# Presentation: 517942

## Debt Collection 101

## 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)
- OMB Circular No. A-129
_**GUIDANCE**_
- 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		FMS Regulations (31 CFR 285.2)
- 	Benefit Payment Offset 	FMS Regulations (31 CFR 285.4)
- 	Salary Offset			OPM Regulations (5 CFR 550.1101-							1110)
- 					and 31 CFR 285.7

## 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 Continued

**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 due
- 	**The Right Thing to Do:**  Mistakes can be made, and we all would like notice before something adverse occurs

## General Concepts Continued

**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 Continued

**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 resource 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

## Determining the Appropriate Collection Technique to Use

**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 Continued

**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 **

## What is an Offset?

**Definition:**
- Withholding funds payable by the United States to a person to satisfy a debt
- In other words, the government intercepts or withholds monies due to a person (or held by the government for that person) to collect money owed to the government

## 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

## What is Centralized Offset?

- There are two methods of Offset:
**Centralized** offset is done by the Treasury Offset Program (TOP) operated by FMS
**Non-centralized** offset is done by the Federal agency internally on a case-by-case basis

**Notes:**
Non-centralized offset:
When agency is both payment and creditor agency – can offset internally.
Or, if payment and creditor agencies different - could contact other agency and have    them recover for  you.

We focus on Centralized Offset

## Offset – Method Comparison

| Method | Centralized | Non-centralized |
| --- | --- | --- |
| Due process | Creditor Agency – must certify to FMS. | Creditor Agency – must certify to the paying agency. |
| Locating the Payment | FMS – By matching payment certifications with debts. 
** Computer Matching Act waiver. | Creditor Agency 
**May have to comply with Computer Matching Act. |
| Payment types *generally exclusive to centralized offset | *Federal tax refunds; *current OPM retirement; salary; vendor; *benefit payments (SSA); travel advances and reimbursements; grants. | Those certified by the creditor agency (internal offset); payments not included in centralized offset. |
| Conducting the Offset | FMS | Payment Certifying Agency |
| Notifying the debtor/Accounting for the offset | FMS | Payment Certifying Agency |

## Centralized Offset

- 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

## Centralized Offset

- 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

## 	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 .......

## 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 pre-requisites have been met  
Due process pre-requisites 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 pre-requisites have been met
- Due process pre-requisites 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, TOP intercepts, or “offsets,” all or part of a payee’s eligible Federal payments
- 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 28

## 	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. 3701 & 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. 3701 & 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. 3701 & 3716
42 U.S.C. 404(f) (for Social Security debts) | 5 CFR 550.1101
31 CFR 285.7
Creditor agency regulations | 15% |
| Federal salary payments | Child support debts | 15 U.S.C. 1673(b)(2)
31 U.S.C. 3701 & 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. 3701 & 3716
42 U.S.C. 404(f) (for Social Security debts) | 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. 3701 & 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. 3701 & 3716(h) | 31 CFR 285.6 | 100%, except as otherwise provided by law (15% for salary; 25% for retirement) |
| Tax levy of
non-tax Federal payments | Federal  tax debts | 26 U.S.C. 6331(h)
26 U.S.C. 6103(k)(8) & (n) | 26 CFR 6331-1 et seq. | 15% |

## 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

## DMS Common 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 July 2008

**CY 2006 Collections**
**Administrative Offsets****	****	****	****     ****	****$****154.8**** Million**
**Tax Refund Offset Child Support****	****	****         ****	****$1.6 Billion**
**Tax Refund Offset – Federal Nontax Debt****	****     ****	****$996.8 Million**
**Tax Refund Offset – State Income Tax Debt  ****	****$218.5 Million**
**Tax Levy****	****	****	****	****     ****	****$324.9 Million****	****	**

**Notes:**

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

##   $119.0 billion  Federal tax debts
  $85.7 billion  Child support debts enforced by states
  $37.0 billion  Federal non-tax debts
  $  6.0 billion  State income tax debts
TOTAL $$  $247.9 billion

**(as of December 2006)**

**  ****$119.0 billion**  Federal tax debts
-   **$85.7 billion**  Child support debts enforced by states
-   **$37.0 billion**  Federal non-tax debts
-   $  **6.0 billion**  State income tax debts
**TOTAL $$ ******** ****$247.9 billion**

## Treasury Offset Program

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

## Priority of Debts in TOP

**Priority of Debts in TOP**

- * Non-TANF debts will have the same priority as TANF debt by 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 pre-requisites, including state law pre-requisites, 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.

## 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%

## TOP – Exemptions/Payments

**TOP – Exemptions/Payments**

- Payments exempted by law, e.g. student loan payments, veterans’ benefits
- Payments exempt 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)

## 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 $750.00 and under will be offset
- Supplementary Security Income (SSI) payments are *NOT* subject to offset

## Centralized Salary Offset 		         (CSO)

## 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**

## Non-Treasury Disbursing Office (NTDO) Vendor Offsets

## 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
- Starting fall 2007, USPS will participate

## State Income Tax Program

**State Income Tax Program**

## State Income Tax Program

**State Income Tax Program**

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

## State Income Tax Program

**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**

## Cross-Servicing

**Cross-Servicing**

## Treasury’s Role

- Debt Collection Improvement Act of 1996
- maximize collections through use of all appropriate tools
- centralize debt collection within Treasury
- require proper screening of potential borrowers - sharing of information
- inform public of activity & ensure due process
- encourage sale of delinquent debt
- rely on expertise of private sector companies

## Agencies Ask: What do I do with my delinquent debt?

- Is debt 180 days delinquent?

- Yes - Eligible for Mandatory referral

- No - Eligible for Voluntary referral

- Is the debt one of
- following Exclusions?

- Foreclosure
- Bankruptcy
- Foreign Gov. Debt
- Forebearance/ Appeals

- Yes - Do not refer to Treasury
- (Cross-Servicing or TOP)

- Is debt one of the following
-  DCIA Exemptions?

- At a Private Collection Agency
- At a Federal Debt Collection Center
- Scheduled for Sale
- Collectible Under Internal Offset w/in 3 yrs
- At DOJ/ Litigation

- Yes - Refer directly to TOP.
- Do NOT refer to Cross-Servicing

- No - Eligible for Cross-Servicing
- and TOP

- No- Refer directly to Cross-Servicing.
- Cross-Servicing will refer to TOP
- as a collection tool.

- 1

- 2

- 3

- 2

- END

- 3

- TOP

**CROSS**
**SERVICING**

## Demand Letters & Phone Calls
Payment Agreement Options
Credit Bureau Reporting
Treasury Offset Program
Administrative Wage Garnishment
Private Collection Agencies
Litigation by Department of Justice
IRS Form 1099-C after Closeout

- Payment Agreement Options
- Credit Bureau Reporting
- Treasury Offset Program
- Administrative Wage Garnishment
- Private Collection Agencies
- Litigation by Department of Justice
- IRS Form 1099-C after Closeout

**Cross-Servicing Collection Tools**

## How Agencies Participate

- Letter of Agreement detailing responsibilities of DMS and Creditor Agency
- Agencies must certify that:
- debts are valid and legally enforceable in order to refer
- due process has been completed
- Once LOA is signed and debt referrals begin, the Agency ceases all collection activity

## Agency Profile

- Contains information about:
- Agency points of contact
- How an agency wants DMS to service their debts (refer to TOP, refer to credit bureaus)
- payment agreement parameters
- whether the fee is added to the debt or charged to the agency

## How Debts Get Into FedDebt

- Agency can refer the debts electronically by file
- Agencies can use the on-line interface to enter debts manually

## Next Step:  Demand Letter 

- How many days after debt referral does Cross-Servicing send a demand letter?
- 	A.  	10
- 	B. 	30
- 	C.	5
- 	D. 	60

## WINNER

- If you chose C, you are correct!!
- You win more information on:

- The flexibility of a debt & debtor based system!

## Debt & Debtor System 

- FedDebt is a debt & debtor            based system which allows:
- DMS to better handle joint & several debts
- A demand letter to be sent to each debtor
- Users can update debt and/or debtor information
- Multiple Payment Agreements possible for a debt
- Removal of a debtor from the debt without closing the entire debt

## How are Payment Agreements established?

- A.	Discussing the terms with the debtor and 	sending an e-mail to confirm the terms
- B.	Recording the terms in the system without the 	debtor’s consent
- C.	Scribbling the terms on a post-it note and 	throwing it away when the first payment arrives
- D.	Discussing the terms with the debtor and 	sending a written agreement to confirm the 	terms

## WINNER

- If you chose D, you are correct!!
- You win more information about:

- Payment Agreements!

## Payment Agreements

- FedDebt payment agreement types:
- Repayment Agreement, in full or installments
- Compromise Agreements, in full or installments
- Partial Payment Agreements*
-    *Future evaluation of ability to pay
- Interest can accrue during payment agreements - set on the Agency Profile

## How often are consumer debtors reported to Credit Bureau repositories?

- A.	Every 30 days
- B.	Every quarter
- C.	Every day
- D.	Once a year

## WINNER

- If you chose A, you are correct!!
- With FedDebt, you win:

- Credit Bureau Reporting at the Debtor Level!

## Credit Bureau Reporting

- DMS able to report all debtors on the debt
- Consumer CBR begins 60 days after referral and occurs monthly
- Commercial CBR begins 30 days after referral and occurs quarterly
- DMS researches and responds to CBR disputes for debts we are servicing
- DMS asks Creditor Agencies to respond to CBR disputes within 7 days

## What is TOP?

- A.	A child’s toy
- B.	A word used to describe a type of hat
- C.	A program run by Treasury to intercept 	(offset) federal payments to satisfy a 	delinquent 	federal debt
- D.	A text message to say “tired of this party”

## WINNER

- If you chose C, you are correct!!
- You win information about:

- TOP Referrals through the Cross-Servicing Program!

## Treasury Offset Program

- Under Cross-Servicing, all debtors under a debt can be referred to TOP
- No additional fees will be charged for a TOP offset under Cross-Servicing
- Ability to designate bypass indicators  on the Creditor Agency profile

## What is a Private Collection Agency?

- A.	A company that specializes in collecting 	delinquent debt?
- B.	A non-profit organization which collects money 	for extravagant parties?
- C.	A soldier in the Army who holds all the funds for 	the Superbowl pool?
- D.	A company that collects all type of objects to sell 	on EBay?

## WINNER

- If you chose A, you are correct!!
- With this correct answer, you win:

- More PCA Details!

## Private Collection Agencies

- Goal is to collect or resolve debt
- Performance based contract, the better a PCA performs
- more money they receive in commissions
- more debt referrals they receive

## Private Collection Agencies

- Single debtor debts will now be linked for distribution to the same PCA
- Federal Agency must provide TIN to ensure proper linking
- Resolve debts through administrative resolutions - debtor’s death, bankruptcy, disability with the inability to pay, entity out of business

## Private Collection Agencies

- Use similar collection tools to BDMOC
- Payment agreements - PCAs are not passed full agreement authority
- DMS monitoring
- log into PCA’s collection system from DMS site
- annual compliance reviews

## Why is it important for Agencies to authorize Administrative Wage Garnishment?

- A.	They will collect more money
- B.	They will collect more money
- C.	They will collect more money
- D.	They will collect more money

## WINNER

- If you chose A, B, C, or D you are correct!!
- With that correct answer, you win:

- More information about AWG!

## Administrative Wage Garnishment

- Allows garnishment of up to 15% of private sector employee’s disposable wages
- Can be used without a court order
- Form issued to employer with instructions to send portion of wages to Treasury
- Funds received from employer applied to individual’s debt balance
- Proved to be a useful collection tool to increase collection rate & encourage agreements

## How do we keep track of the money collected?

- A.	We were supposed to keep track?
- B.	Carve the collections on a stone?
- C.	In a log book?
- D.	Record transactions, including how they are 	applied in FedDebt?

## WINNER

- If you chose D, you are correct!!
- Great job, you get to hear more about:

- FedDebt Financials!

## FedDebt Financials

- Transaction categories
- Payments
- Reversals
- Adjustments
- Payments reported to the system weekdays by file by the lockbox bank

## FedDebt Financials

- Federal agencies can report payments, adjustments and reversals
- by file
- using on-line functionality
- DMS users can manually record payments, adjustments and reversals
- Payments are applied first to last in this order: fees, administrative cost, penalties, interest and principal

## FedDebt Financials

- Transaction Date vs. Posting Date
- Transaction Date = date the payment was deposited by the bank
- Posting Date = date the payment was applied to a debt in FedDebt
- Historical Recalculation
- Transactions post as of the transaction date

## FedDebt Financials

- Cash vs. Non-Cash Transactions
- Cash = financial transaction that results in the movement of funds between the Creditor Agency and DMS (ex. lockbox payment)
- Non-Cash = financial transaction that changes the balance of the debt, but does not result in the exchange of funds (ex. balance adjustment)
- Reconciling with IPAC
- Collection File

## What collection tools are remaining?

- A.	Litigation by the Department of Justice
- B.	Issuance of the IRS Form 1099C after closeout
- C.	Both A & B
- D.	I can’t concentrate anymore, I have a headache

## WINNER

- If you chose C, you are correct!!
- You win:

- More Cross-Servicing Information!

## Department of Justice Referrals

- Referred for initiation of litigation or post judgment enforcement
- Planned FedDebt enhancements will provide automated debt screening for DOJ referral
- List of possible referrals to be reviewed by DMS Analyst

## Issuance of IRS Form 1099C

- Future FedDebt capabilities
- Reports provided to Creditor Agencies either on-line or electronically
- Enhanced 1099C review and processing  (monthly and year-end review)
- 1099Cs can be issued for all debtors

## Review

- Debt collection tools used by Cross-Servicing
- Demand Letters and Phone Calls
- Payment Agreements
- Credit Bureau Reporting
- Treasury Offset Program
- Private Collection Agencies
- Department of Justice – Enforced Collection
- IRS Form 1099-C Issuance

## 
Federal Agency Role  

**Federal Agency Role**

## Agencies Need To:

**Agencies Need To:**

- Enroll for FMS Cross-Servicing and/or TOP
- Provide Due Process to debtors
- Send the Demand Letter and any subsequent letters
- Respond to debtor inquiries/conduct hearings
- Refer debt to FMS when 180 days delinquent
- 	Agency has the option of referring to TOP only, to TOP and Cross-Servicing simultaneously, or to Cross-Servicing only (with the possibility of inclusion in TOP as part of the full service debt recovery)
- Report to Treasury using Treasury Report on Receivables

## Notice to the Debtor/Demand for Payment

**Notice to the Debtor/Demand for Payment**

**Demand Letter** **p****rovides the debtor**:
- Notification of the existence of the debt and the amount
- Opportunity to repay in full, or work out a repayment agreement
- Information regarding agency’s policies on accrual of interest, penalties, and administrative costs

**Notes:**
Start  with the demand letter.  Send one very detailed letter.

## Notice to the Debtor/Demand for Payment continued

**Notice to the Debtor/Demand for Payment continued**

**Demand Letter provides the debtor:**
- Evidence of due process compliance, as well as any rights the debtor may have to avoid the use of our debt collection tools
- Notice provides means of responding to debtors who exercise due process rights

**Notes:**
4. Considered Due Process as long as you send to best address you  have.
Document everything!

5. For some programs, provides the opportunity to resolve debt  by meeting a specific program objective or goal 

Acting quickly greatly enhances probability of collecting debt in full.

Within 20 days after payment due date, or end of grace period, agency should contact debtor by letter or phone to resolve non-payment.

## Notice to the Debtor/Demand for Payment continued

**Notice to the Debtor/Demand for Payment continued**

**Guidance:**
- See the Demand Letter Checklist in
- 	_*Managing Federal Receivables*_, Appendix 8, at:
- 	    _**www.fms.treas.gov/debt/regulations.html**_
- Fair Debt Collection Practices Act (FDCPA),
- 15 U.S.C. 1681 et seq., the FDCPA provides valuable guidance on appropriate practices in communicating with debtors

**Notes:**

FDCPA – Federal agencies not subject to Act, it’s still a good referencde.
	It prohibits collectors from unfair practices.
	Courtesy – call between 8 am – 9 pm
	Debtors also need to act fairly.

## The Demand Letter Checklist

**The Demand Letter Checklist**

- Agency can send one letter or a series of letters, but the first letter must be sent within 30 days of delinquency
- At least 60 days before referring to FMS, the following information must be provided to the debtor:
- - Nature and amount of the debt, including the basis for the debt
- - Explanation of how interest, penalties, and administrative costs are added to the debt.
- - 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)
- - Name, address, and phone number of a contact person or office within the creditor agency

**Notes:**

2. Can Agencies  waive penalties?  Check with your  legal department to see if your agency allows it.

## The Demand Letter Checklist

**The Demand Letter Checklist**

- Explain the agency’s options to enforce collection if debtor fails to pay:
- Offset Federal payments
- Refer debt to Private Collection Agency
- Credit Bureau Reporting
- Administrative Wage Garnishment
- Department of Justice for litigation
- Refer debt to Treasury for any of these collection actions (and advise debtor that agency required to refer when 180 days delinquent)

**Notes:**
Agency options if debtor fails to pay – many agencies do all of these.

4.AWG - No court order required

## The Demand Letter Checklist Continued

**The Demand Letter Checklist Continued**

- Explain Debtor’s Rights to:
- Inspect and copy agency’s records related to the debt
- Request a review of agency’s determination of the debt
- Request a waiver, if applicable
- Request a hearing for salary offset or administrative wage garnishment
- Enter into a reasonable written repayment agreement

**Notes:**

It’s important  to include all of these.

## The Demand Letter Checklist Continued

**The Demand Letter Checklist Continued**

- Advise Debtor of the following:
- Notification to agency if bankruptcy filed
- Penalties for knowingly making false statements
- Excess collections will be refunded to the debtor, unless prohibited by law
- For joint income tax filers, spouse should file Form 8379 with IRS to claim his/her share of tax refund

**Notes:**

3. Excess collections do happen.

4. Joint income tax filers – called injured spouse claim

## Lump Sum Payment/Installment Payments

**Lump Sum Payment/Installment Payments**

- Agency should try to collect overdue debt:
- Single lump sum payment
- Installment options
- Rights of Debtor before using collection remedies

**Notes:**

Whenever  possible – single pump sum

May consider installment options if debtor claims financial inability to repay in lump sum.

Before using certain collection remedies (offset, AWG), agency must provide opportunity to enter reasonable repayment agreement

## Installment Payments

**Installment Payments**

- Requirements:
- Verify debtor’s claim of inability to repay in a lump sum by obtaining a financial statement or credit report
- Evidence debtor has a willingness to abide by terms of the agreement, including the repayment schedule; and ability to make agreed payments

**Notes:**

Before entering into installment agreement, verify......

And then, only when Evidence of
		Willingness to abide by terms, and
		An Ability to make agreed payments

## Installment Payments

**Installment Payments**

- Factors to consider when determining the
- debtor’s ability to pay:
- Age and health
- Income
- Inheritance prospects
- Hidden assets or fraudulent transfers
- Assets/income available for enforced collection
- Reasonable and necessary living expenses

**Notes:**

Age & health
Income – present and potential
Inheritance prospects
Possibility of Hidden assets
What are debtor’s available assets/income?
What are reasonable & necessary living expenses for debtor and debtor’s dependents?

## Installment Agreement

**Installment Agreement**

- The installment agreement should include the following:
- Initial lump sum payment as large as the debtor can afford
- Term not to exceed three years
- Consider pre-authorized debit to make the required installment payments
- Consider additional collateral to secure the outstanding balance of the account

**Notes:**
Initial lump sum.....
Term normally not to exceed 3 yrs based on ability to pay
Consider requiring........
Consider requiring........

This must be a legally enforceable agreement.

## Installment Agreement

**Installment Agreement**

- Additional terms:
- Interest rate to be charged for repayment terms
- Outstanding late charges from previous agreement
- Acceleration clause (declaring full amount of the debt due and payable – not just the delinquent payment) in the event that the debtor defaults

**Notes:**

Interest rate:
One year or less – current Value of Funds Rate in effect at time of agreement
More than 1 year – rate is rate for a Treasury  security of comparable length

Outstanding late charges – must be added to the principal for new agreement.

Include an Acceleration clause.....

## Compromise

**Compromise**

- Definition – An agency compromises a debt whenever it accepts less than the full amount of the outstanding debt in full satisfaction of the entire amount

**Notes:**

It’s actually a voluntary repayment the agency might consider if you don’t think you can collect the full amount.

## Compromise

**Compromise**

- Agency may consider **Compromise **when:
- Debtor is unable to pay
- Agency is unable to enforce collection
- Cost of collection is more than debt
- Doubt concerning debt enforcement

**Notes:**

Debtor unable to pay within a reasonable time period.

Agency unable to enforce collection within a reasonable time period.

Cost of collection doesn’t justify enforced collection of full amount.

There is real doubt about govt’s ability to prove case in court

## Compromise

**Compromise**

- Requirements:
- DOJ concurrence when principal amount exceeds $100,000
- Do not refer debts to DOJ unless the agency accepts the compromise offer
- FMS has authority to compromise a debt with a principal amount of $500,000 or less

**Notes:**

Compromise Requirements:

Must obtain DOJ concurrence.........

If your agency isn’t going to accept compromise, don’t refer to DOJ.  It just wastes resources.

For debts at FMS for C-S, DOJ has delegated to FMS authority......

## Compromise

**Compromise**

- Terms:
- Written agreement signed by the debtor and the agency
- Agreement should not inadvertently release the agency’s claim against remaining debtor(s) not a party to the agreement
- No installment payments
- Full amount of the debt (less any amounts paid) will be reinstated and immediately due and payable in the event of default
- Does not release the debtor from other debts owed to the United States

**Notes:**

3. Generally, no installment payments, if possible.  IF you do accept installment agreement, it must include an acceleration clause.

## Compromises

**Compromises**

- Reporting the compromised amount to IRS:
-    The agency may be required to report the difference between the full amount of the debt and the amount paid by the debtor in a compromise agreement to IRS as potential income for tax purposes using Form 1099-C

## Collateral Liquidation

**Collateral Liquidation**

- Definition:
- 	Collateral is property pledged as security for a loan.  Liquidation is the process of converting the collateral into cash in order to pay all or a portion of the debt

**Notes:**

......is an involuntary collection action.

Collateral liquidation is not mandatory under govt regulations.  Agencies should check their agency-specific regs.

It can not be done through FMS C-S.

## Collateral Liquidation

**Collateral Liquidation**

- When to take action:
-    When debtor will not, or cannot, repay the amount owed, and collateral liquidation is the best method for protecting the government’s financial interests

**Notes:**

IF you’re going to liquidate collateral, make sure account has been properly serviced – all due processes have been met.

## Collateral Liquidation

**Collateral Liquidation**

- Key Government-wide policies –
- Force a sale of the collateral to a third party
- Avoid taking title to the collateral property as part of your agency’s liquidation strategy
- If an agency obtains title, the agency is responsible for maintaining and insuring the property while it is owned by the agency

**Notes:**

2. Generally, avoid taking  title...... unless it would result in greater collection or would further the agency’s program purpose.

## Collateral Liquidation

**Collateral Liquidation**

- If the debt is not fully satisfied by collateral liquidation:
- Obtain a deficiency judgment, or
- Otherwise continue to pursue collection on the un-recovered portion

## 
Write-Off/CNC

Accounting Concept

Does this debt have value, so that it can be considered an asset of the United States?
If the answer is “no”, then it should be written off.  
OMB A-129 says that the answer is “no” for all debts delinquent more than two years, unless the agency can justify to OMB and Treasury why it should be reflected as an asset on the government’s books.

Is it possible the debt will have 
value in the future?

If “yes,” then it should be classified as currently not collectible, or “CNC” after it is written off.

**Write-Off/CNC**
- Accounting Concept
***Does this debt have value, so that it can be considered an asset of the United States?***
- If the answer is “no”, then it should be written off.
- OMB A-129 says that the answer is “no” for all debts delinquent more than two years, unless the agency can justify to OMB and Treasury why it should be reflected as an asset on the government’s books.
***Is it possible the debt will have ***
***value in the future?***
- If “yes,” then it should be classified as **currently not collectible**, or “**CNC”** after it is written off.

**Suspend/Terminate Collection**
- Legal Concept
***Should the United States pursue collection, based on FCCS factors (31 CFR 903.3)?***
- If the answer is “no,” then collection should be suspended or terminated.
***Might it be in the interest of the United States to  pursue collection in the future?***
- If  “yes,” then just suspend collection.  If “no,” then collection should be terminated.

**Close-Out**
- Both a legal and an accounting concept
***Does it appear that this debt will ever have value or be collectible?***
-  If “no,” then the debt should be closed out.
**Write-off and termination of collection must happen prior to close-out.**
- An IRS Form 1099C should be produced for eligible debts at close-out.

## Questions?

**Questions?**