyC Loss of one or more major, financially secure customersC Substantial jumps in size of single orders or contracts that would

strain existing productive capacityC Speculative inventory purchases that are out of line with normal

purchasing practicesC Poor maintenance of plant and equipmentC Deferred replacement of outmoded or inefficient equipmentC Evidence of stale inventory, large levels of inventory, or

inappropriate mix of inventory

A4-1

Appendix 4 Debt Collection Statutes and Websites

Key Statutes

5 U.S.C. 552a Records Maintained on Individuals (Privacy Act)

5 U.S.C. 5514 Installment Deduction for Indebtedness to theUnited States (Federal Salary Offset)

26 U.S.C. 6050P Returns Relating to the Cancellation ofIndebtedness by Certain Entities

26 U.S.C. 6103 Confidentiality and Disclosure of Returns andReturn Information

26 U.S.C. 6402 Authority to Make Credits or Refunds (Tax RefundOffset)

31 U.S.C. 3325 Payment Vouchers

31 U.S.C. 3701 Definitions

31 U.S.C. 3711 Collection and Compromise

31 U.S.C. 3716 Administrative Offset

31 U.S.C. 3717 Interest and Penalty on Claims

31 U.S.C. 3718 Contracts for Collection Services

31 U.S.C. 3719 Reports on Debt Collection Activities

31 U.S.C. 3720A Reduction of Tax Refund by Amount of Debt

31 U.S.C. 3720B Barring Delinquent Federal Debtors from ObtainingFederal Loans or Loan Insurance Guarantees

Debt Collection Statutes and Websites

A4-2

Key Statutes (cont’d.)

31 U.S.C. 3720C Debt Collection Improvement Account

31 U.S.C. 3720D Garnishment

31 U.S.C. 3720E Dissemination of Information Regarding Identity ofDelinquent Debtors

31 U.S.C. 7701 Taxpayer Identifying Number

Public Laws

Chief Financial Officers Act of 1990, Public Law 101-576 (31 U.S.C. 901et seq.)

Computer Matching and Privacy Protection Act of 1988, Public Law 100-503 (5 U.S.C. 552a)

Debt Collection Act of 1982, Public Law 97-365 (5 U.S.C. 5514; 31U.S.C. 3701 et seq.)

Debt Collection Improvement Act of 1996, Public Law 104-134 (5 U.S.C.5514; 31 U.S.C. 3701 et seq.)

Deficit Reduction Act of 1984, Public Law 98-369 (26 U.S.C. 6402 and31 U.S.C. 3720A)

Federal Claims Collection Act of 1966, Public Law 89-508 (31 U.S.C.3701 et seq.)

Federal Credit Reform Act of 1990, Public Law 101-508 (2 U.S.C. 661 etseq.)

Federal Debt Collection Procedures Act of 1990, Public Law 101-647 (28U.S.C. 3001 et seq.)

Debt Collection Statutes and Websites

A4-3

Although Generally Not Applicable to Debt Collection by Federal Employees, theFollowing Public Laws Provide Useful Information for Government Debt Collectors:

Fair Credit Reporting Act of 1970, Public Law 91-508 (15 U.S.C. 1681 etseq.)

Fair Debt Collection Practices Act of 1977, Public Law 95-109 (15 U.S.C.1601 et seq.)

Websites Provided in Chapter 6 and Information Referenced in Citations

www.fms.treas.gov/debt Debt Collection Statutes, Regulations, and GuidanceGuide to the Federal Credit Bureau Program Administrative Wage Garnishment Form SF-329Information on FMS’s Cross-servicing Program Treasury's Current Value of Funds Rate List of Payments That Are Exempt from Offset under Top

www.gpoaccess.gov/fr.index.html Federal Register and CFR Documents

www.opm.gov CSRS and FERS Handbook, Chapter 4 - Debt Collection

www.uscourts.gov/bankform Bankruptcy Proof of Claim Form

www.irs.gov Local IRS Office Information Collection Financial Standards

www.usdoj.gov/foia/privstat.htm Privacy Act of 1974, as amended (includes requirementsfor computer matching programs.)

A5-1

Demand Letter(1st Day)

Collection/Compromise/

Write-0ff

Referral to FMS for Cross-servicing

( at 61 days)

Termination of Collection

Action/Write-off (CNC)

Continue in

TOP

Response from debtor

Closeout/1099-C

Reporting

No responsefrom debtor

Can Debt be Resolved? Yes.

No.

Is Debt Resolved at Cross-servicing?

No current collection after 630

days

No current collection

after 10 years

Yes.

No.

Appendix 5 Debt Collection Strategies

Quick Referral to Cross-Servicing

A5-2

Notice(15 days)

Dem and Letter(30 Days)

Collection/Com promise/

W rite-0ff

Cross-servicing

(After litigation)

W rite-off(CNC)Continue

inTOP

Close out/1099-C

Reporting

Closeout/1099-C

Reporting

In Litigation(after 90 days)

Credit Bureau Reporting(90 days)

Yes.

Term ination of Collection

Activity/W rite-off/Coseout

W rite-off /C lose out/

1099-C Reporting

Can Debt be Resolved?

Can Debt be Resolved?

Response from debtor

Yes

Response from debtor Yes

No

No

Is there an unpaid

balance?

Is debt resolved in Cross-servicing?

Collection/Compromise/

W rite-off/C loseout/1099-C

Yes

No current collection in Cross-servicing after 570

days in Cross-servicing

No current collection after

10 years

No am ount collectible

Collection action should continue

No, Debt paid-in-full,

discharged in bankruptcy

or comprom ised

Debt Collection Strategies

Debts Sent to Litigation

A5-3

N otice(15 days)

D em and Le tte r(30 D ays)

C o llec tion /C om prom ise /

W rite -0 ff

C ross -se rv ic ing(A fte r

liqu ida tion)

W rite -o ff(C N C )C on tinue

inT O P

C lo seou t/109 9-C

R ep orting

R esponse from deb tor

R esponse from debto r

C loseou t/10 99-C

R epo rtin gIn C o lla te ra l L iqu ida tion / Fo rec losu re

(a fte r 60 days)

C red it B ureau R epo rting(90 days)

T e rm ina tion o f C o llec tion

A c tiv ity /W rite -o ff/C lose ou t

W rite -o ff /C lose ou t

C an D eb t be R eso lved?

C an D eb t be R eso lved?

Y es

Y es

N o

N o

Is there a defic iency ba lance ?

Is debt reso lved in C ross-serv ic ing?

C o llec tion /C om prom ise /

W rite -o ff/C loseou t/1099 -C

Y es

N o cu rrent co llection in C ross-serv ic ing

a fte r 570 days in C ross-serv ic ing

N o cu rren t co llec tion a fte r

10 years

N o.

N o am ount co llec tib le

C ollec tion action shou ld continueY es

Debt Collection Strategies

Collateralized Debts

A6-1

Appendix 6 Documentation of Collection Activities

Debt Collection/Write-off Checklist for Individual Debtor Files

Agency:________________________________________

Program:_______________________________________

Debtor Name: _____________________________ Amount Owed:_________________

Debtor Taxpayer Identifying Number_________________ Date Debt Incurred:_____________

1. a. Has the debtor been contacted? Yes No

b. Was the contact by telephone and/or letter? Yes No

c. Number of times debtor has been contacted? 1 2 3 4 5

d. Have any of the calls been documented, with thefollowing information included?

Date of calls Yes NoName of agency representataive who called? Yes NoName of person contacted? Yes NoNotes taken on substance of calls? Yes NoNotes taken on follow-up action of agency? Yes NoDates recorded of follow-up action taken? Yes No

e. Number of letters? 1 2 3Are copies of replies in file or stored electronically? Yes NoAre copies of agency responses to debtor’sletters or notes on agency follow-up actionmaintained in the file? Yes No

f. Are all documents dated? Yes No

Documentation of Collection Activities

A6-2

g. Was the debtor informed in writing of agency policy on:accrual of interest? Yes Nopenalties? Yes Noadministrative costs? Yes Nodebtor’s rights? Yes Noamount and basis of debt? Yes Nopossible collection actions which maybe used to collect the debt? Yes No

h. Was the debt resolved through a:voluntary repayment agreement? Yes Nocompromise? Yes No

i. If such agreement(s) were reached, has the agencydocumented:

terms of the repayment agreement? Yes Noterms of the compromise? Yes No

2. a. Is interest being assessed on the delinquency? Yes NoIf no, is a reason given as to why not? Yes NoIf yes, is the rate of interested also indicated in the file? Yes No

b. Are penalties being assessed on the delinquency? Yes NoIf no, is a reason given as to why not? Yes NoIf yes, is the amount of the penalty indicated inthe file? Yes No

c. Are administrative costs being assessed on thedelinquency? Yes NoIf no, is a reason given as to why not? Yes NoIf yes, are the administrative costs charged alsoindicated in the file? Yes No


A6-3

3. Has the debt been referred to a credit reporting bureau? Yes NoIf a consumer debt, was the debtor notified? Yes NoIs the notification letter in the debtor’s file? Yes NoIs any debtor response also in the file? Yes NoIf the debt has been referred, does the filecontain the date of initial referral? Yes NoAre the names of the credit bureaus to whomthe debt was referred recorded in the file? Yes NoIf not, does the agency retain that informationelsewhere? Yes No

4. Is the debt secured? Yes NoHas liquidation of the security been attempted? Yes NoHas the agency documented:

its decisions whether or not to liquidatecollateral? Yes Noits attempts at liquidating the collateral? Yes Nothe results of any collateral liquidation? Yes No

5. Has the debt been referred to Treasury Offset Program foroffset? Yes No

If not, is a reason given why not? Yes No

6. Has the agency tried to collect the debt using non-centralized offset? Yes No

If not, is a reason given why not? Yes NoHas the debt been referred for cross-servicing? Yes NoIf not, has the reason been documented in the file? Yes No

7. Has the agency authorized the use of administrative wagegarnishment in cross-servicing? Yes No

If not authorized through cross-servicing, hasthe agency attempted to collect the debt usingadministrative wage garnishment? Yes NoIf not, has the reason been documented in the file? Yes No


A6-4

8. If the debt has not been referred for cross-servicing, has the agency referred the debt to a private collection agency? Yes No

If not, has the reason been documented in the file? Yes No

9. Has the debt been referred for litigation? Yes NoIf yes, has the agency properly documented thereferral action in the file? Yes NoIf not, has the reason been documented in the file? Yes No

A7-1

Appendix 7 Sample List of Appropriate Debt Collection Practices

While Federal agencies are not subject to the Fair Debt Collection Practices Act(FDCPA), the FDCPA provides valuable guidance on appropriate practices incommunicating with debtors and can be used as a source in developing anagency’s guidelines. Most of the items on the following list are based on thepractices and prohibitions described in the FDCPA. Additional information aboutthe FDCPA may be found at www.ftc.com.

Disclaimer: On the following page is a list of suggested debt collection practices. Each agency should develop its own practices based on the type of debts beingcollected and applicable laws. Nothing in this list creates any right or benefit,substantive or procedural, enforceable at law by a party against the United States,its agencies, its officers, or any person.

Sample List of Appropriate Debt Collection Practices

A7-2

Do’s & Don’ts of Debt Collection

% DO . . . r DO NOT . . .% contact a debtor in person, by mail, telephone,telegram, or fax in accordance with your agency’s debtcollection practices. It is acceptable to use e-mail inlimited circumstances with the debtor’s consent. Consult with agency legal counsel on the appropriateuse of e-mail and fax.

r contact the debtor at any unusual time or place, ora time or place that you should know is inconvenient tothe debtor. Generally, 8:00 a.m. to 9:00 p.m. (debtor’stime) is deemed to be convenient. Know your timezones!

% clearly identify who you are and that you areattempting to collect a debt when contacting a debtor. Use of “desk names” is acceptable under certainconditions. Check with agency legal counsel beforeusing desk names.

r contact the debtor directly if you know the debtoris represented by an attorney. If the attorney fails torespond to your communication, consult with agencylegal counsel on how to proceed.

% keep an objective written record of allcommunications with a debtor. Be aware that yourwritten record (notes, e-mails, etc.) may be provided tothe debtor upon request or may be subject to discoveryin litigation.

r contact the debtor at his or her place ofemployment if you think that the debtor’s employerdoes not allow such calls.

% be professional, courteous, firm and direct in allcommunications. Talk straight. Avoid getting angryor emotionally involved. Be aware that some debtorsmay record your conversation.

r threaten or use violence or other criminal means toharm the debtor or his or her property. Do not useobscene or profane language.

% listen carefully to the debtor. r continue to contact the debtor after the debtor hasrequested that you stop further communication or thedebtor has stated in writing that he or she refuses topay the debt. You may, however, tell the debtor therewill be no further contact or notify the debtor aboutspecific collection actions to be taken.

% follow up telephone conversations with a writtencommunication, if possible.

r discuss the debtor’s matter with anyone other thanthe debtor unless otherwise authorized by the debtor inwriting. When leaving a message or talking to ananswering machine, leave your name and number only.

% respond promptly to a debtor’s inquiries. r continuously contact the debtor, ring the telephonefor harassment, or threaten action that cannot belegally taken or is not intended to be taken.

% direct debtors to mail checks to a Treasury-approved lockbox. Debtors should be encouraged touse electronic funds transfer mechanisms, such as pre-authorized debit.

r accept a check that is postdated more than 5 daysor threaten to deposit a postdated check early.

A8-1

Appendix 8 Demand Letter Checklist

The following information should be included in a Federal agency's writtencommunication(s) with a debtor at least 60-days prior to referring a delinquent debt to theU.S. Department of the Treasury's Financial Management Service for debt collection(cross-servicing). The information may be included in one letter or a series of letters. Agencies should consult with agency counsel to determine what, if any, additionalinformation is required. Letters should be tailored to meet agency-specific and debt-specific statutory and regulatory requirements.

T Nature and amount of the debt, including the basis for the debt.

T Explanation of how interest, penalties, and administrative costs are added to the

debt.

T Date by which payment should be made to avoid late charges and enforced

collection (generally, 30 days from the date the demand letter is mailed).

T Name, address, and phone number of a contact person or office within the creditor

agency.

T Explain the agency's intent to enforce collection if debtor fails to pay by taking

one or more of the following actions:

— Offset the debtor's Federal payments, including income tax

refunds, salary, certain benefit payments (such as Social Security),

retirement, vendor, and travel reimbursements and advances.

— Refer the debt to a private collection agency.

— Report the debt to a credit bureau.

— Garnish the debtor's wages through administrative wage

garnishment (no court order required).

— Refer the debt to the Department of Justice for litigation (comply

with Executive Order 12988).

— Refer the debt to the U.S. Department of the Treasury for any of

the above-described collection actions (advise debtor that agencies

are required to refer when debt is 180 days delinquent).

Demand Letter Checklist

A8-2

T Explain how debtor exercises the opportunity to:

— Inspect and copy agency's records related to the debt.

— Request a review of agency's determination of the debt.

— If applicable, request a waiver.

— For purposes of salary offset or administrative wage garnishment,

request a hearing.

— Enter into a reasonable written repayment agreement.

T Advise the debtor of the following:

— Notify agency if bankruptcy filed.

— Penalties for knowingly making false or frivolous statements.

— Excess collections will be refunded to the debtor, unless prohibited

by law.

— For Federal salary offset, up to 15% of current net disposable pay

may be deducted every pay period until the debt is paid.

— For joint income tax filers, spouse should file Form 8379 with theIRS to claim his/her share of tax refund.

9A-1

Appendix 9 Sample Financial Statement


9A-2


9A-3


9A-4


9A-5

A10-A-1

Appendix 10-A Handling the Department of Justice’s 3% Fee

Authorities

The Department of Justice’s (DOJ) 1994 Appropriation Act (PL. 103-121)authorized DOJ to retain up to 3% of all amounts collected as the result of its civildebt collection litigation activities. The Debt Collection Act of 1982 (P.L. 97-365)authorized agencies to assess fees to cover the administrative costs associated withhandling and processing delinquent debts. The agency can assess the litigationcollection fee against the debtor only if it has so notified the debtor in an earlierdemand letter.

Agency Options for Handling the Fee

The options described below are based on the following:

Assumptions $7,000 principal $500 interest accrued at DOJ $ 800 interest

$ 400 administrative charges $ 700 penalties $8,900 TOTAL

Examples 1 and 2 also assume that the agency is not assessing the litigationcollection fee against the debtor, whereas Example 3 assumes that the agencyis.

Example #1

DOJ collects the full referred amount of $8,900 plus the interest that has accruedsince referral of $500; DOJ retains as its fee of $282 (9,400 x .03) before returningthe balance to the agency ($9,188). The agency would (1) waive all or part of the$282 fee retained by DOJ and apply the balance to liquidate the remainder of thedebt; and (2) charge the collection fee against either salaries and expenses or theappropriate program/revolving fund. Since the fee was waived, the agency wouldnot report the amount of the fee to IRS on Form 1099-C.

Example #2

DOJ collects a partial payment of $7,100, leaving an uncollected balance of $2,300($8,900 amount referred + $500 interest accrued - $7,100 collected); DOJ retains asits fee $213 before returning the balance of $6,887 to the agency. The agency would(1) waive the collection fee of $213 and write-off the debt balance of $2,300;

Handling the Department of Justice’s 3% Fee

A10-A-2

(2) charge the collection fee against either salaries and expenses or the appropriateprogram/revolving fund; and (3) refer $2,300 to IRS on Form 1099-C. The agencywould not report any waived amounts to IRS. The agency would handle theapplication of this partial collection as it would for any other.

Example #3

The agency decides to add the amount of the 3% fee to the amount referred andcalculates it in the same way as it would for a collection agency.

$8,900 x (1.03) = $9,175

The agency refers a total of $9,175 for collection, including the litigation collectionfee of $275, recording this amount as administrative fee due DOJ. Full collection:DOJ collects the full referred amount of $9,175 plus the interest that has accruedsince referral of $500; DOJ retains its fee of $290 ($9,675 x .03) before returningthe balance to the agency ($9,385). Because of the collection of the interest whichhad accrued since the agency referred the debt, the agency will not collect the fullamount due DOJ; the agency will need to cover the balance of $15 from theappropriate account.

Partial collection: A partial collection of $7,100 results in an uncollected balanceof $2,575 ($9,175 referral + $500 interest accrued - $7,100 collections). DOJ retains$213 and returns $6,887 to the agency. The agency would (1) adjust or 'back out' ofits records $62 since that is the difference between the amount recorded as thelitigation collection fee on the full amount ($275) and the amount actually paid as thecollection fee ($213); (2) write-off the adjusted debt balance of $2,513 (42,575 -$62); and (3) refer $2,513 to IRS on Form 1099-C. The agency would handle theapplication of this partial collection as it would for any other.

Returned account/no collection: If DOJ decides not to pursue litigation on anaccount referred by an agency and returns the case or does not collect any monies ona litigated case, then the agency needs to adjust its records to the original accountbalance of $8,900 (i.e., 'back out' the collection fee of $275). The agency wouldwrite-off and report $8,900 to IRS on Form 1099-C.

For further information, please contact the DOJ Financial Accounting andSystems Directorate, 202/208-1852.

A10B-1

Appendix 10-B Claims Collection Litigation Report and Instructions

NOTE: The CCLR Instructions have not been updated to reflect the new Code of FederalRegulations citations to the Federal Claims Collection Standards (FCCS). The FCCS now appearat 31 CFR Parts 900-904. A comparison of the old FCCS to the current FCCS may be found on theFMS web site at www.fms.treas.gov/debt.”

Page 1 of 9 CCLR INSTRUCTIONS

INSTRUCTIONS FOR COMPLETING CLAIMS COLLECTION LITIGATION REPORT (CCLR)

Section 105.2 of the Federal Claims Collection Standards, 4 CFR 101-105, requires thatall claims referred to the Department of Justice (DOJ) or U.S. Attorneys' Offices (USAO)be accompanied by a CCLR. By referring this claim you certify that your agency hascomplied with the appropriate collection requirements of 4 CFR 101-104. All applicablesections of this CCLR MUST be completed. INCOMPLETE CCLRs WILL BERETURNED. This CCLR package MUST contain AT LEAST the items listed inBLOCK 59 of this form.

SPECIFIC INSTRUCTIONS

These instructions are keyed to the numbered blocks on the CCLR. Agencies forwardingclaims should fill in blocks 1-58, as appropriate, blocks 60 and 61, and block 67. If theprimary debtor is an individual, it may not be necessary to furnish the information calledfor in blocks 26-33. Conversely, if the debtor is a company you may skip blocks 16-25. Ifthis is a foreclosure case, you must also fill in blocks 46-50.

DOJ/USAO personnel who receive claims should fill in blocks 62-66 and mail the"Acknowledgment Form" back to the referring agency.

THE CLAIM AT A GLANCE

1. Agency Claim No.: Insert the number your agency uses to identify this claimhere, at the top of each page of this CCLR. and in block 61 on page 7 of thisCCLR.

2. Date: Insert date you send this CCLR to DOJ or to DOJ's Central Intake Facility(CIF).

3. To: Insert name and complete mailing address of the USAO in whose district thedebtor resides (or in a foreclosure case, the district in which the property islocated), or the DOJ Division to which you are referring this claim. (SEE CCLRMAILING D1RECT1ONS ON "PAGE 6" OF THESE INSTRUCT1ONS.)

Claims Collection Litigation Report and Instructions

A10B-2

Page 2 of 9 CCLR INSTRUCTIONS (continued)

4. From: Insert name and complete mailing address of the agency office referringthe claim.

5. Debtor's Name & Address: Insert first, middle, and last name, and full address, ofthe primary individual debtor, or the full name and address of a company debtorhere. But, if this is a foreclosure case, insert the address of the property to beforeclosed on here, and the debtor's address, if different, in block 46. If propertyto be foreclosed on has no street address, be sure to give directions to property inblock 58 or on a CCLR Supplementary Data Sheet.

6. Debtor's SSN/EIN: If an individual is liable for the debt, insert the individual'sSocial Security Number (SSN) here. If a company is liable for the debt, insert thecompany's Employer Identification Number (EIN). If both an individual and acompany are liable for the debt, insert both the individual's SSN and thecompany's EIN.

7. Default Date: Insert date the debtor originally defaulted on the loan, note, orother obligation, unless the debtor later "cured" that default. In such a case, insertdate of the last "uncured" default which resulted in this claim being referred forlitigation.

8. SOL Expiration Date: Insert date you believe the Statute of Limitations (SOL)for filing suit on this claim will expire.

9. Basis for SOL Expiration Date: Insert the basis of your calculation of the SOLexpiration date; i.e., date of last voluntary payment (involuntary payments suchas IRS tax refund offsets do not count), written acknowledgment of the debt, firstdemand, date lender or guarantor assigned this claim to your agency, etc.

10. Referred for: Insert "X" in appropriate box to indicate what you want DO J/USAto do with this claim. If referred for DOJ concurrence only, insert "X" inappropriate box to show whether concurrence sought for compromise,suspension, or termination. NOTE: IN ADDITION TO ANY OTHER BOXYOU CHECK IN BLOCK 10, IF DEBTOR HAS ALREADY FILED APETITION IN BANKRUPTCY, INSERT "X" IN BOX 10a AND FOLLOWINSTRUCTIONS FOR 10a SET FORTH BELOW.

Enforced Collection: Means you want DO to get a judgment against the debtorand pursue all available post-judgment remedies (wage garnishment, liens filedagainst property, etc.) Required data: Blocks 1-15; 16-25 or 26-33; 34-45, ifapplicable; 51-56; 57-58, if applicable; 60-61; and 67.


A10B-3


Judgment Lien Only: Means you only want DO J to get a judgment against thedebtor, record the judgment as a lien against debtor's property, and return it toyou for surveillance, IRS refund offset, etc. DOJ will not pursue any post-judgment collection remedies in these cases. Required data: Blocks 1- 15; 16-20;24-25 or 26-33, as appropriate; 34-45, if applicable; 60-61; and 67.

Renew Judgment Lien Only: Means that you already have a judgment against thedebtor for this claim but the judgment lien is about to expire and all you wantDOJ to do is to renew the lien and return it to you. Required data: Blocks 1-15;16-17 or 26-27, as appropriate; 60-61; and 67.

Renew Judgment Lien and Enforce Collection: Means that your judgment lien isabout to expire and you want it renewed, and, you have now found some debtorassets which you want DOJ to pursue collection of the renewed lien. Requireddata: Blocks 1-15; 16-25 or 26-33; 34-45, if applicable; 51-56; 57-58, ifapplicable; 60-61; and 67.

Program Enforcement: Means you are referring a claim for less than the minimalreferral amount in 4 CAR 105.4, but you want DO J to collect it because it isimportant to the enforcement of some agency program. Required data: Blocks 1-15; 16-25 or 26-33; 34-45, if applicable; 51-56; 57-58, if applicable; 60-61; and67.

Foreclosure Only: Means you want DO J to foreclose on the debtor's real estateand/or other property which is collateral for the loan which is now in default.You do not, however, want DO J to try to get a deficiency judgment against thedebtor if the amount recovered from the sale of the property is less than theamount of your claim. Required data: Blocks 1-15; 34-45, if applicable; 46-50;54-56; 57-58, if applicable; 60-61; and 67.

Foreclosure & Deficiency Judgment: Means you want DO J to foreclose onproperty which is collateral for the loan and get a deficiency judgment against thedebtor if the proceeds from the foreclosure are less than the total amount of yourclaim against the debtor. Required data: Blocks 1-15; 16-25 or 26- 33; 34-45, ifapplicable; 46-50; 51-56; 57-58, if applicable; 60-61; and 67.

DOJ concurrence for Compromise, Suspension or Termination: Means you onlywant DO to concur with your proposed action on the claim. Required data:Blocks 1-15; 16-25 or 26-33; 34-45, if applicable; 51-56; 57-58, if applicable;60-61; and 67.


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l0a. Debtor in Bankruptcy: Insert "X" here if you have received an "ORDER FORMEETING OF CREDITORS," or any other notice that debtor has filed abankruptcy petition. THEN INSERT AN "X" IN THE APPROPRIATE BOX TOINDICATE CHAPTER 7, 11, 12, OR 13. In such cases, if you have not alreadyfiled your "Proof of Claim" with the Bankruptcy Court, you may use the attachedform (BOP 10) to do so. Checking this box now means you want DO J/USA toseek relief from the automatic stay, or take other appropriate action in thebankruptcy proceedings, to further protect your interests.

Attach to this CCLR a copy of the notice you got from the Bankruptcy Court anda copy of the "Proof of Claim" you filed. Required data: Blocks 1-15; 16-25 or33, as appropriate; 34-45, if applicable; 46- 50, if applicable; 51-56; 60-61; and67.

11. Amount or Claim: Insert figures called for in spaces (a)-(d) and total them inspace (e). Also, insert date through which you calculated the interest due in thesecond line of space (b).

12. Annual Rate or Interest: Insert annual rate of interest applicable to this claim. Ifyou have the daily rate at which interest accrues on this claim prior to judgment,also furnish that rate in Block 58 or on a CCLR Supplementary Data Sheet.

13. Compromise Amount: Insert minimum dollar amount, or percentage of the totalamount of this claim, you will accept to compromise or settle it.

14. Basis or Claim: Insert "X" in appropriate box to indicate whether this claim isevidenced by a note, guaranty, or some other written obligation, and, if not, citelaw or regulation giving rise to the claim.

15. Agency Contact: Insert the name and FTS and Commercial phone numbers of theperson at your agency the DO /USA person assigned to the claim should contactif questions arise about it. THIS MUST BE SOMEONE KNOWLEDGEABLEABOUT THIS CLAIM!

THE INDIVIDUAL DEBTOR

16. Debtor's Name: Insert primary individual debtor's full name. (Note: If theprimary debtor is married but his or her spouse is not a co-debtor, guarantor, orco-signer, use a CCLR Supplementary Data Sheet to furnish the data called for inblocks 16-25 on the debtor's spouse, in addition to the data you furnish on theprimary individual debtor.


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17. A.K.A. (Also Known As): Insert any other name(s) debtor known to have used,including maiden name if applicable, and the name debtor used on the note orloan application involved in this claim if different from debtor's name in blocks 5and 16.

18. Date of Birth: Insert debtor's date of birth.

19. Home Phone No.: Insert debtor's home phone number, including the area code.

20. Employer: Insert full name and address of debtor's employer. Don't forget part-time jobs, if debtor "moonlights.”

21. Debtor's Job Title: Insert debtor's job title/description.

22. Work Phone: Insert debtor's work phone number, including the area code.

23. Salary: Insert debtor's salary, indicate whether gross or net, and how often paid.

24. Service Site: Insert "X" to indicate where Marshal can serve summons andcomplaint on debtor personally. If other than home or work addresses above,specify where.

25. Verified By: Insert name of person who verified the data above, the date verified,and how verified.

THE COMPANY DEBTOR

26. Name: Insert full name of company debtor.

27 Address: Insert company debtor's complete address.

28. D.B.A.: Insert any other name company debtor may use such as "Doing BusinessAs."

29. Phone: Insert company debtor's phone number, including the area code.

30. Type of Business: Insert the form of debtor's business, such as, corporation, soleproprietorship, partnership, etc. If partnership, use CCLR Supplementary DataSheet to list names and addresses of all partners.

31. Date and State of Incorporation: If debtor is a corporation, insert dateincorporated and state of incorporation.


A10B-6


32. Service Agent: Insert name, phone number, and address of agent authorized toaccept service of summons and complaint for debtor, if applicable.

33. Verification: Insert data called for on person who verified above data oncompany debtor. It is particularly important to verify that a company debtor isstill in business.

CO-DEBTOR(S) / GUARANTOR(S) / CO-SIGNER(S)

34. Name(s): Insert full name(s) of any co-debtor(s), guarantor(s), and/or co-signer(s)who may also be liable for this debt if you want DO /USA to try to collect all orpart of it from them. NOTE: If the debtor is married but his or her spouse is not aco-debtor, guarantor, or co-signer, use a CCLR Supplementary Data Sheet toprovide the data on the spouse as requested in Instruction #16 above.

35. SSN/IN: Insert Social Security Number(s) or Employer Identification Number(s)of any co-debtor(s), guarantor(s), and/or co-signer(s).

36. A.K.A. (Also Known As): Insert any other names used by co-debtor(s),guarantor(s), and/or co-signer(s).

37. Date or Birth: Insert birth date(s) of any co-debtor(s), guarantor(s), and/or co-signer(s).

38. Home Address & Phone No.: Insert complete home address(es) and phonenumber(s) of any co- debtor(s), guarantor(s), and/or co-signer(s).

39. Employer: Insert full name(s) and address( es) of any employer(s) of co-debtor(s), guarantor(s), and/or co-signer(s).

40. Work Phone No.: Insert work phone number(s), including area code(s), for anyco-debtor(s), guarantor(s), and/or co-signer(s).

41. Job Title: Insert job title/description of any co-debtor(s), guarantor(s), and/or co-signer(s).

42. Salary: Insert salary of any co-debtor(s), guarantor(s), and/or co-signer(s),indicate whether gross or net, and how often paid.

43. Service Site: Insert "X" to indicate where Marshal can serve co-debtor(s),guarantor(s), and/or co- signer(s) personally. If other than home or workaddress(es) provided, specify where.

44. Basis of Liability: Insert facts giving rise to any co-debtor's, guarantor's, and/orco-signer's liability for this debt, including any family relationship to the primarydebtor.


A10B-7


45. Verified By: Insert name of per SSN who verified data on co-debtor(s),guarantor(s), and/or co-signer(s), the date verified, and how verified.

FORECLOSURES

46. Debtor's Address: Insert debtor's complete address if different from the propertyaddress in Block 5.

47 Mortgage Recording Information: Insert county in which mortgage recorded,date of recording, and the Liber (book or volume) and folio (page number) of therecording.

48. Property Occupancy: Check "yes" or "no" to questions about the currentoccupancy of the property. If property occupied (even if by a tenant), occupant'sname(s) are necessary to institute foreclosure proceedings. If necessary, useCCLR Supplementary Data Sheet to furnish occupancy status.

49. Chattels: If chattels (any property except real estate, such as cars, boats, farmequipment, etc.) are to be recovered in the foreclosure, list them in the spaceprovided or use CCLR Supplementary Data Sheets if necessary. Be sure tospecify what county or counties in which any such chattels are located.

50. Other Federal Liens: Insert here the names of any other Federal agencies whichalso have liens or claims against the same property which is collateral for thedebt owed your agency.

DEBTOR'S ABILITY TO PAY

51. Debtor Property: Insert data on any real estate or other property, such as cars,boats, etc., the debtor(s) and/or co-debtor's, etc., own or are buying. DO/USAneed data on property against which liens can be rued to enforce collection ofthis claim. Include data on the value of the property, the county or counties inwhich it is located, any other liens, and what equity is available to satisfy thisclaim.

52. Assets: Insert data on any debtor assets in which the Government has a securedinterest which may be sold to pay this claim.

53. Other Assets: Insert data on any other assets the Government might be able toattach to pay this claim, such as bank or credit union addresses and accountnumbers, etc. This data may be obtained from any checks your agency may havereceived from the debtor .


A10B-8


AGENCY CLAIM HISTORY

54. Last Demand Date: Insert date of last demand on debtor to pay this claim andsummary of the debtor's response to that demand.

55. Compromise: Insert details of any compromise or settlement offers made by, orto, the debtor and any responses to them.

56. Collection Actions Taken: Insert data on actions taken by your agency to collectthis claim up to this point.

ADDITIONAL INFORMATION

57. HAS Loans: Insert data on medical and/or other professional memberships, etc.,which might help locate the debtor.

58. Additional Comments: Insert any additional comments or information whichmight help locate the debtor and collect this claim. Use CCLR SupplementalData Sheet(s) if required.

59. Check List: Check appropriate spaces to ensure that this CCLR package iscomplete.

CCLR MAILING INSTRUCTIONS

After you have completed this CCLR, and the debt for litigation in the TOTALPRINCIPAL DUE, Block 11a, is $1,000,000 or more, mail this CCLR to:

COMMERCIAL LITIGATION BRANCH Civil Division U.S. Department of Justice P.O. Box 875 Ben Franklin Station Washington, DC 20044

After you have completed this CCLR, and the debt for litigation in the TOTALPRINCIPAL DUE, Block 11a, is less than $1,000,000, mail this CCLR to:

U.S. Department of Justice Nationwide Central Intake Facility 1110 Bonifant Street, Suite 220 Silver Spring, MD 20910


A10B-9


60. Debtor's Name: Insert debtor's full name in this block on the"ACKNOWLEDGMENT FORM."

61. Agency Claim No.: Insert the number your agency uses to identify this claim.

67. Agency Address: Referring agency should insert its address in this space so thatit will show through the window of a window envelope when folded along thelines indicated.

(TO BE COMPLETED BY THE PERSON AT DOJ/USA WHO RECEIVES THECLAIM)

62. DOJ/USA Number: Insert the DOJ/USA number used to identify this claim.

63. Receipt Date: Insert date this claim was received at DO J/USA.

64. Recipient's Name: Print name of DOJ /USA perSSN who actually received thisclaim.

65. Contact: Print name and phone number of DO J/USA person the agency shouldcontact if questions arise about this claim.

66. DOJ/USA RETURN ADDRESS: The person at DOJ/USA who receives thisclaim should insert the receiving office's return address in this space so that itshows through the upper window of an envelope with two windows. Then,detach the last page of this CCLR (PAGE 7 of 7), fold it along the linesindicated, insert the entire page into a window envelope so that the agency'saddress in Block #67 will show through the window of the envelope, and mailthe ACKNOWLEDGMENT back to the referring agency.

67. Agency Address: If the referring agency forgot to insert its address here, DOJ/USA person acknowledging this claim should insert referring agency's addressin this space so that it will show through the lower window of a two (2) windowenvelope.


A10B-10

Page 1 of 7CLAIMS COLLECTION LITIGATION REPORT (CCLR)

1. Agency Claim No. _______________ 2. Date: ______________THE CLAIM AT A GLANCE

3. To: (Use Complete Address) 4. From: (Use Complete Address)Agency/Sub-Agency

5. Debtor’s Name & Address:* ____________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________

*(If a FORECLOSURE, Insert address of property here so claim will be referred to USA where property is located.)6. Debtor’s SSN/EIN: 7. Default Date:

8. SOL Expiration Date: 9. Basis for SOL Expiration Date:

10. Referred for: [ ] Enforced Collection [ ] Judgment Lien Only [ ] Renew Judgment Lien Only [ ] Renew Judgment Lien & Enforce Collection [ ] Program Enforcement [ ] Foreclosure Only [ ] Foreclosure & Deficiency Judgment [ ] File Proof of Claim Only Comments – [ ] Other – real property lien

DO Concurrence for: [ ] Compromise (4 CAR 103) [ ] Suspension (4 CAR 104) [ ] Termination (4 CAR 105)

10a. DEBTOR IN BANKRUPTCY: Chapter: 7 11 12 13 Unknown [ ] [ ] [ ] [ ] [ ]

11. Amount of Claim: a. Total Principle Due _________

Total Interest Due _________

Interest Through Date _________

c. Total Administrative Charges Due _________

d. Total Penalty Charges Due _________

e. Total Amount of Claim _________

An Annual Rate12. Of Interest _________

13. Compromise Amount _________ or % ______

14. Basis of Claim:

[ ] Claim evidenced by note, guaranty, or surety obligation: OR

[ ] Claim not evidenced by note but by the followingstatue or regulation

15: Agency Contact:

Name: . . . . . . . . . . . . . . . . . . .. . . . . . . .

Phone No.: . . . . . . . . . . . . . . . . . . . . . .


A10B-11

Page 2 of 7(CCLR)

Agency Claim No. _______________THE INDIVIDUAL DEBTOR

16. Debtor’s Full Name: 17. A.K.A.:

18. Date of Birth: 19. Home Phone No. (Include Area Code):

20. Employer’s Name and Address: 21 Debtor’s Job Title:

22. Work Phone No. (Include Area Code):

23. Debtor’s Salary: $______________

[ ] Gross [ ] Weekly [ ] Monthly[ ] Net [ ] Biweekly [ ] Annually

24. Best place for Marshal to serve process by personal delivery:(Do NOT give P.O. Box)

[ ] Home [ ] Work

Other (Specify): ___________________________________________________________________________________________________________________________________________________

25. Name of person who verified above data, dateverified, and how verified: __________________ ________________________________________ ________________________________________ ________________________________________ ________________________________________ ________________________________________ ________________________________________

THE COMPANY DEBTORNote: If this claim is to collect a debt owed by an entity other than an individual person, such as a company,

partnership, corporation, etc., additional information will be required. In such cases, insert the datacalled for in blocks 26-33 below and use CCLR Supplementary Data Sheets to furnish additionalinformation, as appropriate.

26. Debtor’s Full Name 27. Debtor’s Address:

28. D.B.A.: 29. Phone No. (Include Area Code)

30. Type of Business: 31. Date of State of Incorporation:


A10B-12

Page 3 of 7(CCLR)

Agency Claim No. _______________32. Name, Address & Phone Number (Include Area Code) of Servant Agent:

33. Name of person who verified above company debtor data, date verified, and how verified.

CO-DEBTOR(S)/GUARANTOR(S)/CO-SIGNER(S)34. Full Name (s): 35. SSN/EIN:

36. A.K.A.: 37. Date of Birth:

38. Home Address/Business & Phone No. (Include Area Code) 39. Employer’s Name & Address:

40. Work Phone No. (Include Area Code) 43. Best place for Marshal to serve process by personal delivery: (Do NOT give P.O. Box) [ ] Home [ ] Work

Other (Specify): ___________________________________________________________________________________________________________________________________________________________________________________________________________________________________

41. Co-Debtor’s Job Title:

42. Salary: $ ______________

[ ] Gross [ ] Weekly [ ] Monthly[ ] Net [ ] Biweekly [ ] Annually

44. Basis of Liability: 45. Name of person who verified above data on co-debtor(s)/guarantor(s)/co-signer(s), date verified, andhow verified: ________________________________________ ________________________________________ ________________________________________ ________________________________________ ________________________________________


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Page 4 of 7(CCLR)

Agency Claim No. _______________FORECLOSURES

Note: If this claim is referred for foreclosure only or foreclosure and a deficiency judgment, thefollowing additional data will be required. In such cases, insert the ate called for in blocks46-50 below and use CCLR Supplementary Data Sheets to furnish additional information, asappropriate.

46. Debtor’s Address: 47. Mortgage Recording Information:

County ________________

Date of Recording ____________ Volume (Liber). . . . . . . . . . . . . . . . . . . . . . . Page Number (Folio). . . . . . . . . . . . . . . . . .

48. Property Occupancy:

Debtor’s Reside on Property: Yes [ ] No [ ]

Property is Abandoned: Yes [ ] No [ ]

Property is occupied by tenant: Yes [ ] No [ ]

49. If recovery of chattels is included in the foreclosure, list that chattels here and provide more detailed information on the CCLR Supplementary Data Sheet:

50. List other Federal liens against property:

DEBTOR’S ABILITY TO PAY51. The debtor/co-debtor owns or is buying the following real estate or other property (cars, boats etc.):

52. Assets in which the Government has been secured interest:

53. Other Assets: (saving/checking accounts, provide bank and/or credit union names(s) and address(s) and account numbers(s)’ deceased debtor’s estate, provide administrator/executor information; other sources of income):

NAME OF BANK ACCOUNT NUMBER ACCOUNT TYPE


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Page 5 of 7(CCLR)

Agency Claim No. _______________54. Date of last demand for payment to debtor and summary of debtor’s response:

55. Details of any compromise settlement offers made by, or to, the debtor and any responses thereto:

56. Summary of collection actions taken by agency:

ADDITIONAL INFORMATION57. For HHS loans: Medical or other professional association locator data:

58. Additional agency comments:

59. AGENCY CHECK LIST: CCLR package must contain:

[ ] CCLR

[ ] Certificate of Indebtedness

[ ] Credit Report

[ ] Payment History, if any

[ ] Original Notes or Other Evidence of Debt,Including Assignments, If Any

[ ] Summary of Collection Actions Taken by Agency

Debtor in Bankruptcy:

[ ] Proof of Claim, or Copy Thereof, Attached

For Foreclosures:

[ ] CCLR

[ ] Credit Report

[ ] Original Promissory Note

[ ] Original Real Estate Mortgage

[ ] Original Statement ofAccount/Affidavit of Amount Due

[ ] Title Evident, If Available

[ ] Directions to Property If No StreetAddress Available

[ ] Chattel Lien Searches If ChattelsInvolved


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Page 6 of 7(CCLR)

Agency Claim No. _______________CCLR SUPPLEMENTARY DATA SHEET

Use this sheet to provide any additional information that might help locate those from whom the claim might be collected and any assets that might be available to satisfy a judgment in favor of the United States. Please indicated the number(s) of the block(s) on the CCLR that any additional data is intended to supplement.


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Page 7 of 7(CCLR)

Agency Claim No. _______________ACKNOWLEDGMENT FORM

__________________________________ (FOLD HERE) ____________________________________

DOJ/USA ACKNOWLEDGMENT TO AGENCY

60. Debtor’s Full Name: __________________________________

61. Agency Claim No.: __________________________________

62. DOJ/USA Number: __________________________________

63. Received at DOJ/USA on: _____________________________

64. Received at DOJ/USA by: _____________________________ (Print Name)

65. Questions?Contact: ____________________________________________________________

(Print Name & Phone Number (Include Area Code) of DOJ/USA Contact)

___________________________________ (FOLD HERE) ____________________________________

66.

67. Please Note: Put the Agency Address and Contact Person Here:

G-1

Glossary

ACCELERATION is declaring the full amount of a debt due and payable in

the event that a debtor defaults on the terms of aninstallment payment agreement. Acceleration is permittedin accordance with an acceleration clause included in theagreement.

ACCOUNT SERVICING includes monitoring the status of accounts of indebtedness,monitoring records of current debts, billing for amountsdue, collecting amounts due, handling debtorcorrespondence, performing follow-up functions, andproviding accurate reporting of debt portfolios.

ACCRUE is the process of increasing account value, usuallyassociated with interest or other time-dependent incrementsof account value.

ACTIVE COLLECTION means that the debt is being collected through the use of allappropriate debt collection remedies, including but notlimited to, demand letters, credit bureau reporting, offset,garnishment, foreclosure, litigation, and referral to theDepartment of the Treasury (Treasury) for collection(known as cross-servicing).

ADMINISTRATIVE COSTS/LATE CHARGES are additional costs incurred in processing and handling a

debt because it has become delinquent. Costs should bebased on actual costs incurred or cost analyses whichestimate the average of actual additional costs incurred forparticular types of debt at similar stages of delinquency. Administrative costs should be accrued and assessed fromthe date of delinquency. (See “Delinquent.”)

ADMINISTRATIVE OFFSET is to withhold money payable by the Government to or heldby the Government for a person or entity in order to satisfya debt that the person or entity owes.

Glossary

G-2

ADMINISTRATIVE WAGEGARNISHMENT (AWG) is a process whereby a Federal agency issues a wage

garnishment order to a delinquent debtor’s non-Federalemployer. No court order is required. The employerwithholds amounts from the employee’s wages incompliance with the order and pays those amounts to theFederal creditor agency to which the employee owes adebt.

APPRAISAL is a formal valuation of property, made by a competentauthority.

ASSET is any item of economic value either physical in nature(such as land) or a right to ownership, expressed in cost orsome other value, which an individual or entity owns.

AUTOMATIC STAY INBANKRUPTCY is the statutory court order that prohibits a creditor from

pursuing further collection action against a debtor while thedebtor’s bankruptcy is pending.

BANKRUPTCY is a legal procedure for dealing with debt problems ofindividuals and businesses; specifically, a court case filedunder one of the chapters of title 11 of the United StatesCode (Bankruptcy Code).

BARRING DELINQUENTDEBTORS is a statutory requirement under the Debt Collection

Improvement Act of 1996 that prohibits persons delinquenton a Federal non-tax debt from receiving Federal financialassistance in the form of a Federal loan, or a federallyguaranteed or insured loan.

CENTRALIZED OFFSET or Treasury Offset Program (TOP) is a process that allowsagencies to submit delinquent debts to one centralizedlocation, Financial Management Service, for collectionthrough the offset of all eligible Federal payments.

Glossary

G-3

CLAIM is interchangeable and synonymous with the term “debt,”for purposes of this document. (See “Debt”.)

Alternative meanings of the word “claim” include a request(1) submitted by a lender for Government payment of adefaulted guaranteed loan; (2) filed with the Department ofJustice for the pursuit of litigation and/or enforcedcollection of an account; or (3) filed with an agency for thepayment of an amount considered due to the submittingindividual or organization, such as for medical insurance.

CLAIMS COLLECTIONLITIGATION REPORT (CCLR) is a Department of Justice form for use in referring debts to

the Department of Justice for litigation and enforcedcollection. The CCLR is also used for the referral of debtsto the Department of Justice for its concurrence on aproposed compromise, suspension or termination ofcollection action.

CLOSE-OUT is one of two classifications of write-off. An agency closesout a debt when it determines that further debt collectionactions are prohibited (for example, a debtor is releasedfrom liability in bankruptcy) or the agency does not plan totake any future actions (either active or passive) to try tocollect the debt. At close out, an agency may be requiredto report to the IRS the amount of the debt as potentialincome to the debtor on IRS Form 1099.

COLLATERAL is any property pledged as security for a loan.

COLLECTION is the process of receiving amounts owed to theGovernment, such as payment on a debt.

COMMERCIAL is an adjective used to signify a business activity,regardless of whether that activity has been undertaken byan individual or business. For example, a loan to a farmerto purchase additional land for farming would beconsidered a commercial loan.

Glossary

G-4

COMPROMISE is to accept less than the full amount of the debt owed fromthe debtor in satisfaction of the debt. Also referred to as“settlement.”

CONSUMER is an adjective used to signify a personal activity. Forexample, a loan to a farmer to buy a personal residencewould be considered a consumer loan.

CREDIT is a promise of future payment in kind or in money given inexchange of present money, goods, or services.

CREDIT BUREAU(aka CREDIT REPORTINGAGENCY) is a private sector entity which collects financial

information on debtors and whose reports on debtors reflectinformation received from the public and private sectors.

CREDIT EXTENSION involves the review and approval of requests for short andlong-term credit.

CREDIT MANAGEMENT/DEBT COLLECTION CYCLE is the complete credit process which is composed of four

phases; credit extension, account servicing, delinquent debtcollection, and termination/write-off/close-out/discharge ofindebtedness.

CREDIT REPORT is a document issued by a credit bureau containing dataabout the credit history of a person.

CREDIT REPORTINGAGENCY See “credit bureau”

CREDITOR AGENCY refers to a Federal agency that is owed money by a person.

CROSS-SERVICING is the process whereby agencies refer delinquent Federalnontax debts to FMS for collection. FMS applies a varietyof collection tools once agencies refer their debts.

Glossary

G-5

CURRENTLY NOT COLLECTIBLE is one of two classifications of write-off. At the time of

write-off, an agency should classify the debt as Currentlynot collectible (CNC) when it intends to continue costeffective debt collection action.

DEBT is interchangeable and synonymous with the term “claim,”for purposes of this document. It refers to an amount ofmoney or property which has been determined by anappropriate Federal official to be owed to the U.S. fromany person, organization, or entity other than anotherFederal agency.

Included as debts are amounts due the U.S. from loans,fees, duties, leases, rents, royalties, services, sales for realor personal property, overpayments, fines, penalties,damages, taxes, interest, forfeitures, and other sources.

DEBT COLLECTION describes the efforts to recover amounts due after thedebtor fails to make the payment. This activity includes theassessment of the debtor’s ability to pay, the exploration ofpossible alternative arrangements to increase the debtor’sability to repay and other efforts to secure payment.

DEBT COLLECTIONSTRATEGY is an organized plan of action incorporating the various

collection tools to be used by an agency to recover debt. Each agency should establish and implement effectivecollection strategies that suit the agency’s programs andneeds.

DEFICIENCY represents that portion of a loan which remains outstandingafter collateral property has been liquidated (converted tocash) and applied to the outstanding balance.

Glossary

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DELINQUENT A debt becomes delinquent when (1) payment is not madeby the due date or the end of the "grace period" asestablished in a loan or repayment agreement, in the case ofdebt being paid in installments (the date of delinquency isthe payment due date); or (2) payment is not made by thedue date specified in the initial billing notice, in the case ofadministrative debts such as fines, fees, penalties, andoverpayments. The due date is usually 30 days after theagency mailed the notice. The date of delinquency foradministrative debts is the date the agency mailed ordelivered the billing notice.

DEMAND LETTER is a written notification sent by the agency to the debtor tonotify the debtor of the debt’s delinquent status when thedebt is not resolved after the initial contact with the debtor. The demand letter may include notice of various debtcollection tools that could be used to collect the debt, aswell as opportunities to avoid the debt collection actions.

DISCHARGE is to satisfy a debt as a legal obligation through theperformance of the obligation(s) imposed under the debtinstrument, such as to pay the debt in full, or throughanother action such as a compromise.

DISCHARGE IN BANKRUPTCY is a release of a debtor from liability for certain debts. A

discharge in bankruptcy prevents the creditors owed thosedebts from taking any action against the debtor or thedebtor’s property to collect the debt.

DISCHARGE OF INDEBTEDNESS is an amount of a debt which will not or cannot be collected

from a debtor and is defined as income to the debtor thatmay be taxable under the Internal Revenue Code. Thereare eight identifiable events under IRS regulations thattrigger reporting discharge of indebtedness to IRS on Form 1099-C.

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DISPOSABLE PAY is an amount of a person’s wages based on subtracting fromgross pay certain statutory or regulatory deductions fromgross pay (such as income taxes). Disposable pay is usedto determine the amount which can be offset from a FederalSalary, and is used to determine the amount which may becollected from a debtor’s non-Federal pay throughadministrative wage garnishment.

DUE PROCESS in the context of Federal debt collection, the constitutionalright of “due process” requires an agency to providedebtors with notice of, and the opportunity to dispute, adebt or intended debt collection action. The FifthAmendment to the United States Constitution provides thatno person shall “be deprived of life, liberty or propertywithout due process of law. . . ”

FEDERAL CLAIMSCOLLECTION STANDARDS are the Governmentwide debt collection standards

published jointly by Treasury and the Department ofJustice in Title 31 of the Code of Federal Regulations(CFR), Parts 900 through 904 (31 CFR Parts 900 – 904).

FINANCIAL ADVISOR assists and represents the interests of an agency during aportfolio sale.

FORECLOSURE is a legal proceeding to terminate a mortgagor's interest inproperty, instituted by the lender (the mortgagee) either togain title or to force a sale in order to satisfy the unpaiddebt secured by the property.

IRS FORM 1099-C/ CANCELLATION OF DEBT is the form a creditor uses to report to the Internal Revenue

Service a discharge of indebtedness. INSURANCE is a type of guarantee in which any agency pledges the use

of accumulated insurance premiums to secure lendersagainst default on the part of borrowers. “Loan insurance”is considered the equivalent of a “loan guarantee.”

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INSTALLMENT LOAN/AGREEMENT represents an obligation to repay monies borrowed or owed

in more than one payment at fixed intervals over time.

INTEREST is a sum paid or calculated for the use of capital. Financinginterest is the charge assessed as a cost of extending creditas distinguished from additional interest which is thecharge assessed on delinquent debts in order to compensatethe Government for the time value of money owed and notpaid when due. Additional interest is accrued and assessedfrom the date of delinquency.

JOINT AND SEVERALLIABILITY is liability shared by two or more parties, where each party

is individually responsible for the entire obligation or debt.

LATE CHARGES are the amounts accrued and assessed on a delinquent debt;the term includes administrative costs, penalties, andadditional interest.

LEGALLY ENFORCEABLE is a condition precedent for a debt being eligible for referralto FMS for collection action. A debt is considered legallyenforceable for purposes of referral for cross-servicing ifthere has been a final agency determination that the debt isdue and there are no legal bars to one or more of thecollection actions to be taken by FMS.

A debt is considered legally enforceable for TOP purposesif there has been a final agency determination that the debtis due and there are no legal bars to collection through theoffset of Federal payments.

LETTER OF AGREEMENT is a document that details the terms of the cross-servicingarrangement between FMS and the agency referring debtsto FMS.

LIABILITY represents an amount owed (i.e., payable) by an individualor entity, such as for items received, services rendered,expenses incurred, assets acquired, construction performed,and amounts received but not yet earned.

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LITIGATION means any lawsuit or other resort to the courts to determinea legal question or matter. Litigation may be used, whereappropriate, to enforce collection on a debt.

LIQUIDATION is the process of converting collateral to cash in order topay all or a portion of the debt.

LOAN is an extension of credit in exchange for a promise to repaythe amount of funds available for disbursement after theyhave been disbursed. The amount of funds disbursed is tobe repaid (with or without interest and late fees) inaccordance with the terms of a promissory note and/orrepayment schedule.

Direct Loan is an obligation created when: the Government agrees todisburse funds and contracts with the debtor for repayment,with or without interest; the Government acquires aguaranteed loan in satisfaction of a default or other claim; aFederal agency purchases non-Federal loans throughsecondary market operations; or an agency sells assets oncredit terms of 90 days or more.

Guaranteed loan is a contingent liability created when the Governmentassures a private lender who has made a commitment todisburse funds to a borrower that the lender will be repaidto the extent of the guarantee in the event of default by thedebtor.

LOAN-TO-VALUE RATIO represents the proportion of the amount of a loan to thevalue being pledged to secure that loan. It is derived asfollows: total financing costs (i.e., the market value of thecollateral plus the financed portion of any closing costs,insurance premiums, or other transaction-related expensesless the borrower’s cash downpayment) divided by themarket value of the collateral.

LUMP SUM PAYMENT is a single nonrecurring payment on a debt. This term isused most often when a payment is made to pay a debt infull.

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NON-CENTRALIZED OFFSET is ad hoc offset on a case-by-case basis. An agency shoulduse centralized offset (Treasury Offset Program) toeffectuate offset except in certain limited circumstances asexplained in Chapter 6.

OFFSET See “Administrative Offset” above.

PASSIVE COLLECTION means that the debt is no longer being actively collected;that is, the debt remains secured by a judgment lien or otherlien interest, has not been removed from the TreasuryOffset Program (TOP) or is otherwise being collected byoffset; and/or is scheduled for future sale.

PENALTY is a charge assessed on delinquent debts to discouragedelinquencies and encourage early payment of thedelinquent debt in full. The rate to be assessed is set bylaw at no more than 6% per year and is assessed on theportion of a debt remaining delinquent more than 90 days,although the charge will accrue and be assessed from thedate of delinquency.

PERSONAL PROPERTY consists of tangible, movable assets, such as automobiles,planes, and boats.

PRE-AUTHORIZED DEBIT is a form of payment which allows the agency to debit thebank account of a borrower/debtor as a result of a prioragreement between the borrower/debtor and the agency ona pre-determined schedule consistent with applicable laws.

PREPAYMENT is a partial or full repurchase or other advance deposits ofoutstanding loan principal and interest by theborrower/debtor. The repurchase often may be made at adiscount from the current outstanding principal balance.

PRINCIPAL is the amount owed to the Government by a borrower orother debtor which excludes interest, penalties,administrative costs, loan fees, and prepaid charges.

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PRIVATE COLLECTION AGENCY is a private sector entity whose primary business is the

collection of delinquent debts.

PROOF OF CLAIM FORM is an official form submitted in a bankruptcy proceedingdescribing the reason a debtor owes a creditor money.

REAL PROPERTY consists of tangible, non-movable assets, such as land andbuildings.

RECEIVABLE is an amount owed the Government by an individual,organization, or other entity to satisfy a debt or claim. Examples of receivables generated by Governmentactivities include amounts due for taxes, loans, the sale ofgoods and services, fines, penalties, forfeitures, interest,and overpayments of salaries and benefits.

RECOUPMENT is a special type of offset of a payment made under acontract to collect a claim arising under the same contract.

RECURRING PAYMENTS for the purposes of centralized offset, recurring paymentsare those payments made to individuals that are expected tobe paid to the payee at regular intervals, at least four timesannually. Recurring payments do not include paymentsmade pursuant to a contract, grant agreement orcooperative agreement.

REPAYMENT AGREEMENT establishes the terms and conditions governing the recoveryof a debt. Repayment agreements should be written orreduced to writing as soon as possible after such anagreement is reached.

RESCHEDULING is a change in the existing terms of a loan, specificallythose that reflect repayment of the debt.

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ROUTINE USE is a use identified in an agency’s Privacy Act system ofrecords notice that describes to whom informationpertaining to individuals may be disclosed and for whatpurpose. One or more routine uses may be necessary toauthorize the disclosure of information about an individualdebtor for delinquent debt collection purposes.

SALARY OFFSET is the process of collecting a delinquent Federal nontaxdebt from a Federal employee’s current pay without his orher consent. Salary offset should be accomplished throughcentralized offset, unless centralized offset is unavailable.

SECURED DEBT is a debt for which collateral has been pledged.

SERVICER is an entity under contract to a lender or agency to performaccount servicing functions.

SUSPENSION OF COLLECTION ACTION is to place active collection action temporarily in abeyance

due to the existence of a particular set of circumstances. Suspension of collection action is most appropriate in thosecases where an agency has reason to believe that thesuspension will enhance the chances of recovery, or, atminimum, will not endanger the recovery of the debt.

SYSTEM OF RECORDS is a term under the Privacy Act of 1974 that describes agroup of records under the control of an agency from whichinformation about individuals is retrieved by theindividual’s name or other personal identifier. When anagency has a “system of records,” certain requirements andrestrictions delineated in the Privacy Act of 1974 apply tothe collection, maintenance, use and dissemination of therecords and information.

TAXPAYER IDENTIFYINGNUMBER (TIN) is the Social Security Number (SSN) for individuals or the

Employee Identification Number (EIN) for businessorganizations or non-profit entities.

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TERMINATE COLLECTIONACTION is a decision to cease active collection action on a debt, in

accordance with criteria set out in the Federal ClaimsCollection Standards, because such collection action is noteconomically worthwhile or is otherwise inappropriate. The program decision to terminate collection action and theaccounting decision to write-off a debt often coincide,however, the determinations to terminate collection actionand to write-off a debt are made for different reasons, andwhere appropriate and consistent with the agency's debtcollection strategy for a particular class of debts, may bemade at different times.

TREASURY REPORT ONRECEIVABLES DUE FROM THE PUBLIC (TROR) is the Department of the Treasury’s only comprehensive

means for periodically collecting data on the status andcondition of the Federal Government’s non-tax debtportfolio, in accordance with the requirements of the DebtCollection Act of 1982 and the Debt CollectionImprovement Act of 1996 (DCIA). The informationcontained in the report is obtained from the various federalagencies and is disseminated to Congress, the Office ofManagement and Budget, agency Chief Financial Officers,the Federal Credit Policy Working Group, other officialsand representatives of Federal and state organizations,private sector organizations, and the public.

WORKOUT GROUP is a group established within an agency, whose solepurpose is to resolve or attempt to resolve troubled debts.

WRITE-DOWN is an action taken rather than write-off where an agencyreduces the value of a debt for accounting purposes to itscollateral’s net realizable value. The agency may not write-down non-collateralized debts.

WRITE-OFF is an accounting action that results in reporting thedebt/receivable as having no value on the agency’sfinancial and management reports. The agency does notneed DOJ approval to write-off a debt since the agency isonly adjusting its accounting records.