RD Instruction 1956-B

Table of Contents

Page 1

PART 1956 - DEBT SETTLEMENT

Subpart B - Debt Settlement - Farm Loan Programs and Multi-Family
Housing

## [Table of Contents]{.underline}

[Sec]{.underline}. [Page]{.underline}

1956.51 Purpose. 1

1956.52 - 1956.53 \[Reserved\] 1

1956.54 Definitions. 1

1956.55 - 1956.56 \[Reserved\] 2

1956.57 General provisions. 2

\(a\) Application of policies. 2

\(b\) Information needed for debt settlement. 2A

\(c\) Negotiating a settlement. 3

\(d\) Disposition of property. 3

\(e\) Proceeds from the disposal of security prior to

approval of a debt settlement offer. 3

\(f\) County Committee review. 4

\(g\) Settlement when legal or investigative action has

been taken, recommended, or is contemplated. 4

\(h\) Advice from OGC. 5

\(i\) Settlement of claims against estates. 5

\(j\) Joint debtors. 5

\(k\) Settlement where debtor owes more than one

type of Agency loan. 6

\(l\) No previous debt forgiveness. 6

1956.58 - 1956.65 \[Reserved\] 6

1956.66 Compromise and adjustment of nonjudgment debts. 6

\(a\) FLP debts. 6

\(b\) Housing debts (both Single-Family and Multi-Family) 7

\(c\) Unsecured debts. 8

1956.67 Debts which the debtor is able to pay in full

but refuses to do so. 8

1956.68 Compromise or adjustment without debtor\'s

signature. 9

1956.69 \[Reserved\] 10

(04-28-99) PN 304

RD Instruction 1956-B

Table of Contents

Page 2

[Sec]{.underline}. [Page]{.underline}

1956.70 Cancellation. 10

\(a\) With application. 10

\(b\) Without application. 10

\(c\) Signature of debtor cannot be obtained. 12

1956.71 Settling uncollectible recapture receivables. 12

1956.72 - 1956.74 \[Reserved\] 12

1956.75 Chargeoff. 13

\(a\) Judgment debts. 13

\(b\) Nonjudgment debts. 13

1956.76 - 1956.83 \[Reserved\] 14

1956.84 Approval or rejection. 14

\(a\) Approval authority. 14

\(b\) Processing and approval. 15

\(c\) Requesting additional information. 15

\(d\) Rejection processing. 16

\(e\) Appeal rights. 16

\(f\) Unauthorized approval of FLP debt settlements 16A

1956.85 Payments and receipts. 16A

\(a\) Servicing office handling. 16A

\(b\) Finance Office handling. 17

1956.86 Reporting to the Internal Revenue Service (IRS). 18

1956.87 - 1956.95 \[Reserved\] 18

1956.96 Delinquent adjustment agreements. 18

1956.97 Disposition of promissory notes. 19

1956.98 \[Reserved\] 19

1956.99 Exception authority. 19

1956.100 OMB control number. 20

Exhibit A - Settlement of Farm Loan Programs Debts

Exhibit B - Processing Debt Settlements for Borrowers Who Have

Received Previous Debt Forgiveness

## oOo 

RD Instruction 1956-B

PART 1956 - DEBT SETTLEMENT

Subpart B - Debt Settlement - Farm Loan Programs and Multi-Family
Housing

§ 1956.51 [Purpose]{.underline}.

This subpart delegates authority and prescribes policies and procedures
for settlement of debts owed to the United States under the Farm credit
loan programs of the Farm Service Agency (FSA) and the Multi-Family
Housing (MFH) program of the Rural Housing Service (RHS). It also
applies to Nonprogram (NP) loans secured by MFH property of the RHS.
Settlement of claims against recipients of grant funds for reasons such
as the use of funds for improper purposes is also covered under this
subpart. Settlement of claims against third party converters, and
Economic Opportunity (EO) loans is authorized under the Federal Claims
Collection Standards, 4 CFR Parts 101-105. This subpart does not apply
to RHS direct Single Family Housing (SFH) loans or RHS NP loans secured
by SFH property, or to the Rural Rental Housing, Rural Cooperative
Housing, and Farm Labor Housing Programs. (Revised 02-24-05, SPECIAL
PN.)

§§ 1956.52 - 1956.53 \[Reserved\]

§ 1956.54 [Definitions]{.underline}.

[Adjustment]{.underline}. The reduction of a debt or claim conditioned
upon completion of payment of the adjusted amount at a specific future
time or times, with or without the payment of any consideration when the
adjustment offer is approved. An adjustment is not a final settlement
until all payments under the adjustment agreement(s) have been made.

[Amount of debt]{.underline}. The outstanding balance of the amount
loaned including principal and interest plus any outstanding advances,
including interest, and subsidy to be recaptured made by the Government
on behalf of the borrower.

[Cancellation]{.underline}. The final discharge of a debt without any
payment on it.

[Chargeoff]{.underline}. The writing off of a debt and termination of
collection activity without release of personal liability.

[Compromise]{.underline}. The satisfaction of a debt or claim by the
acceptance of a lump-sum payment of less than the total amount owed on
the debt or claim.

\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_

DISTRIBUTION: WSAL Account Servicing

Debt Settlement

## 1

## (Revision 4)

(04-21-93) PN 204

RD Instruction 1956-B

§ 1956.54 (Con.)

[Debt forgiveness]{.underline}. For the purposes of servicing Farm Loan
Programs loans, debt forgiveness is defined as a reduction or
termination of a direct FLP loan in a manner that results in a loss to
the Government. Included, but not limited to, are losses from a
writedown or writeoff under 7 CFR part 766, debt settlement, after
discharge under the provisions of the bankruptcy code, and associated
with release of liability. Debt cancellation through conservation
easements or contracts is not considered debt forgiveness for loan
servicing purposes. (Revised 01-09-08, PN 417.)

[Debtor]{.underline}. The borrower of funds under any of the Agency
programs. This includes co-signors, guarantors and persons or entities
that initially obtained or assumed a loan. Debtor also includes grant
recipients.

[Farm Loan programs (FLP) loans]{.underline}. Farm Ownership (FO),
Operating (OL), Soil and Water (SW), Economic Emergency (EE), Emergency
(EM), Recreation (RL), Special Livestock (SL), Softwood Timber (ST)
loans, and/or Rural Housing Loans for farm services buildings (RHF).

[Housing programs]{.underline}. All programs and claims arising under
programs administered by RHS under Title V of the Housing Act of 1949.

[Servicing office]{.underline}. The office that is responsible for the
account.

[Settlement]{.underline}. The compromise, adjustment, cancellation, or
chargeoff of a debt owed to the respective Agency. The term
\"settlement\" is used for convenience in referring to compromise,
adjustment, cancellation, or chargeoff actions, individually or
collectively.

[United States Attorney]{.underline}. An attorney for the United States
Department of Justice.

§§ 1956.55 - 1956.56 \[Reserved\]

§ 1956.57 [General provisions]{.underline}.

\(a\) [Application of policies]{.underline}. All debtors are entitled to
impartial treatment and uniform consideration under this subpart.
Accordingly, Agency personnel charged with any responsibility in
connection with debt settlement will adhere strictly to the
authorizations, requirements, and limitations in this subpart, and will
not substitute individual feelings or sympathies in connection with any
settlement.

## 2

## (Revision 4)

##  RD Instruction 1956-B

§ 1956.57 (Con.)

\(b\) [Information needed for debt settlement]{.underline}. A debtor
requesting debt settlement must submit complete and accurate information
from which a full determination of his or her financial condition can be
made. This should include where applicable, but is not limited to,
obtaining Form FSA-2004, \"Authorization to Release Information,\"
debtors providing expense verification, verifying farm program benefits
(Farm Service Agency or Commodity Credit Corporation payments), and
examining county records to determine what other assets the debtor has
or recently disposed of. When an FSA debtor is continuing to farm, Forms
FSA-2037, \"Farm Business Plan Worksheet, Balance Sheet\" and FSA-2038,
"Farm Business Plan, Projected Income and Expenses," must be obtained.
Credit reports will be obtained on all FLP debt settlements, except
cases legally without merit. For housing debt settlements, credit
reports will only be obtained if the debtor has not provided complete
financial information. Credit reports should be obtained

## 2A

## (Revision 2)

(04-21-93) PN 204

RD Instruction 1956-B

§ 1956.57(b) (Con.)

on entities and the individuals of the entity. The credit report will be
obtained without a charge to the borrowers. Also, where a spouse is not
a codebtor, the spouse\'s income will be considered in meeting family
living expenses. If it appears that a debtor will not be able to pay in
full and the indebtedness is eligible for settlement under this subpart,
action should be taken, if possible, to avoid unnecessary litigation to
enforce collection. If the debt is eligible for settlement, the debt
settlement authorities should be explained and the privileges thereof
extended to the debtor. The information obtained from the debtor should
be documented on Form RD 1956-1, \"Application for Settlement of
Indebtedness.\" (Revised 01-09-08, PN 417.)

\(c\) [Negotiating a settlement]{.underline}. County Supervisors may
approve or reject compromises, adjustments, cancellations, or chargeoffs
of SFH debts (to include recapture receivables), regardless of the
amount. District Directors and County Supervisors cannot approve other
debt settlement actions; therefore, other than SFH debt settlements,
they will make no statements to a debtor concerning the action that may
be taken upon a debtor\'s application. In negotiating a settlement, all
of the factors which are pertinent to determining ability to pay will be
discussed to assist the debtor in arriving at the proper type and terms
of a settlement. The present and future repayment ability of a debtor,
the factors mentioned in this subpart, and any other pertinent
information will be the basis of determining whether the debt should be
collected in full, compromised, adjusted, canceled, or charged off. It
is impossible in cases eligible for debt settlement to forecast
accurately the debtor\'s future repayment ability over a long period of
time; consequently, the period of time during which payments on
settlement offers are to be made should not exceed 5 years. Debtors have
the right to make voluntary settlement offers in any amount should they
elect to do so. Adjustment offers will not be approved in any case
unless there is reasonable assurance that the debtor will be able to
make the payments as they become due.

\(d\) [Disposition of property]{.underline}. Security may be retained by
the debtor only under the conditions specified in § 1956.66 of this
subpart.

\(e\) [Proceeds from the disposal of security prior to approval of a
debt settlement offer]{.underline}. A debtor is not required to have
disposed of the security prior to application for debt settlement for a
loan to be settled. However, if a debtor has disposed of security prior
to applying for debt settlement, proceeds from the disposed security
must first be applied on the debtor\'s account, irrespective of an
application for debt settlement unless the conditions specified in §
1956.66 of this subpart are met.

## 3

## (Revision 3)

(04-21-93) PN 204

RD Instruction 1956-B

§ 1956.57 (Con.)

\(f\) [County Committee review]{.underline}. The County Committee will
not review proposed settlement action for Housing Program loans. Except
for the cancellation of those debts discharged in bankruptcy where there
is no remaining security, the County Committee will be consulted for
additional information on other assets or repayment ability that may be
unknown to FSA. (Revised 09-10-03, PN 363.)

\(g\) [Settlement when legal or investigative action has been taken,
recommended, or is contemplated]{.underline}.

\(1\) Debts cannot be settled:

\(i\) If the matter has been referred either to the Office of the
Inspector General (OIG) under § 1962.49(a) of Subpart A of part 1962, or
to the Office of the General Counsel (OGC) because of suspected criminal
violation, or criminal prosecution is pending because of an illegal act
committed by the debtor in connection with the debt or the security for
that debt, the procedure outlined in paragraph (g)(3) of this section
will be followed, unless, the OIG has declined to investigate the matter
or OGC has advised otherwise, or the case is in the hands of the United
States Attorney.

\(ii\) If a request for referral to the United States Attorney to
institute a civil action to protect the interest of the Government has
been made by the Agency.

\(iii\) Except as provided in paragraph (g)(3) of this section, if the
case has been referred to the United States Attorney and is not closed.

\(2\) If a debtor\'s account is involved in a fiscal irregularity
investigation in which final action has not been taken or the account
shows evidence that a shortage may exist and an investigation will be
requested, the account will not be approved for settlement.

\(3\) When a claim has been referred to, or a judgment has been obtained
by the United States Attorney, and the debtor requests settlement, the
employee in charge of the account will explain to the debtor that the
United States Attorney has exclusive jurisdiction over the claim or
judgment, that the Agency has no

## 4

## (Revision 3) 

RD Instruction 1956-B

§1956.57(g) (Con.)

authority to agree to a settlement offer when the United States
Attorney\'s file is not closed, and that if the debtor wishes to make a
compromise or adjustment offer when the United States Attorney\'s file
is not closed, it will be submitted with any related payment directly to
the United States Attorney for a decision on the settlement offer.

\(h\) [Advice from OGC]{.underline}. State Directors will obtain, when
necessary, advice from the OGC in handling proposed debt settlement
actions which involve legal problems.

\(i\) [Settlement of claims against estates]{.underline}. Settlement of
a claim against an estate under the provisions of this subpart will be
based on the recovery that may reasonably be expected, taking into
consideration such items as the security, costs of administration,
allowances of minor children and surviving spouse, allowable funeral
expenses, and dower and courtesy rights, and specific encumbrances on
the property having priority over claims of the Government.

\(j\) [Joint debtors]{.underline}. Settlements may not be approved for
one joint debtor unless approved for all debtors. \"Joint debtors\"
includes all parties (individuals, partnerships, joint operators,
cooperatives, corporations, estates) who are legally liable for payment
of the debt.

\(1\) Separate and individual adjustment offers from joint debtors must
be accepted and processed only as a joint offer. Joint debtors must be
advised that all debtors will remain liable for the balance of the debt
until all payments due under the joint offer have been made.

\(2\) A separate Form RD 1956-1 will be completed by each debtor, unless
the debtors are members of the same family and all necessary financial
information on each debtor can be shown clearly on a single application.
Separate applications will be sent to the State Office as a unit.

\(3\) If one debtor applies for compromise, adjustment, or cancellation,
or if the debt is to be charged off, and the other debtor(s) is deceased
or has received a discharge of the debt in bankruptcy, or the
whereabouts of the other debtor(s) is unknown, or it is impossible or
impracticable to obtain the signature of the other debtor(s), Form RD
1956-1 or Form RD 1956-2 (for housing loans) \"Cancellation or
Charge-off of the Agency Indebtedness,\" will be prepared by showing at
the top of the form the name of the debtor requesting settlement,
followed by the name of the other debtor.

## 5

## (Revision 1) 

(04-21-93) PN 204

RD Instruction 1956-B

§1956.57(j)(3) (Con.)

For example, \"John Doe, joint debtor with Bill Doe, deceased,\" \"John
Doe, joint debtor with Sam Doe, discharged in bankruptcy,\" \"John Doe,
joint debtor with Mary Doe, impossible or impracticable to obtain
signature,\" as appropriate. In addition to the information concerning
settlement of the debt by the applicant, information which justifies
settlement of the debt as to the debtor(s) not joining in the
application will be shown on Form RD 1956-1, or\
RD 1956-2 for housing loans.

\(k\) [Settlement where debtor owes more than one type of Agency
loan]{.underline}. It is not the policy to settle any loan indebtedness
of a debtor who is also indebted on another Agency loan and who will
continue as an active borrower. In such cases, the facts will be fully
documented in Part VIII of Form RD 1956-1. (Revised 03-14-97, SPECIAL
PN.)

\(l\) [No previous debt forgiveness]{.underline}. Debt settlement may
not be approved for any direct Farm Loan Programs loan if the borrower
has received debt forgiveness on any other direct loan as defined in
§1956.54 of this Instruction. (Added 03-14-97, SPECIAL PN.)

§§1956.58 - 1956.65 \[Reserved\]

§1956.66 [Compromise and adjustment of nonjudgment debts]{.underline}.

Nonjudgment debts which the debtor is unable to pay may be compromised
or adjusted in accordance with applicable provisions of this section,
and the debtor may retain the security property, if any. Application
will be made on Form RD 1956-1 by the debtor; or if the debtor is unable
to act, by another party having legal authority to act for the debtor.
Collection of a lump sum offer may be deferred until the debtor is
advised that the offer is approved. Upon full payment of the approved
compromise or adjustment amount, the Agency will release the debtor from
liability by delivering the note(s) to the debtor stamped \"Satisfied by
compromise or adjustment.\"

\(a\) [FLP debts]{.underline}. The debt or any extension thereof on
which compromise or adjustment is requested [does not]{.underline} have
to be due and payable under the terms of the note or other instrument,
or because of acceleration by written notice prior to the date of
application. Nonjudgment secured FLP debts may be compromised or
adjusted in accordance with the following conditions:

\(1\) Security may be retained by the debtor if the debtor offers an
amount at least equal to the current fair market value (including any
crop security) less any prior lien amounts. Any remaining unsecured debt
may be debt settled.

## 6

## (Revision 1) 

§1956.66(a) (Con.) RD Instruction 1956-B

\(2\) Where the debtor is able to pay an amount in excess of the lump
sum compromise offer, an adjustment offer must call for a lump sum
payment as set out in paragraph (a)(1) of this section, plus any
additional amounts the Agency determines the debtor is able to pay over
a period of time not to exceed 5 years.

\(3\) The acceptability of a compromise or adjustment offer will be
arrived at by determining and evaluating:

\(i\) Statement of indebtedness owed on any prior liens.

Statements will be retained in the debtor\'s file.

\(ii\) Value of existing security as determined by a current appraisal
made or obtained by the Agency. The appraisal will be retained in the
debtor\'s file.

\(iii\) Debtor\'s total present income and probable sources, amount and
stability of income over the next 5 years. Old age pensions, other
public assistance, and veteran\'s disability pensions will not be
considered as sources of funds for making compromise and adjustment
offers.

\(iv\) Amount of debtor\'s other debts.

\(v\) Amount of debtor\'s essential family living expenses, and farm or
business operation expenses necessary to continue the operation, if
applicable.

\(vi\) Age and health when the debtor is largely depending on income
from an occupation where manual labor is required.

\(vii\) Size of debtor\'s family, their ages and health.

\(viii\) Value of debtor\'s assets in relation to debts and liens of
third parties. Reasonable equity in a modest nonsecurity homestead
occupied by the debtor will not be considered as available for
settlement. Nonsecurity property in excess of minimum family living
needs which is not exempt from levy and execution should be considered
in determining the debtor\'s ability to pay.

\(b\) [Housing debts (both Single-Family and Multi-Family)]{.underline}.

Nonjudgment secured debts may be compromised or adjusted as follows:

## 7

## 

(04-21-93) PN 204

RD Instruction 1956-B

§1956.66(b) (Con.)

\(1\) The debt is fully matured under the terms of the note or other
instrument; or has been accelerated by written notice prior to the date
of the settlement application.

\(2\) A compromise offer must at least equal the value of the security
as determined by the Agency (less any prior liens) plus any additional
amount the Agency determines the debtor is able to pay based on a
current financial statement.

\(3\) An adjustment offer must meet the requirements of paragraph (b)(2)
of this section, except the debt (or the amount offered) is to be
scheduled for payment over the shortest period the Agency determines is
feasible based on the debtor\'s financial resources, but not to exceed 5
years.

\(c\) [Unsecured debts]{.underline}. Unsecured debts considered under
this paragraph are most frequently account balances remaining after the
debtor has sold security property to another party/entity, the security
has been liquidated through foreclosure, or the Agency has accepted a
deed in lieu of foreclosure, and the borrower was not released from
liability. An offer to compromise or adjust an unsecured debt must
represent the maximum amount the Agency determines the debtor can pay
based on a current financial statement and other information available
to the Agency. An adjustment offer is to be scheduled for payment over
the shortest period the Agency determines is feasible, but not to exceed
5 years.

§1956.67 [Debts which the debtor is able to pay in full but refuses to
do so]{.underline}.

Debts which the debtor may have the ability to pay in full but has
refused to do so may be compromised or adjusted in the following
situations on Form RD 1956-1:

\(a\) When the full amount cannot be collected because of the refusal of
the debtor to pay the debt in full and the OGC advises that the
Government is unable to enforce collection in full within a reasonable
time by enforced collection proceedings, the debt may be compromised. In
determining inability to collect, the following factors will be
considered:

\(1\) Availability of assets or income which may be realized by enforced
collection proceedings, considering the applicable exemptions available
to the debtor under State and Federal law.

\(2\) Inheritance prospects within 5 years.

## 8 

§1956.67 (a) (Con.) RD Instruction 1956-B

\(3\) Likelihood of debtor obtaining nonexempt property or income within
5 years, out of which there could be collected a substantially larger
sum than the amount of the present offer.

\(4\) Uncertainty as to price the security or other property will bring
at forced sale.

\(b\) The debt may be compromised or adjusted when the OGC has advised
in writing that:

\(1\) There is a real doubt concerning the Government\'s ability to
prove its case in court for the full amount of the debt, and

\(2\) The amount offered represents a reasonable settlement considering:

\(i\) The probability of prevailing on the legal issues involved.

\(ii\) The probability of proving facts to establish full or partial
recovery, with due regard to the availability of witnesses and other
pertinent factors.

\(iii\) The probable amount of court costs and attorney\'s fees which
may be assessed against the Government if it is unsuccessful in
litigation.

\(c\) When the cost of collecting the debt does not justify enforced
collection of the full amount, the amount accepted in compromise or
adjustment may reflect an appropriate discount for administrative and
litigation costs of collection. Such discount will not exceed \$2,000
unless the OGC advises that in the particular case a larger discount is
appropriate. The cost of collecting may be a substantial factor in
settling small debts but normally will not carry great weight in
settling large debts.

§1956.68 [Compromise or adjustment without debtor\'s
signature]{.underline}.

Debts of a living debtor may be compromised or adjusted if it is
impossible or impracticable to obtain a signed application and all other
requirements of this section applicable to compromise or adjustment with
a signed application have been met. Form RD 1956-1 will show:

\(a\) The sources from which the information was obtained.

\(b\) That a current effort was made to obtain the debtor\'s signature
and the date(s) of such effort.

## 9

## 

(04-21-93) PN 204

RD Instruction 1956-B

§1956.68 (Con.)

\(c\) The specific reasons why it was impossible or impracticable to
obtain the signature of the debtor and, if the debtor refused to sign,
the reason(s) given.

§1956.69 \[Reserved\]

§1956.70 [Cancellation]{.underline}.

Nonjudgment debts may be canceled in the following instances:

\(a\) [With application]{.underline}. The debt or any extension thereof
on Farmer Programs debts [do not]{.underline} have to be due and payable
under the terms of the note or other instrument, or because of
acceleration by written notice prior to the date of application. Debts
due the Agency may be canceled upon application of the debtor, or if a
debtor is unable to act, upon application of a guardian, executor, or
administrator, subject to the following conditions:

\(1\) The Agency employee in charge of the account furnishes a report
and favorable recommendation concerning the cancellation.

\(2\) There is no known security for the debt and the debtor has no
other assets from which the debt could be collected.

\(3\) The debtor is unable to pay any part of the debt and has no
reasonable prospect of being able to do so.

\(b\) [Without application]{.underline}. Debts due the Agency may be
canceled upon a report and the favorable recommendation of the employee
in charge of the account in the following instances:

\(1\) [Deceased debtors]{.underline}. The following conditions must
exist:

\(i\) There is no known security; and

\(ii\) An administrator or executor has not been appointed to settle the
debtor\'s estate and the financial condition of the estate has been
investigated and it has been established that there is no reasonable
prospect of recovery; or

\(iii\) An administrator or executor has been appointed to settle the
estate of the debtor; and

## 10 

RD Instruction 1956-B

§ 1956.70(b)(1) (Con.)

\(A\) A final settlement has been made and confirmed by the probate
court and the Government\'s claim was recognized properly and the
Government has received all funds it was entitled to, or

\(B\) A final settlement has not been made and confirmed by the probate
court but there are no assets in the estate from which there is any
reasonable prospect of recovery, or

\(C\) Regardless of whether a final settlement has been made, there were
assets in the estate from which recovery might have been affected but
such assets have been disposed of or lost in a manner which OGC advises
will preclude any reasonable prospect of recovery by the Government.

\(2\) [Disappeared debtors]{.underline}. The debt may be canceled
without application where the debtor has no known assets or future
debt-paying ability, has disappeared and cannot be found without undue
expense, and there is no existing security for the debt. Reasonable
efforts will be made to locate the debtor. These efforts will generally
include contacts, either in person or in writing, with postmasters,
motor vehicle licensing and title authorities, telephone directories,
city directories, utility companies, State and local governmental
agencies, other Federal agencies, employees, friends, and credit agency
skip locate reports, known relatives, neighbors and County Committee
members. Also, the debtor\'s loan file should be reviewed carefully for
possible leads that may be of assistance in locating the debtor. The
efforts made to locate the debtor, including the names and dates of
contacts, and the information furnished by each person, will be fully
documented in the appropriate space on Form RD 1956-1 or Form RD 1956-2
for housing loans.

\(3\) [Debtors discharged in bankruptcy]{.underline}. If there is no
security for the debt, debts discharged in bankruptcy shall be cancelled
by use of the appropriate Agency form with the attachments noted below.
No attempt will be made to obtain the debtor\'s signature. If the debtor
has executed a new promise to pay prior to discharge and has otherwise
accomplished a valid reaffirmation of the debt in accordance with advice
from OGC, the debt is not discharged. (Revised 09-10-03, PN 363.)

## 11

## (Revision 1)

(04-21-93) PN 204

RD Instruction 1956-B

§ 1956.70(b)(3) (Con.)

\(i\) Chapter 7 Bankruptcy cases will be documented with a copy of the
\"Discharge of Debtor\" order(s) by the court for all obligors.

\(ii\) For debts identified as being part of an unsecured claim under
Chapter 11, the cancellation will be documented with a copy of the
organization plan, copy of the order by the court confirming the plan, a
copy of the order completing the plan (a similar order), and an opinion
by OGC that the confirming order has discharged the obligor(s) of
liability to that part of the debt.

\(iii\) For debts identified as being part of an unsecured claim under
Chapters 12 or 13, the cancellation will be documented with a copy of
the reorganization plan and confirmation order, as above, a copy of the
order completing the plan and closing the case, and an opinion by OGC
that the completion order has discharged the obligor(s) of liability to
that portion of the debt.

\(c\) [Signature of debtor cannot be obtained]{.underline}. Debts of a
living debtor may be canceled if it is impossible or impracticable to
obtain a signed application and the requirements in paragraph (a) of
this section concerning cancellation with application have been met or
if the debt has been discharged in bankruptcy and there is no security.
Form RD 1956-1 will state:

\(1\) The sources of information obtained.

\(2\) That a current effort was made to obtain the debtor\'s application
and the date of such effort.

\(3\) The specific reasons why it was impossible or impracticable to
obtain the signature of the debtor and, if the debtor refused to sign,
the reason(s) given.

§ 1956.71 [Settling uncollectible recapture receivables]{.underline}.

The settlement of uncollectible recapture receivables will be fully
documented on Form RD 1956-1 and the form retained in the case file. A
memorandum will be sent to the Finance Office: [Accounts Settlement
Unit]{.underline} (it is not necessary to send a copy of Form RD 1956-1)
to remove the receivable stating the type of debt settlement action
taken.

§§ 1956.72 - 1956.74 \[Reserved\]

## 12

## (Revision 1) 

RD Instruction 1956-B

§ 1956.75 [Chargeoff]{.underline}.

\(a\) [Judgment debts]{.underline}. Subject to the provisions of §
1956.57(g)(3), judgment debts may be charged off by use of Form RD
1956-1 or Form\
RD 1956-2 for housing upon a report and favorable recommendation of the
employee in charge of the account provided:

\(1\) The United States Attorney\'s file is closed, and

\(2\) The requirements of § 1956.70(b)(2) have been met,
[or]{.underline} two years have elapsed since any collections were made
on the judgment and the debtor(s) has no equity in property on which the
judgment is a lien or on which it can presently be made a lien.

\(b\) [Nonjudgment debts]{.underline}. Debts which cannot be settled
under other sections of this subpart may be charged off using Form RD
1956-1 or Form RD 1956-2 for housing loans without the debtor\'s
signature subject to the following provisions:

\(1\) When the principal balance is \$2,000 or less and efforts to
collect have been unsuccessful or it is apparent that further collection
efforts would be ineffectual or uneconomical,

\(2\) When the OGC advises in writing that the claim is legally without
merit,

\(3\) Even though the Agency considers the claim to be valid, when
efforts to induce voluntary payments are unsuccessful and OGC advises in
writing that evidence necessary to prove the claim in court cannot be
produced, or

\(4\) When the employee in charge of the account recommends the
chargeoff and has made the following determinations on the basis of
information in the Agency's official files or from other informed
reliable sources:

\(i\) That the debtor is:

\(A\) Unable to pay any part of the debt and has no apparent future debt
repayment ability as specified in\
§ 1956.66(a); or

## 13

## (Revision 1)

(04-21-93) PN 204

RD Instruction 1956-B

§ 1956.75 (b)(4)(i) (Con.)

\(B\) Able to pay part or all of the debt but is unwilling to do so, it
is clear that the Government cannot enforce collection of a significant
amount from assets or income, and an opinion is received from OGC to
that effect; and

\(ii\) There is no security for the debt.

\(c\) For debts identified as being part of an unsecured claim under a
confirmed Chapter 11 plan, the chargeoff will be documented with a copy
of the organization plan, a copy of the court order confirming the plan,
and an opinion by OGC that the order confirming the plan discharged the
debtor of liability on the unsecured part of the debt. For FLP debts,
refer to RD Instruction § 1956.70(b)(3) of this subpart which state that
the unsecured claim shall be canceled. Ordinarily, the FLP unsecured
claim will be canceled unless Regional OGC advises that a chargeoff is
appropriate. (Revised 04-28-99, PN 304.)

§§ 1956.76 - 1956.83 \[Reserved\]

§ 1956.84 [Approval or rejection]{.underline}.

Debt settlement cases not within the approval authority of the Servicing
Official will be submitted for review in accordance with Exhibit A of
this subpart (available in any servicing office).

\(a\) [Approval authority]{.underline}. Subject to applicable provisions
of this subpart, approval and rejection authority for compromise,
adjustment, cancellation, or chargeoff of debts is as follows: (Revised
04-28-99,\
PN 304.)

\(1\) [FLP debts]{.underline}.

\(i\) The State Executive Director (SED) may approve or reject proposed
debt settlements when the outstanding balance of the indebtedness
involved in the settlement less the amount of any compromise or
adjustment offer is less than \$1 million (including principal,
interest, and other charges).

\(ii\) The Administrator or designee must approve or reject settlement
when the outstanding balance of the indebtedness involved in the
settlement less the amount of any compromise or adjustment offer is \$1
million or more (including principal, interest, and other charges).

## 14

## (Revision 1) 

§ 1956.84(a)(1) (Con.) RD Instruction 1956-B

\(iii\) While under its jurisdiction, the U.S. Attorney's Office or the
Civil Division of the Department of Justice (DOJ) will often negotiate
settlement of an account. When settlement of an account has been
negotiated and approved by DOJ, SEDs may process a debt settlement in
accordance with this subpart without application, regardless of the size
of the debt. The case files must be documented to reflect the DOJ
decision. A copy of the DOJ approval will be attached to Form RD 1956-1.

\(iv\) Changing a chargeoff of an account to a cancellation, compromise
or adjustment of the same account is not additional debt forgiveness.
SEDs are authorized to approve cancellation, compromise or adjustment of
debts previously charged off by SED, provided the account is not under
the jurisdiction of the Department of Treasury or DOJ. Chargeoffs
approved by the National Office must be referred to the National Office
for cancellation. A deficiency judgment charged off in accordance with §
1956.75(a) of this subpart shall not be cancelled without authorization
of the U.S. Attorney's Office.

\(v\) SEDs shall approve the cancellation of debts discharged in
bankruptcy in accordance with § 1956.70(b)(3) of this subpart,
regardless of the amount of the outstanding indebtedness.

\(vi\) SEDs shall not redelegate the authorities described in paragraphs
(a)(1)(i) through (a)(1)(v) of this section.

\(2\) [MFH debts]{.underline}. The servicing official may approve or
reject compromise, adjustment, cancellation or charge off of MFH debts
regardless of amount.

\(b\) [Processing and approval]{.underline}. The approval official will:

\(1\) Execute completed Form RD 1956-1 or Form RD 1956-2, whichever is
applicable. Process the Forms RD 1956-1 and RD 1956-2 in accordance with
the applicable Forms Manual Insert. If a \"Compromise,\" \"Adjustment,\"
or \"Bankruptcy\" is involved, the Finance Office must process the form.

## 15

## (Revision 1)

(04-21-93) PN 204

RD Instruction 1956-B

§ 1956.84(b) (Con.)

\(2\) Notify debtors in writing of approval of the settlement of their
indebtedness and the approximate amount that will be reported to the
Internal Revenue Service (IRS) as per § 1956.86 of this subpart.
However, adjustment offers will not be reported until after the final
payment is applied. This notification will apply to the following cases:

\(i\) All compromise and adjustment offers. The following will also be
done:

\(A\) The specific amount and terms of the offer will be stated, and

\(B\) The accounts settled will be identified by reference to the
accounts shown on Form RD 1956-1.

\(ii\) Cancellation with or without application. When a debt is canceled
without application, a letter will be sent to the debtor\'s last known
address advising of the debt cancellation.

\(3\) Not be required to notify debtors of approval of the settlement of
their indebtedness when debts are charged off under § 1956.75 of this
subpart or canceled under § 1956.70(b) of this subpart.

\(4\) After approval of debt settlement, except charge offs, any
requests for offsets against the borrower must be canceled. (Revised
04-28-99, PN 304).

\(c\) [Requesting additional information]{.underline}. If rejection
appears to be necessary because of lack of information or because the
amount of a compromise or adjustment offer is inadequate, the servicing
official for SFH debts or the SED for all other debts, may request the
employee in charge of the account to obtain the additional information
or make an effort to obtain an acceptable offer, as appropriate under
the circumstances. Notice of rejection of an offer will be withheld in
such cases until sufficient time has elapsed to enable the debtor to
present further information or a new offer. All settlement offers will
be handled promptly.

\(d\) [Rejection processing]{.underline}. The servicing official for SFH
debts or SED for MFH and FLP debts will:

\(1\) Insert the reasons for rejection on the Form RD 1956-1.

\(2\) Execute and retain the original form in the State Office.

## 

## 16

## (Revision 1) 

RD Instruction 1956-B

§ 1956.84(d) (Con.)

\(3\) Return case files and copies of the form to the employee in charge
of the account.

\(4\) Request the Finance Office to return any adjustment or compromise
payment held by the Finance Office to the borrower, in care of the
employee in charge of the account.

\(5\) Return any adjustment or compromise payment held by the State
Office to the borrower, in care of the employee in charge of the
account.

\(6\) Notify the debtor in writing of the reasons for the rejection in
the following cases:

\(i\) All compromise and adjustment offers.

\(ii\) Cancellations under § 1956.70(a) of this subpart.

\(e\) [Appeal rights]{.underline}. A debtor whose debt settlement offer
is rejected will be notified of appeal rights pursuant to 7 CFR part 11.
(Revised 09-10-03, PN 363.)

\(f\) Unauthorized approval of FLP debt settlements. Authority to
approve FLP debt settlements is established in accordance with paragraph
(a)(1) of this section. For accounts that have received prior debt
forgiveness, settlement authority has been outlined in accordance with
Exhibit B of this subpart. If unauthorized approval of a debt settlement
is identified, the settlement application with supporting documentation
should be forwarded to the correct approval official for post approval.
If the debt settlement cannot be post-approved, the correct approval
official will provide additional guidance on servicing the account.
(Added 04-28-99, PN 304.)

§ 1956.85 [Payments and receipts]{.underline}.

\(a\) [Servicing office handling]{.underline}.

## 16A

## (Revision 1) 

RD Instruction 1956-B

§ 1956.85(a) (Con.)

\(1\) An application with which the debtor offers a lump-sum payment in
compromise, or with which the debtor offers an initial payment on an
adjustment offer, will be accompanied by the payments required at the
time such application is filed in the servicing office.

\(2\) Except as provided in paragraph (a)(3) of this section, payments
offered by debtors in settlement of debts will be deposited and
transmitted as required in Subpart B, C, and K of Part 1951 of this
chapter.

\(3\) Checks or check transmittal letter containing restrictive
notations such as \"Settlement in full\" or \"Payment in full,\" or in
those exceptional instances when the debtor refuses to sign the Form RD
1956-1 in connection with a compromise offer, will be forwarded to the
State Office where they will be retained until approval or rejection of
the offer. The use of restrictive notations will be discouraged to the
fullest extent possible.

\(b\) [Finance Office handling]{.underline}.

\(1\) All payments evidenced by Form RD 451-2, \"Schedule of
Remittances,\" bearing the legend \"Compromise Offer\" or \"Adjustment
Offer,\" will be held in the Deposits Fund Account by the Finance Office
until notification is received from the State Office of the approval or
rejection of the offer. In cases of approved offers, remittances will be
applied in accordance with established policies, beginning with the
oldest loan included in the settlement, except that when the request for
settlement includes loans made from different revolving funds the
Finance Office will prorate the amount received, on the basis of the
total principal balance due the respective revolving funds. Upon
notification of a rejection of a debtor\'s offer and receipt of a
request from the State Director for a refund, the Finance Office will
refund to the debtor, in care of the employee in charge of the account,
the amount held in the Deposits Fund Account representing a rejected
compromise or adjustment offer. (Revised 02-24-05, SPECIAL PN.)

\(2\) When a debtor\'s adjustment offer is approved, the accounts
involved will not be adjusted in the records of the Finance Office until
all payments have been made. Form RD 1956-1 will be held in a suspense
file pending payment of the full amount of the approved offer. The
original Form RD 1956-1 in approved cases will be retained in the
Finance Office.

## 17

## (Revision 3)

(04-21-93) PN 204

RD Instruction 1956-B

§ 1956.86 [Reporting to the Internal Revenue Service
(IRS)]{.underline}.\
(Revised 05-31-95, PN 246.)

Pursuant to a requirement of the Internal Revenue Service (IRS), RHCDS,
RBCDS, RUS, and CFSA will report to the IRS debts which have been
determined to be uncollectible. After reporting the debt to IRS, no
further efforts to collect the debt will be made. The Finance Office
will report to the IRS on IRS Form 1099-C, \"Cancellation of Debt,\" any
debt settled through cancellation, compromise, or adjustment.

§§ 1956.87 - 1956.95 \[Reserved\]

§ 1956.96 [Delinquent adjustment agreements]{.underline}.

A 90-day extension for making the payments may be given by the Agency
when the circumstances of the case justify an extension. A decision not
to extend the time for making payments is not appealable. If the debtor
is delinquent under the terms of the adjustment agreement and is likely
to be financially unable to meet the terms of the agreement, the Agency
may cancel the existing agreement and process a different type of
settlement more consistent with the debtor's repayment ability, provided
the facts in the case justify such action. The cancellation of an
adjustment agreement is appealable. If an agreement is cancelled, any
payments received shall be retained as payments on the debt owed at the
time of the adjustment agreement. (Revised 09-10-03, PN 363.)

## 18

## (Revision 3) 

RD Instruction 1956-B

§1956.97 [Disposition of promissory notes]{.underline}.

\(a\) Notes evidencing debts settled by completed adjustments, completed
compromise with or without signature, or canceled with signature will be
returned to the debtor or to the debtor\'s legal representative. The
original and copies of the notes will be stamped \"Satisfied by Approved
Compromise,\" \"Satisfied by Approved Cancellation,\" or \"Satisfied by
Completed Adjustment Offer.\" In such cases, the security instrument(s)
will be released of record according to State law.

\(b\) Notes evidencing debts canceled without application will be placed
in the debtor\'s case folder and disposed of pursuant to RD Instruction
2033-A. However, if the debtor requests the notes, they may be stamped
\"Satisfied By Approved Cancellation\" and returned.

\(c\) Notes evidencing charged off debts will be retained in the
servicing office and will not be stamped or returned to the debtor. They
will be destroyed 6 years after charged off pursuant to\
RD Instruction 2033-A. (Revised 04-09-97, PN 275.)

\(d\) In case of a transfer of security with assumption for less than
the debt, the promissory note will be attached to the assumption
agreement covered by the note and kept in the transferee\'s file.

§1956.98 \[Reserved\]

§1956.99 [Exception authority]{.underline}.

The Administrator may, in individual cases, make an exception to any
requirement or provision of this subpart which is not inconsistent with
the authorizing statute or other applicable law if the Administrator
determines that application of the requirement or provision would
adversely affect the Government\'s interest. The Administrator will
exercise this authority only at the request of the State Director and on
the recommendation of the appropriate program Assistant Administrator.
Requests for exceptions must be made in writing by the State Director
and supported with documentation to explain the adverse affect on the
Government\'s interest, propose alternative courses of action, and show
how the adverse affect will be eliminated or minimized if the exception
is granted. Any settlement actions approved by the Administrator under
this section will be documented on Form RD 1956-1 and returned to the
State Office for submission to the Finance Office.

## 19

## (Revision 2)

(04-21-93) PN 204

RD Instruction 1956-B

§1956.100 [OMB control number]{.underline}.

The collection of information requirements in this regulation have been
approved by the Office of Management and Budget and assigned OMB control
number 0575-0118.

Public reporting burden for this collection of information is estimated
to vary from 15 to 20 minutes per response, with an average of 20
minutes per response including time for reviewing instructions,
searching existing data sources, gathering and maintaining the data
needed, and completing and reviewing the collection of information. Send
comments regarding this estimate or any other aspect of this collection
of information, including suggestions for reducing this burden, to
Department of Agriculture, Clearance Officer, OIRM, Room 404-W,
Washington, D.C. 20250; and to the Office of Information and Regulatory
Affairs, Office of Management and Budget, Washington, D.C. 20503.

Attachment: Exhibit A (available in any Rural Development/FSA office)

## oOo

## 20

## (Revision 2) 

RD Instruction 1956-B

Exhibit A

## [Settlement of Farm Loan Programs Debts]{.underline}

I. [General]{.underline}.

This exhibit contains the procedures for reviewing accounts (including
youth loans) prior to approval of a debt settlement or release of
liability which will result in a loss to the Government.

A complete application submitted by a borrower for compromise,
adjustment, cancellation or release of liability shall consist of\
Form RD 1956-1, \"Application for Settlement of Indebtedness,\" and the
supporting documentation required to complete questions 11B through 11H
of FSA 1956-10, \"Debt Settlement or Release of Liability Checklist.\"

II\. [Service Center Responsibilities.]{.underline}

Service Center officials shall submit the following to the District
Director (DD) within 30 days of receipt of a complete application:

A. Transmittal memorandum with the local servicing official's
recommendation.

B. Form RD 1956-1.

C. FSA 1956-10 and supporting documentation for cases involving
compromise, adjustment, cancellation, or release of liability.

D. Servicing office files.

E. For release of liability cases -- Form RD 1965-8, \"Release From
Personal Liability,\" with County Committee recommendation on FSA 440-2,
\"County Committee Certification or Recommendation.\"

(04-16-03) PN 358

RD Instruction 1956-B

Exhibit A

Page 2

III\. [District Director Responsibilities]{.underline}.

The DD will review the case file and sign FSA 1956-10 then forward the
documentation required under Part II to the State Office. The only
exception to this requirement is when the actual debt settlement or
release of liability was negotiated and approved by the Department of
Justice (DOJ).

The DD must forward complete applications for compromise, adjustment,
cancellation, or release of liability to the State Office within 60 days
of receipt.

IV\. [State Office Responsibilities]{.underline}.

A. All debt settlement and release of liability cases will be reviewed
thoroughly by a State Office Farm Loan Programs official using\
FSA 1956-10 which was forwarded by the DD.

B. The State Settlement Review Committee (SSRC) will review all debt
settlement and release of liability cases before approval by the State
Executive Director (SED) or recommendation to the appropriate approval
official (such as the Administrator or DOJ).

The SSRC will consist of at least three members including the SED, the
Farm Loans Chief, and a member of the State Farm Loan Programs staff.
The recommendation of the SSRC will be noted on FSA 1956-10.

Complete applications for compromise, adjustment, cancellation, or
release of liability must be acted upon by the State Office within 90
days of receipt.

V. [Debt Settlement and Release of Liability Requiring
Administrator's]{.underline} [Approval]{.underline}.

When debt settlement or release of liability is recommended for accounts
requiring the Administrator's approval, the SED will forward the
following documents to the Administrator:

A. A memorandum from the SED recommending approval.

B. Form RD 1956-1.

C. When applicable, a legal opinion from the Regional Attorney
addressing the statute of limitations.

D. FSA 1956-10 signed by the SSRC.

RD Instruction 1956-B

Exhibit A

Page 3

E. Case file which includes documentation supporting FSA 1956-10.

F. For release of liability cases - Form RD 1965-8 and FSA 440-2 with
the County Committee recommendation.

G. Additional information as may be required by the Administrator.

If the SED is unable to recommend debt settlement or release of
liability, the SED should reject the application and provide the
borrower with informal review and appeal rights.

## oOo

(04-16-03) PN 358

RD Instruction 1956-B

Exhibit B

Page 1

APPROVING DEBT SETTLEMENTS FOR BORROWERS WHO HAVE RECEIVED PREVIOUS DEBT
FORGIVENESS

[Processing debt settlements (including release of liability) of
accounts that have received prior debt forgiveness]{.underline}. Based
on the Federal Agriculture Improvement and Reform Act of 1996, borrowers
are only entitled to one debt forgiveness under the Consolidated Farm
and Rural Development Act (CONACT) direct loan program. There are no
exceptions.

However, even though a previous debt forgiveness has been received, debt
settlements can be processed outside CONACT authorities. **Such approval
is based on the Debt Collection Act of 1982 at 31 U.S.C. Chapter 37, and
not the CONACT.**

State Executive Directors (SEDs) are authorized to approve:

\(a\) Settlement of debt when the claim, exclusive of interest,
penalties and administrative costs, is less than \$100,000. Follow RD
Instruction 1956-B for guidance in accepting and processing debt
settlement requests. A copy of this Exhibit will be attached to Form RD
1956-1, "Application for Settlement of Indebtedness."

\(b\) Cancellation of debts discharged under Chapters 7, 11, 12, or 13
of the bankruptcy code, regardless of the amount of the debt. The
cancellation will be processed in accordance with § 1962.47(f) of

RD Instruction 1962-A.

**Note:** All liable parties must have received a bankruptcy discharge
before SED uses this authority.

\(c\) Settlements **negotiated and approved** by the U.S. Department of
Justice (DOJ). A copy of the DOJ approval will be attached to Form

RD 1956-1.

\(d\) Settlement of debt regardless of amount, when the local Office of
the General Counsel (OGC) determines that the 6-year statute of
limitations for deficiency judgment and the 10-year statute for
settlement have expired or that the debt is otherwise legally without
merit. A copy of the OGC opinion and this Exhibit will be attached to
Form RD 1956-1.

(04-28-99) PN 304

RD Instruction 1956-B

Exhibit B

Page 2

If recommended by SED, settlement of accounts which do not meet the
above requirements, must be referred to the Civil Division of DOJ,
through the local OGC. In addition to information collected under RD
Instruction 1956-B, a Claims Collection Litigation Report will be
completed and forwarded to the Regional Attorney (OGC). To refer the
account to DOJ, OGC must concur that the debt settlement should be
accepted with citation to the relevant Federal Claims Collection Act
standards, if appropriate.

When considering the settlement, DOJ will focus on the ability and
prospects of the debtor to repay the debt over a reasonable period. The
continuing ability of the debtor to farm and the degree of the debtor's
cooperation with FSA will be accorded little significance.

Settlements referred to DOJ which are rejected by DOJ will be denied by
the SED for the reasons stated by DOJ.

Borrowers will not be provided appeal rights for settlements rejected
under this authority. However, rights to a National Appeals Division
review of the Agency's "appealability" decision will be provided.

## oOo