# Presentation: 176028

## Debt Collection 1012008 Dallas Agency ForumJuly 16 – July 17, 2008

## What is a Debt?

- 	A debt is any amount that is owed to the United States by a person, organization, or entity other than a Federal agency.  Some examples are:
- Loans (direct, insured & guaranteed)
- Overpayments
- Fines and penalties

## What is a Delinquent Debt?

- A debt becomes delinquent when:
- Payment has not been made by the **payment due date**, or by the end of the “grace period” as established in a loan or repayment agreement, as in the case of a debt being paid in installments
- Payment is not made by the due date specified in the initial billing notice, in the case of administrative debts such as fines, fees, penalties, and overpayments.  The due date is usually 30 days after the agency mailed the notice.  The date of delinquency is the date the agency mailed or delivered the billing notice

## Examples of Delinquent Debts

- _Example:_  Borrower’s loan payment is due January 1.  The loan agreement allows a grace period of 15 days, meaning that the lending agency will not assess late charges or declare the loan delinquent if the payment due on January 1 is made before January 16.  If Borrower makes his or her payment before January 16, the loan is not delinquent.  However, if Borrower fails to make a payment by January 16, then the loan is delinquent and the *date of delinquency is January 1* (the payment due date)
- _Example:_  Agency discovers that duplicate payments were made to beneficiary and seeks to recover the overpayment.  On March 1, the Agency mails a notice to beneficiary informing him about the overpayment.  The notice states that payment must be made by March 31 to avoid assessment of late charges and enforced collection action.  If beneficiary pays the amount requested before March 31, then the debt is not delinquent.  However, if beneficiary fails to pay by March 31, then the debt is delinquent, and the *date of delinquency is March 1* (the date of the initial notice about the debt)

## Does an Agency Have to Try to Collect a Delinquent Debt?

- YES!!!!
- 	_Agencies have a statutory duty to try to collect delinquent debts owed from the public_.

## What are the Steps in Trying to Collect a Delinquent Debt?

- Seek Voluntary Repayment
- Initiate Involuntary Collection Action
- Take Appropriate Action on Uncollectible Debt

**Notes:**
Includes:
	 Notice to Debtor/Demand for  payment
	Lump Sum Payment/Installment Payment
	Compromise
Includes:
	Collateral Liquidation
	Interest, Penalty, Admin Cost Offset
	Reporting to Credit Bureaus
	Private Collection Agencies
	Administrative  Wage Garnishment
	Litigation
	Agency Specific Collection Tools
	Barring Delinquent Debtors
Includes:
	Termination of Collection Action
	Write-Off
	1099-C Reporting to IRS

## Laws, Regulations and Guidance that Apply to Debt Collection

**The Debt Collection Authority Hierarchy**
_**STATUTES**_
- Agency Statutes
- Federal Claims Collection Act
- Debt Collection Act of 1982
- Deficit Reduction Act of 1984
- Debt Collection Improvement Act of 1996
-  _**REGULATIONS**_
- Agency Regulations
- Treasury Regulations (31 CFR part 285)
- OPM Salary Offset Regs (5 CFR part 550)
- Federal Claims Collection Standards (31 CFR parts 900-904)
_**GUIDANCE**_
- OMB Circular No. A-129
- Managing Federal Receivables
- Agency Policies
- Guide to the Federal Credit Bureau Program

## Government-wide Regulatory References

_**Voluntary Payment**_
- Notice to the Debtor – Demand for Payment		FCCS (31 CFR 901.2)
- Lump Sum Payments/Installments			FCCS (31 CFR 901.8)
- Compromise				FCCS (31 CFR Part 902)
_**Involuntary Collection**_
- Collateral liquidation				FCCS (31 CFR 901.7)
- Interest, Penalty, Administrative Cost			FCCS (31 CFR 901.9)
**Offset****	****	****	****	****	****Multiple (see next slide)**
- Reporting to Credit Bureaus, etc.			FCCS (31 CFR 901.4)
- Private Collection Agencies			FCCS (31 CFR Part 901.5)
- Administrative Wage Garnishment			FMS Regulations (31 CFR 285.11)
- Litigation				FCCS (31 CFR Part 904)
- Barring Delinquent Debtors			FMS Regulations (31 CFR 285.13)
- Cross-servicing				FMS Regulations (31 CFR 285.12)
_**Unable to Collect**_
- Termination of Collection Action			FCCS (31 CFR Part 903)
- Write-off				OMB Circular No. A-129
- 1099-C Reporting to IRS			IRS Regulations (26 CFR 1.6050P-1)

## Government-wide Regulatory References Offset

-  	Offset in General		FCCS (31 CFR 901.3)
-  	Non-Centralized Offset		FCCS (31 CFR 901.3(c))
-  	Centralized Offset at FMS	FCCS (31 CFR 901.3(b))
- 					FMS Regulations (31 CFR 285.5)
-  	Tax Refund Offset/Fed. Debt   	FMS Regulations (31 CFR 285.2)
- 	Tax Refund Offset/Child Sup.	FMS Regulations (31 CFR 285.3)
- 	Benefit Payment Offset		FMS Regulations (31 CFR 285.4)
- 	Salary Offset			OPM Regulations (5 CFR 550.1101-							1110)

## Government-wide Regulatory References Offset (Cont’d)

- 	Tax Refund Offset/State
- 	Income Tax Debt	       FMS Regulations (31 CFR 285.8)
- 	State Reciprocal Offset  FMS Regulations (31 CFR 285.6)

## What are Some of the General Concepts That Apply to Delinquent Debt Collection?

- Agency Regulations
- Program Goals and Debt Collection
- Due Process
- Privacy Protection for Individuals
- Determining Appropriate Collection Techniques to Use
- Establishing a Collection Strategy

## General Concepts

**Agency Regulations –**
- 	Generally, each agency must publish its own regulations, consistent with the government-wide rules, regulations and procedures
**Program Goals and Debt Collection –**
-     Examples of program goals – homeownership, recovery from a disaster, having medical professionals serve in underserved communities
**	**General Rule – an agency should determine early in the debt collection process (normally in the first 60 days) whether the debtor will work with the agency to achieve the program goal

## General Concepts (Cont’d)

**Due Process** – is _Notice_ and _Opportunity to Dispute_
- 	**Constitutional Requirement:** The Fifth Amendment to the United States Constitution provides that no person shall “be deprived of life, liberty or property without due process of law...”
- 	**Statutory Requirement:**  Statutes and regulations define how much process is required
- 	**The Right Thing to Do:**  Mistakes can be made, and we all would like notice before something adverse occurs

## General Concepts (Cont’d)

**Privacy Protection for Individuals**
- Privacy Act of 1974
- System of Records
- Notices (Publication)
- Restriction on disclosure of records
- Routine Uses

**Notes:**

Privacy Act records cannot be disclosed.

## General Concepts (Cont’d)

**Determining Appropriate Collection Techniques to Use**
- Whether the agency is required by law to use the debt collection tool (see next slide)
- Size and age of the debt
- Type of debt (e.g. Commercial or Consumer)
- Availability of debt collection tool
- Requirements for use of the debt collection tool
- Whether tools can be used concurrently with other tools
- Time and resources required to use the tool
- Feasibility of using each tool, including any legal or contractual constraints
- Cost of each tool relative to the size of the debt.  Cost of using the tool should never exceed collection

## General Concepts (Cont’d)

**Debt Collection tools required by law:**
- Demand for payment
- Add late charges to the debt (interest, penalties, and administrative costs)
- Report delinquent debts to credit bureaus
- Refer debts that are 180 days delinquent to FMS for Cross-Servicing
- Refer debts that are 180 days delinquent to FMS to be placed in the Treasury Offset Program (TOP) if debts have not been referred to TOP through the Cross-Servicing referral
- Bar delinquent debtors from receiving loans or loan guaranties
- Use any debt collection tools specifically mandated by agency statute or regulation

## General Concepts (Cont’d)

**Establishing a Collection Strategy**
- A collection strategy 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 effective collection strategies that suit the agency’s programs and needs and meet all statutory requirements
- A collection strategy will facilitate debt collection by _providing a systematic, uniform method for collecting classes of delinquent debts_

## 
     Treasury Offset Program 

**     ****Treasury Offset Program **

## 	Offset is withholding funds payable by the United States to a person to satisfy a debt owed to the United States or to a state

**What is the Treasury Offset Program (TOP)?**

- 	_*Offset*_ is withholding funds payable by the United States to a person to satisfy a debt owed to the United States or to a state

- TOP is a centralized offset process that intercepts Federal payments of payees who owe delinquent debts to agencies that have submitted debt information to FMS

- 	_*Centralized offset*_ is the offset of payments disbursed by FMS and other Federal disbursing agencies through the TOP

**Notes:**

Okay, so now  we know:
what an Offset is, and what a Centralized Offset is.  TOP is .......

## Is Offset Mandatory?

**YES!**
- Debts delinquent more than 180 days _must_ be sent to FMS for centralized offset
- Agencies are _required_ to notify Treasury of delinquent debts, and disbursing officials are _required_ to offset payments
- Types of payments which may be offset:
- 		Tax refunds, salary, military and civilian retirement pay, 	contractor payments, tax overpayments, benefit payments, travel 	reimbursement, other Federal payments and State payments.

**Notes:**

180 days mandatory – after you get your demand letter out, you can refer as early as 60 days, but must by 180 days

## TOP is one of the largest and most effective tools in collecting delinquent debts for Federal and state agencies:
Debts owed to the United States (tax & non-tax)
Child support obligations enforced by state agencies
State income tax debts
Other State debts through Reciprocal Agreement Pilot Program
Collections total over $3 billion per year

**What is the Treasury Offset Program?**

- TOP is one of the largest and most effective tools in collecting delinquent debts for Federal and state agencies:
- Debts owed to the United States (tax & non-tax)
- Child support obligations enforced by state agencies
- State income tax debts
- Other State debts through Reciprocal Agreement Pilot Program
- Collections total over ***$3 billion*** per year

## Federal and state agencies submit eligible debts to TOP and certify that debts are valid, delinquent, and legally enforceable, and that all due process prerequisites have been met  
Due process prerequisites include:
60-day prior notice to debtor
Opportunity to dispute the debt

**How Does the Treasury Offset Program Work?**

- Federal and state agencies submit eligible debts to TOP and certify that debts are valid, delinquent, and legally enforceable, and that all due process prerequisites have been met
- Due process prerequisites include:
- 60-day prior notice to debtor
- Opportunity to dispute the debt

**Dear Debtor**
**You owe $$$**

## TOP compares payee names and Taxpayer Identification numbers (TINs) on Federal payment certification vouchers to names and TINs of debtors in TOP’s debtor database 

**How Does the Treasury Offset Program Work?**

- TOP compares payee names and Taxpayer Identification numbers (TINs) on Federal payment certification vouchers to names and TINs of debtors in TOP’s debtor database

- When a match occurs on both, TOP intercepts, or “offsets,” all or part of a payee’s eligible Federal payment
- FMS notifies the payee and the payment agency about the offset

- A **TIN** is an individual’s Social Security Number or a business’ Federal Employer Identification Number

## Slide 24

## 	Various statutes govern the TOP process depending upon the type of payment offset and the type of debt collected

**TOP Legal Authorities**

- 	Various statutes govern the TOP process depending upon the type of _***payment***_ offset and the type of _***debt***_ collected

## TREASURY OFFSET PROGRAM - LEGAL AUTHORITIES

| Type of Payment Offset/Levy | Type of Debt Collected | Statutory Authority | Regulatory Authority | Amount Deducted |
| --- | --- | --- | --- | --- |
| Federal tax refund | Federal  non-tax debts | 26 U.S.C. 6402(d)
31 U.S. C.  3720A | 31 CFR 285.2
Creditor agency regulations | 100% |
| Federal tax refund | Child support debts | 26 U.S.C. 6402(c)
42 U.S.C. 664 | 31 CFR 285.3
45 CFR 303.72
HHS procedures | 100% |
| Federal tax refund | State income tax debts | 26 U.S.C. 6402(e) | 31 CFR 285.8 | 100% |
| Social Security, Black Lung, & Railroad Retirement (benefit payments) | Federal  non-tax debts (may not be offset to collect child support or other debts owed to States) | 31 U.S.C.  3716 | 31 CFR 285.4 | Lesser of 15%, or amount
 over $750 |
| Federal salary payments | Federal  non-tax debts | 5 U.S.C. 5514
31 U.S.C.  3716 | 5 CFR 550.1101
31 CFR 285.7
Creditor agency regulations | 15% |
| Federal salary payments
 | Child support debts | 31 U.S.C.  3716(h) | 31 CFR 285.1
State law & regulations
HHS procedures | 50%-65% |
| Federal non-tax, non-salary, non-benefit (includes civil service retirement) | Federal  non-tax debts | 31 U.S.C. 3716 | Federal Claims Collection Standards (31 CFR Parts 900-904)
31 CFR 285.5
Creditor agency regulations | 100%, except as otherwise provided by law (25% for retirement) |
| Federal non-tax, non-salary, non-benefit (includes civil service retirement) | Child support debts | 31 U.S.C.  3716(h) | 31 CFR 285.1
State law & regulations
HHS procedures
Exec. Order 13019 | 100%, except as otherwise provided by law (25% for retirement) |
| Federal non-tax, non-benefit | State debts | 31 U.S.C.  3716(h) | 31 CFR 285.6 | 100%, except as otherwise provided by law |
| Tax levy of
non-tax Federal payments | Federal  tax debts | 26 U.S.C. 6331(h)
 | 26 CFR 6331-1 et seq. | 15%
100% for certain vendor payments |

## Treasury Offset Program

**Treasury Offset Program**
**Debts**

## Debts Eligible for TOP

- Delinquent debts that are legally enforceable.
- Legally enforceable means there has been a final determination the debt is due and there are no bars to collection
- Agency has provided due process

**Notes:**

Due process – you are certifying  to  us

## Debts Ineligible for TOP

- Not legally enforceable (i.e. in bankruptcy, foreclosure, forbearance or under appeal)
- At the Department of Justice
- Over the applicable statute of limitations for offset
- Owed by a foreign sovereign
- Owed by another Federal agency

## Priority of Debts in TOP

**Priority of Debts in TOP**

- * Non-TANF debts will have the same priority as TANF debt in October 2008

- IRS Income Tax Debts
- Child Support Debts (Temporary Assistance to Needy Families)
- Federal Non-Tax Debts
- Other Child Support Debts (Non-TANF*)
- State Debts

## When more than one debt is submitted for the same debtor, TOP applies funds collected in accordance with priorities set by statute and policy
If a debtor has two or more debts of the same priority, TOP applies funds to the oldest debt first

**Priority of Debts in TOP**

- When more than one debt is submitted for the same debtor, TOP applies funds collected in accordance with priorities set by statute and policy
- If a debtor has two or more debts of the same priority, TOP applies funds to the oldest debt first

## General Rules For All Debts Submitted to TOP

**General Rules For All Debts Submitted to TOP**
- (31 CFR Part 285, Subpart A)

- Debts must be:
- Delinquent & legally enforceable
- Less than 10 years old (except for judgment debts, student loans, and certain state income tax debts)
- $25 or more, except for salary which is $100
- Federal agencies must submit delinquent debts to TOP, including debts owed by state & local governments

## General Rules For All Debts Submitted to TOP

**General Rules For All Debts Submitted to TOP**

- Creditor agency must submit certification with debts
- Accomplished electronically if agency signs annual agreement to certify debts
- Certified for the life of the debt; agency responsible for inactivating debts if they become ineligible for TOP (bankruptcy, debt paid in full)
- Certification states that debt meets eligibility requirements and that all due process prerequisites, including state law prerequisites, have been met

## General Rules For All 

**General Rules For All **
**Debts Submitted to TOP**

- TOP sends warning notices to debtors for recurring payments (e.g., monthly retirement benefits)
- TOP sends notice of any offset to the debtor
- Notice includes date and amount of offset, creditor agency to which offset money was sent, and contact point within the creditor agency
- States will send offset notices under Reciprocal Agreement Program
- NTDO agencies may choose to send their own offset notices

**Notes:**

DFAS (NTDO ) has the option to send, but most have us do it.

##   $136.2 billion  Federal tax debts
  $92.6 billion  Child support debts enforced by states
  $44.4 billion  Federal non-tax debts
  $  7.5 billion  State debts
TOTAL $$  $280.7 billion

**(as of December 2007)**

**  ****$136.2 billion**  Federal tax debts
-   **$92.6 billion**  Child support debts enforced by states
-   **$44.4 billion**  Federal non-tax debts
-   **$  7.5 billion**  State debts
**TOTAL $$ ******** ****$280.7 billion**

## Treasury Offset Program

**Treasury Offset Program**
**Payments**

## TOP – Payments

**TOP – Payments**

**Tax refund** payments may be offset up to 100%
**Vendor** payments and **Federal employee travel advances & travel reimbursements** may be offset up to 100%
**Salary** payments limited to 15% of disposable pay, except when collecting child support (limit increases to 50-65%)
**OPM** **retirement** payments limited to 25%
**Social Security** and **Railroad Retirement** payments limited to 15%
**State payments** may be offset up to 100%

## TOP – Exemptions/Payments

**TOP – Exemptions/Payments**

- Payments exempted by law, e.g. student loan payments, veterans’ benefits
- Payments exempted by Treasury
- Means-tested payments
- Non means-tested payments – if offset would tend to interfere with or defeat the purpose of the program

**Notes:**

Example:  Ricky Ray fund – hemophilia/AIDS

## Fees

- Treasury charges a fee of $17.00 for tax refund and administrative offsets

## Benefit Payment Offset (BPO)

- 60 and 30 Day Warning Letters are sent out
- Offset Letter sent out when offset occurs
- 15 % is the *Maximum *amount that a beneficiary’s benefit payment will be offset for a non-tax debt
- Amount of offset will be the lesser of the amount of the debt; an amount equal to 15% of the monthly benefit payment; or the amount by which the benefit payment exceeds $750
- No payment of $750.00 and under will be offset
- Supplementary Security Income (SSI) payments are *NOT* subject to offset

## What is Federal Employee Salary Offset?

- Federal agencies collect debts owed by a Federal employee through installment deductions from the employee’s pay
- Salary Offset limits 15% of “disposable pay” for Federal non-tax debts

## What is Disposable Pay?

- The dollar amount left after the following deductions:
- Tax levies
- Properly withheld taxes, FICA, Medicare
- Health and life insurance premiums
- Retirement contributions
*Does NOT include amounts deducted under a garnishment*

## What’s Different for the Salary 

**Offset Process?**

- Minimum dollar amount for a debt referred for Salary Offset is $100.00
- Salary Offset will always take the debt balance to zero
- Uses record types and reason codes to communicate between TOP, Salary Payment Agency (SPA), and Creditor Agencies
- SPA can charge a one time administrative fee and/or a per offset fee plus the TOP offset fee

## Centralized Salary Offset

**Participating Salary Payment Agencies:**
**  ****Interior**
**  ****National Finance Center**
**  ****DoD-DFAS**
**  ****U.S. Postal Service**
**  ****GSA**

## NTDO Vendor Offset Program

**NTDO Vendor Offset Program**

- Implemented with the following:
- DoD in December 2002
- State of Maryland in June 2007
- State of New Jersey in July 2007
- Army Corps of Engineers in July 2007
- Not a real time process
- Potential to over collect the debt
- USPS will participate in the future

## State Income Tax Program

**State Income Tax Program**

## State Income Tax Program

- States can refer delinquent income tax debts to TOP for offset against Federal tax refund payments only
- Currently 39 states and the District of Columbia participate in the program
- Mississippi plans to participate in Spring 2008

## State Income Tax Program

- Special requirements for _*tax refund offset*_ to collect _*state income tax obligations*_ (26 U.S.C. 6402(e)):
- States must send 60-day notice to debtors by *certified mail, return receipt requested *
- Taxpayers must reside in the state to which the tax obligation is owed (based on address on Federal tax return for year of refund)

## State Reciprocal Agreement Program

## State Reciprocal Agreement Program

- States will refer debts to TOP for offset against Federal vendor payments and state payments will be matched against Federal non-tax debts
- Interim draft rule on Administrative Offset Under Reciprocal Agreements with States (31 CFR 285.6) published in the Federal Register on January 11, 2007
- States must enter into an agreement with FMS
- Pilot began with the State of Maryland on June 11, 2007 and with the State of New Jersey on July 2, 2007

## State Reciprocal Agreement Program

|  | ADMINISTRATIVE OFFSET
(offset of Federal payments to collect State debts) | STATE PAYMENT OFFSET
(offset of State payments to collect Federal nontax debts) |
| --- | --- | --- |
| Statutes | 31 U.S.C. 3716 | State law and 31 U.S.C. 3716(h) |
| Regulations | New rule at 31 CFR 285.6 | State regulations, if any, and 31 CFR 285.6 |
| Debts to be collected | State debts (including tax) other than: 
child support 
debts owed by other governments -- State, local, foreign, etc. | Nontax debts owed to the United States |
| Payments to be offset | All Federal payments except:
payments exempt under 31 CFR 285.5
Federal benefit payments
Tax refunds
Salary
Other payments specified in the reciprocal agreement | All State payments, as authorized by applicable State laws and the reciprocal agreements. |
| Creditor Agencies | Voluntary for States as creditor agencies | Voluntary for Federal creditor agencies to participate |
| Payment Agencies | No discretion for payment agencies | State payment agencies participate according to State law and reciprocal agreement |
| Due Process
Requirements | 31 U.S.C. 3716 and new rule | State Law  |

**State Reciprocal Agreement Program**

**CY 2007 Collections**
**Administrative Offsets****	****	****	****     ****	****$****205.2**** Million**
**Tax Refund Offset – Child Support****	****         ****	****$1.7 Billion**
**Tax Refund Offset – Federal Nontax Debt****	****     ****	****$1.2 Billion**
**Tax Refund Offset – State Income Tax Debt  ****	****$243.4 Million**
**Tax Levy****	****	****	****	****     ****	****$359 Million****	****	**

**Notes:**

2006 has been Best Year ever - $3.34 Billion collected.

## What’s New?

## TOP Web Client

- Web-based Client is a rewrite of existing Client
- Agencies will access through the internet
- Two factor authentication:
- 		-PKI (Public Key Infrastructure) certification
- 		-Password
- Slated for rollout in September 2008

## Barring Delinquent Debtors

## Barring Delinquent Debtors

- Under the DCIA, delinquent debtors are ineligible for financial assistance in the form of a Federal loan or loan guaranty/insurance, until the delinquency is resolved
- Loan granting, guarantying and/or insuring agencies are required to bar delinquent debtors

## Barring Delinquent Debtors

- Agency Responsibilities:
- Conduct all due process as quickly as possible (including any requested hearings or appeals)
- Report delinquent debts to credit bureaus and Federal delinquent debtor databases (CAIVRS and Debt Check)
- Be aware that delinquent debtors who are applicants for loans or loan guaranties/insurance may contact the agency to resolve their delinquent debts in order to remove the bar

## Other Delinquent Debtor Databases

- Other Federal delinquent debtor databases are available for Federal agencies to assist them in barring delinquent debtors from loans and loan guarantees:
**CAIVRS** – Maintained by the Department of Housing and Urban Development
**Debt Check** – FMS’ TOP delinquent debtor database extract

## TOP Contacts

**Dean Balamaci**
- Director, Debt Program Division
- 202-874-0540		Dean.Balamaci@fms.treas.gov
**Rosemary McCambridge**
- Manager, Debt Program Relations Branch
- 202-874-6727		Rosemary.McCambridge@fms.treas.gov
**Alyssa Riedl**
- Manager, Debt Program Support Branch
- 202-874-6859		Alyssa.Riedl@fms.treas.gov

## Questions?