Rev. March 2015—Chapters 6, 7 and certain appendices have been updated to reflect 

reporting changes required by the Digital Accountability and Transparency (DATA) Act.
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TABLE OF CONTENTS

TC - 1

CHAPTER 1 – INTRODUCTION

Purpose of Managing Federal Receivables ................................................................................. 1-1

Scope and Coverage .................................................................................................................... 1-2

Key Related Legislation, Regulations and Guidance .................................................................. 1-3

Responsibilities of Departments and Agencies ........................................................................... 1-6

Office of Management and Budget (OMB) ...................................................................... 1-6

Department of the Treasury’s Financial Management Service ....................................... 1-7

Department of Justice ...................................................................................................... 1-8

Program Agencies ........................................................................................................... 1-8

Program Review ........................................................................................................................ 1-13

Form of Assistance .................................................................................................................... 1-13

Financial Standards ................................................................................................................... 1-13

The Credit Management and Debt Collection Cycle ................................................................ 1-14

Document Organization ............................................................................................................ 1-15

Inquiries .................................................................................................................................... 1-15

CHAPTER 2 – BUDGET AND LEGISLATIVE POLICY FOR CREDIT

PROGRAMS

Overview ..................................................................................................................................... 2-1

Program Review .......................................................................................................................... 2-1

Form of Assistance ...................................................................................................................... 2-2

Financial Standards ..................................................................................................................... 2-2

Implementation ........................................................................................................................... 2-3

CHAPTER 3 – CREDIT EXTENSION

Extending Credit ......................................................................................................................... 3-1

The Application ........................................................................................................................... 3-2

Application and Origination Fees ............................................................................................... 3-5

Verifying Information Provided by the Applicant ...................................................................... 3-6

Credit Scoring ............................................................................................................................. 3-7

Using Credit Reports ................................................................................................................... 3-8

Credit Ratings ........................................................................................................................... 3-10

Conducting the Credit Analysis ................................................................................................ 3-11

Appraisal of Real Property ........................................................................................................ 3-13

Loan Closing ............................................................................................................................. 3-15

Non-Loan Screening ................................................................................................................. 3-17

Credit Extension Documentation .............................................................................................. 3-18
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CHAPTER 4 – ACCOUNT SERVICING

Servicing Government Loans....................................................................................................... 4-1

Billing the Debtor ........................................................................................................................ 4-2

Reporting Account Information to Credit Reporting Agencies................................................... 4-4

Account Monitoring..................................................................................................................... 4-5

Loan Classification ...................................................................................................................... 4-6

Consumer Loan Classification..................................................................................................... 4-7

Commercial Loan Classification.................................................................................................. 4-8

Allowance Accounts.................................................................................................................... 4-9

Servicing Documentation........................................................................................................... 4-10

Contract Servicing ..................................................................................................................... 4-12

Treasury Report on Receivables................................................................................................ 4-13

CHAPTER 5 – MANAGEMENT OF GUARANTEED LENDERS AND

SERVICERS

Managing Risks in Guaranteed Loan Programs .......................................................................... 5-1

Lender Eligibility......................................................................................................................... 5-2

Lender Agreements...................................................................................................................... 5-3

General Participation Requirements ............................................................................................ 5-4

Performance Standards ................................................................................................................ 5-4

Reporting Requirements .............................................................................................................. 5-5

Loan Servicers ............................................................................................................................. 5-5

Lender and Servicer Reviews ...................................................................................................... 5-6

Corrective Actions....................................................................................................................... 5-7

CHAPTER 6 – DELINQUENT DEBT COLLECTION

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

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

Background.................................................................................................................................. 6-4

Delinquency Defined........................................................................................................ 6-4

Debt Collection Improvement Act of 1996....................................................................... 6-5

Debt Collection Statutes .................................................................................................. 6-5

Governmentwide Debt Collection Regulations................................................................ 6-5

Governmentwide Debt Collection Guidance ................................................................... 6-6

Key Debt Collection Principles.................................................................................................... 6-6

Agency Regulations.......................................................................................................... 6-6

Program Goals and Debt Collection ............................................................................... 6-7
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Due Process..................................................................................................................... 6-7

Minimum Due Process Requirements.............................................................................. 6-8

Privacy Protections.......................................................................................................... 6-8

Determining the Appropriate Collection Technique to Use ...................................................... 6-10

Establishing a Collection Strategy............................................................................................. 6-11

Collection Action Documentation ............................................................................................. 6-12

Agency Workout Groups........................................................................................................... 6-12

Contact With the Debtor............................................................................................................ 6-13

Assessing Interest, Penalties and Administrative Costs ............................................................ 6-16

Waiver of Interest, Penalties, and Administrative Costs ............................................... 6-18

COLA Alternative to Assessment of Late Charges ........................................................ 6-18

Installment Payments................................................................................................................. 6-20

Acceleration ............................................................................................................................... 6-22

Rescheduling.............................................................................................................................. 6-22

Compromise............................................................................................................................... 6-23

Taking Action Against Co-borrowers/Guarantors..................................................................... 6-25

Application of Payments............................................................................................................ 6-26

Part II – Debt Collection Tools and Programs...................................................................... 6-27

Transfer of Debts to Fiscal Service for Collection – Cross-Servicing....................................... 6-27

Debt Referral Requirements .......................................................................................... 6-27

Exceptions to Referral Requirements............................................................................. 6-29

Requirements for Agency Participation in Cross-Servicing.......................................... 6-30

Debt Collection Actions at Fiscal Service ..................................................................... 6-31

Cross-Servicing Fees..................................................................................................... 6-33

Administrative Offset (Including the Treasury Offset Program)............................................... 6-33

Centralized Offset Through the TOP......................................................................................... 6-33

How TOP Works........................................................................................................................ 6-34

Debts Eligible for TOP .................................................................................................. 6-35

Exceptions to Referral Requirements ............................................................................ 6-35

Due Process Requirements ............................................................................................ 6-36

Types of Federal Payments Eligible for Offset Under TOP .......................................... 6-36

Payments Exempt from Offset Under TOP .................................................................... 6-37

Special Provisions for Certain Recurring Payments ..................................................... 6-37

Offset of Federal Salary Payments Under TOP ............................................................ 6-37

TOP Fees ....................................................................................................................... 6-38

Computer Matching and Privacy Protection Act of 1988 ............................................. 6-38

Non-Centralized Administrative Offset .................................................................................... 6-38

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

Internal Offsets .............................................................................................................. 6-40

Contractor Payments ..................................................................................................... 6-40

Collection of Travel Advances and Training Expenses from Federal Employees ......... 6-41
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Retirement Pay ...............................................................................................................6-41

Federal Employee Salary Offset ....................................................................................6-42

Reporting Delinquent Debts to Credit Bureaus .........................................................................6-43

Private Collection Agencies .......................................................................................................6-45

Administrative Wage Garnishment ............................................................................................6-47

Requirements for Agency Use of Administrative Wage Garnishment ............................6-47

Notice Requirements ......................................................................................................6-48

Hearing Requirements ...................................................................................................6-48

Administrative Wage Garnishment Form (SF-329) .......................................................6-49

Amount of Garnishment .................................................................................................6-50

Wage Garnishment Worksheet .......................................................................................6-51

Limitations on Amount of Garnishment .........................................................................6-52

Financial Hardship ........................................................................................................6-53

Eligibility for Administrative Wage Garnishment .........................................................6-53

Termination of the Wage Garnishment Order ...............................................................6-54

Liquidating Collateral ................................................................................................................6-54

Bankruptcy .................................................................................................................................6-56

Litigation ...................................................................................................................................6-58

Fraud/False Claims .......................................................................................................6-60

Statute of Limitations .....................................................................................................6-60

Potentially Ineligible Referrals ......................................................................................6-61

Pre-ReferralRequirements ............................................................................................6-62

Post-Referral Activities ..................................................................................................6-62

Barring Delinquent Debtors from Obtaining Federal Loans, Guaranties and Loan Insurance ..6-63

Delinquent Status ...........................................................................................................6-64

Delinquency Resolution .................................................................................................6-64

Revoking/Suspending Licenses or Eligibility ............................................................................6-65

Part III – Miscellaneous Topics ..............................................................................................6-67

Purchasing Credit Reports and Locating the Debtor .................................................................6-67

Credit Reports ...............................................................................................................6-67

Consumer Credit Report ...............................................................................................6-68

Commercial Credit Report ............................................................................................6-68

Reviewing Credit Report and Other Financial Information ..........................................6-69

Locating the Debtor .......................................................................................................6-70

GSA’s Federal Supply Schedule for Business Information Services

(Special Item Number 520-16) .................................................................................... 6-70

Internet Resources .........................................................................................................6-70

Internal Revenue Service ...............................................................................................6-71

Post Office Trace ...........................................................................................................6-72

Department of Motor Vehicles ......................................................................................6-72

Place of Employment .....................................................................................................6-72
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Automated Collection Services ................................................................................................. 6-73

CHAPTER 7 – TERMINATION OF COLLECTION ACTION, WRITE-OFF

AND CLOSE-OUT/CANCELLATION OF INDEBTEDNESS

Overview .................................................................................................................................... 7-1

Termination of Collection Action Criteria ................................................................................. 7-4

DOJ Concurrence for Terminating Collection Action ................................................................ 7-9

Suspension of Collection Action .............................................................................................. 7-11 

Termination and Suspension of Collection Action and Compromise Regarding Fraud Claims 7-13

Write-off ................................................................................................................................... 7-14

Pursuit of Collection After Write-off/CNC .............................................................................. 7-16

Write-Down .............................................................................................................................. 7-16

Close-out Classification and Discharge of Indebtedness/Issuance of Form 1099-C ................ 7-17

Close-out Classification ............................................................................................... 7-17

Discharge of Indebtedness ........................................................................................... 7-18

Compromise of Debts ............................................................................................................... 7-22

CHAPTER 8 – PORTFOLIO SALES

Interim Guidance ......................................................................................................................... 8-1
TABLE OF CONTENTS

APPENDICES

Appendix 1 - Credit Bureau Report Key

Appendix 2 - Credit Extension/Servicing Checklist

Appendix 3 - Early Financial Warning Signs

Appendix 4 - Debt Collection Statutes and Websites

Appendix 5 - Debt Collection Strategies

Appendix 6 - Documentation of Collection Activities

Appendix 7 - Sample List of Appropriate Debt Collection Practices

Appendix 8 - Demand Letter Checklist

Appendix 9 - Sample Financial Statement

Appendix 10 - Handling the Department of Justice’s 3% Fee

GLOSSARY
Chapter 1 Introduction

1-1

Purpose of Managing Federal Receivables

The purpose of "Managing Federal Receivables," is to provide

Federal agencies with a general overview of standards, guidelines,

and procedures for the successful management of Federal activities

ranging from the extension of credit or financial assistance to

closing-out uncollectible debts. Agency personnel who manage 

Federal credit programs and accounts receivable should also

familiarize themselves with the laws, regulations, policies and 

procedures specific to their agency’s programs. Agencies

should use the parts of these guidelines which pertain to their 

credit management and debt collection activities and types of debt.

The appendices include various checklists, documents and the

appropriate references to assist agencies in managing their credit

and debt collection activities. A glossary of relevant terms is also

included at the end of the document. This edition supersedes the

prior version of “Managing Federal Receivables” dated July 1994.

Since 1994, many changes have been made to Federal credit

extension and debt collection policies and procedures. Federal

agencies are now required to use credit reports as a screening tool

and have applicants certify the accuracy of their initial application

for assistance. There are also several new delinquent debt

collection techniques, most notably, the requirement to refer debts

that are delinquent 180 days or more to Treasury’s (Treasury)

Financial Management Service (FMS). This document provides

guidance on these and other changes to laws and policies

governing Federal receivables management and is consistent with

the Debt Collection Act of 1982, as amended by the Debt

Collection Improvement Act of 1996 (DCIA); the revised Federal

Claims Collection Standards (FCCS -31 CFR Parts 900-904) 

published November 22, 2000; and the revised Office of 

Management and Budget (OMB) Circular No. A-129 published

November 29, 2000

1-1

Chapter 1 Introduction

Purpose of Managing Federal Receivables

The purpose of "Managing Federal Receivables," is to provide

Federal agencies with a general overview of standards, guidelines,

and procedures for the successful management of Federal activities

ranging from the extension of credit or financial assistance to

closing-out uncollectible debts. Agency personnel who manage

Federal credit programs and accounts receivable should also

familiarize themselves with the laws, regulations, policies and

procedures specific to their agency’s programs. Agencies

should use the parts of these guidelines which pertain to their

credit management and debt collection activities and types of debt. 

The appendices include various checklists, documents and the

appropriate references to assist agencies in managing their credit

and debt collection activities. A glossary of relevant terms is also

included at the end of the document. This edition supersedes the

prior version of “Managing Federal Receivables” dated July 1994.

Since 1994, many changes have been made to Federal credit

extension and debt collection policies and procedures. Federal

agencies are now required to use credit reports as a screening tool

and have applicants certify the accuracy of their initial application

for assistance. There are also several new delinquent debt

collection techniques, most notably, the requirement to refer debts

that are delinquent 180 days or more to Treasury’s (Treasury)

Financial Management Service (FMS). This document provides

guidance on these and other changes to laws and policies

governing Federal receivables management and is consistent with

the Debt Collection Act of 1982, as amended by the Debt

Collection Improvement Act of 1996 (DCIA); the revised Federal

Claims Collection Standards (FCCS -31 CFR Parts 900-904)

published November 22, 2000; and the revised Office of

Management and Budget (OMB) Circular No. A-129 published

November 29, 2000.
Introduction

1-2

Scope and Coverage

This document covers credit extension and receivables

management functions related to:

C all direct loans where the Federal Government has

disbursed funds to a borrower and enters into a contract

with the borrower for repayment;

C defaulted guaranteed loans where, under a guarantee or

insurance agreement, the Federal Government has

reimbursed a private financial institution or other entity for

a borrower's default and assumed responsibility for

recovering any outstanding amounts;

C financial contracts designed to support borrowing;

C grant programs and contracts where financial

responsibility is a factor; and

C administrative debt, such as fines, fees, penalties and

overpayments.

The standards, guidelines and procedures described in this

document generally must be followed by all Federal agencies for

all types of debt, unless otherwise provided by law. The standards,

guidelines and procedures do not apply if they are statutorily

prohibited or are inconsistent with statutory requirements. See, for

example, Chapter 6, Delinquent Debt Collection, Overview (page

6-1).

For the purposes of this document, the term "Federal agency"

includes all Federal agencies and Government corporations defined

under 5 U.S.C. 105 and all other Federal instrumentalities, unless

the application of a particular portion of this document is

specifically prohibited by statute. The term “Federal agency” also

includes judicial and legislative agencies to the extent authorized

by law. See, for example, 31 U.S.C. 3701 et seq. requiring judicial

and legislative agencies to collect delinquent debts using specified

collection remedies.
Introduction

1-3

Key Related Legislation, Regulations and Guidance

This document incorporates the relevant provisions of the:

C Federal Claims Collection Act of 1966 (FCCA) which

authorized agencies to collect delinquent debt; 

C Debt Collection Act of 1982 (DCA) which expanded the

Federal Government's right to use debt collection tools

such as offset, credit bureau reporting and private debt

collection agencies;

C Deficit Reduction Act of 1984 which added tax refund

offset as a debt collection tool; 

C Chief Financial Officers Act of 1990 (CFO Act) which

instituted effective financial management practices for the

Federal Government and provided for the improvement of

the Government's financial management, accounting, and

internal control systems;

C Federal Credit Reform Act of 1990 which required

agencies to estimate a credit program's subsidy cost for

direct and guaranteed loans for inclusion in budget outlays;

C Federal Debt Collection Procedures Act of 1990

(FDCPA) which established a uniform process through the

court system for collecting debts owed the Federal

Government and provides for uniform procedures for

enforcing judgments to collect Federal debts;

C Administrative Dispute Resolution Act of 1990 (ADRA)

which temporarily raised the authority of agencies to

compromise, suspend, and terminate collection action to

$100,000 and gives the Attorney General the authority to

increase this threshold administratively. This authority was

made permanent by the Debt Collection Improvement Act

of 1996;
Introduction

1-4

C Cash Management Improvement Act Amendments of

1992 (CMIAA) which expanded the use of tax refund

offset;

C Omnibus Budget Reconciliation Act of 1993 (OMBRA),

as amended, which mandated that agencies, including the

Federal Deposit Insurance Corporation (FDIC) and the

National Credit Union Administration, report discharged

debts to the Internal Revenue Service as income to the

debtors;

C Department of Justice 1994 Appropriation Act which

authorized the Department of Justice to charge a 3%

administrative fee on amounts collected;

C Debt Collection Improvement Act of 1996 (DCIA) which

centralized offset and other administrative debt collection

procedures at the Treasury; bars delinquent debtors from

obtaining Federal loans, loan insurance or loan guarantees;

mandates credit bureau reporting; and authorizes

administrative wage garnishment; 

C General Accounting Office Act of 1996 which transferred

from the General Accounting Office to Treasury certain

authorities, including the authority to promulgate the

Federal Claims Collections Standards with the Department

of Justice;

C Federal Claims Collections Standards (FCCS) (revised

November 22, 2000) which clarified and simplified

Federal debt collection procedures and reflects changes

under the DCIA and the General Accounting Office Act of

1996;

C Treasury Regulations which establish rules for certain

debt collection tools such as centralized administrative

offset, cross-servicing and administrative wage

garnishment, as well as standards for barring delinquent

debtors;
Introduction

1-5

Federal Claims Collection Act 

Debt Collection Act 

Deficit Reduction Act 

Debt Collection Improvement Act 

CFO Act, Credit Reform, 

FDCPA, ADRA, CMIAA, 

OMBRA, DOJ Act 

Federal Claims Collection 

Standards 

OMB Circular A-129 

Agency Implementing Regulations 

and Standards 

Managing Federal Receivables 

Credit Bureau Reporting Guide 

Treasury Report on Receivables 

(TROR) 

C Office of Personnel Management Salary Offset

Regulations which established rules and process for

offsetting the salaries of federal employees to collect

delinquent nontax debt; and

C OMB Circular No. A-129 “Policies for Federal Credit

Programs and Non-Tax Receivables” which established

policies and procedures for justifying, designing and

managing Federal credit programs and for collecting

outstanding receivables.

Key Credit Related Laws and Policies
Introduction

1-6

Responsibilities of Departments and Agencies

The successful implementation of a governmentwide credit

management/debt collection program depends upon the active

participation and support of several key agencies:

Office of Management and Budget (OMB)

C reviews legislation to establish new credit programs or

modify existing credit programs;

C monitors agency conformance with the Federal Credit

Reform Act;

C formulates and reviews agency credit reporting standards

and requirements;

C reviews testimony pertaining to credit programs and debt

collection activities;

C reviews agency budget submissions for credit programs

and debt collection activities;

C develops and maintains the Federal credit subsidy

calculator used to calculate the cost of credit programs;

C formulates and reviews credit management and debt

collection policy;

C approves agency credit management and debt collection

plans;

C provides training to credit agencies;

C chairs the Federal Credit Policy Working Group

(FCPWG) which provides advice and assistance to 

agencies in the formulation and implementation of

credit/debt policy governmentwide;

C resolves interagency issues;
Introduction

1-7

C sets credit management and debt collection program

priorities; and

C approves the asset management portions of the Chief

Financial Officer Status Report and Five-Year Plans.

Department of the Treasury’s Financial Management Service

C serves as part of the FCPWG;

C develops and publishes, with the Department of Justice,

the FCCS;

C works with OMB to develop Federal credit policies

and/or review legislation to create new credit programs or

to expand or modify existing programs;

C promulgates governmentwide debt collection regulations

implementing the debt collection provisions of the DCIA

and other debt collection laws;

C provides collection services for delinquent non-tax

Federal debts (referred to as “cross-servicing”), and

maintains a private collection contract for referral and

collection of delinquent debts;

• maintains a governmentwide delinquent debtor database

and conducts offsets of Federal payments, including tax

refunds, under the Treasury Offset Program;

C works with Federal program agencies to identify debt that

is eligible for mandatory and voluntary referral to

Treasury for cross-servicing and offset, and to establish

target dates for referral;

C issues operational and procedural guidelines regarding

governmentwide credit management and debt collection;

C assists in improving credit and debt management activities

governmentwide;
Introduction

1-8

C tracks Federal Government receivables through the

Treasury Report on Receivables and agency

implementation of credit and debt management initiatives;

C develops guidelines and procedures on credit accounting

and management information;

C provides operational assistance and consulting services to

agencies;

C provides training on credit management and debt

collection related topics nationwide; and

C reports to Congress on governmentwide debt collection

activities.

Department of Justice

C litigates on behalf of the Federal Government;

C approves compromises and terminations of collection

action for debts over $100,000;

C develops and publishes, with Treasury, the FCCS;

C manages the Nationwide Central Intake Facility (NCIF) to

track and monitor agency referrals to the Department of

Justice;

C works with the program agencies to facilitate referrals to

the Department of Justice and resolve problems; and

C administers private counsel and special assistant U.S.

attorney programs to collect Federal Government debt.

Program Agencies

Each agency is ultimately responsible for managing its own

receivables activities and shall manage credit programs and nontax receivables in accordance with applicable statutory authorities

and prescribed policies to protect the Federal Government’s assets

and minimize losses in relation to social benefits provided.
Introduction

1-9

Each agency shall ensure that:

C Federal credit program legislation, regulations and policies

are designed and administered in compliance with

prescribed legislative and regulatory requirements and that

the costs of credit programs covered by the Federal Credit

Reform Act of 1990 are budgeted for and controlled in

accordance with the principles of that Act (unless an

agency is expressly exempted from the statute);

C every effort is made to prevent future delinquencies by

following appropriate screening standards and procedures

for determining creditworthiness and to determine whether

the DCIA bars a loan applicant from loan assistance;

C lenders participating in guaranteed loan programs meet all

applicable financial and programmatic requirements;

C informed and cost effective decisions are made concerning

portfolio management, giving full consideration to options

such as contracting for loan servicing functions or selling

the portfolio;

C the full range of available and appropriate delinquent debt

collection techniques are used, such as those found in this

document (see Chapter 6, Delinquent Debt Collection), the

Federal Claims Collection Standards and Treasury

regulations. Debt collection techniques include demand

letters, administrative offset, salary offset, tax refund

offset, private collection agencies, cross-servicing by

Treasury, administrative wage garnishment, and litigation;

C delinquent debts are written-off as soon as they are

determined to be uncollectible, but no later than two (2)

years from the date of delinquency (see Chapter 7,

Termination of Collection Action, Write-off and Close

Out/Cancellation of Indebtedness);

C timely and accurate financial management and

performance data are submitted to OMB and Treasury so

that the Government’s credit management and debt

collection programs and policies can be evaluated;
Introduction

1-10

C regulations and forms are amended to comply with

statutory and regulatory requirements;

C credit management/debt collection tools and techniques

appropriate for the type and size of the agency's debts are

implemented;

C its personnel receive training on agency and

governmentwide credit and debt management regulations

and procedures;

C the agency provides for receivables reporting and account

tracking systems to inform its own management, OMB,

and FMS of essential credit information and to ensure

accurate financial reporting on the Treasury Report on

Receivables (see Chapter 4, Account Servicing); 

C the agency develops and implements portfolio

performance-based systems to ensure management and

staff accountability in administering and managing

receivables activities;

C the agency develops and implements the capability to

track and monitor key indicators of portfolio performance;

C the agency separates individual responsibility for credit

activity, for example, differentiating between extending

credit and servicing accounts; and

• the agency maximizes the use of available technology and

systems to facilitate program operations.
Introduction

1-11

Key Participants in the Receivables Management Program

In order to establish these objectives, OMB Circular No. A-129

requires that each agency shall:

(1) as appropriate, establish in accordance with OMB Circular

No. A-129, Section I, Subsection 4. b. (1), a board to

coordinate agency-wide credit management and debt

collection activities and to ensure full consideration of

credit management and debt collection issues by all

interested and affected organizations within the agency. At

a minimum, the board should include the agency Chief

Financial Officer (CFO) and the senior officials for

program offices with credit activities or non-tax

receivables. The board may seek input from the agency’s

Inspector General based on findings and conclusions from

past audits and investigations;

(2) ensure that the statutory and regulatory requirements and

standards set forth in OMB Circular No. A-129,

governmentwide regulations (e.g., FCCS and Treasury

regulations), and the supplementary guidance set forth in

this document are incorporated into agency regulations and

procedures for credit programs and debt collection

activities;

OMB 

Policy, Oversight 

Federal Agencies 

Implementation, Reporting 

DOJ 

FCCS, (with 

Treasury), Litigation

GOVERNMENTWIDE 

RECEIVABLES 

MANAGEMENT 

PROGRAM 

FMS

FCCS (with DOJ) , 

Delinquent Debt 

Collection, Regulations, 

Guidelines, Consulting, 

Training 
Introduction

1-12

(3) propose new or revised legislation, regulations, and forms

as necessary to ensure consistency with the provisions of

OMB Circular No. A-129;

(4) submit proposed legislation and testimony affecting credit

programs for review under the OMB Circular No. A-19

legislative clearance process, and budget proposals for

review under the OMB Circular No. A-11 budget

justification process;

(5) periodically evaluate Federal credit programs to assure

their effectiveness in achieving program goals;

(6) assign to the agency CFO, in accordance with the Chief

Financial Officers Act of 1990, responsibility for directing,

managing, and providing policy guidance and oversight of

agency financial management personnel, activities, and

operations, including the implementation of asset

management systems for credit management and debt

collection;

(7) prepare, as part of the agency CFO Financial Management

5-Year Plan, a Credit Management and Debt Collection

Plan for effectively managing credit extension, account

servicing, portfolio management and delinquent debt

collection. The plan must comply with the standards OMB

Circular No. A-129; and

(8) ensure that information contained in loan applications and

documents pertaining to individuals is managed in

accordance with the Privacy Act of 1974, as amended, and

the Right to Financial Privacy Act of 1978, as amended.
Introduction

1-13

Program Review

Proposals submitted to OMB for new programs and for

preauthorizing, expanding or significantly increasing funding for

existing credit programs should be accompanied by a written

review which examines at a minimum:

C Federal objectives to be achieved;

C justification for the use of a credit subsidy;

C estimated benefits of the program or program change;

C the effects on private capital markets;

C the estimated subsidy level; and

C the administrative resource requirements.

Form of Assistance

When Federal credit assistance is necessary to meet a Federal

objective, loan guarantees should be favored over direct loans,

unless attaining the Federal objective requires a subsidy, as defined

by the Federal Credit Reform Act of 1990, deeper than can be

provided by a loan guarantee. For further information on Form

of Assistance, see OMB Circular No. A-129, Section II.2.

Financial Standards

In accordance with the Credit Reform Act of 1990, each agency

must analyze and control the risks and costs of its programs. An

agency must develop statistical models predictive of default and

other deviations from loan contracts. An agency is required to

estimate subsidy costs and obtain budget authority to cover such

costs before obligating direct loans and committing loan

guarantees. Instructions for budget justification and subsidy cost

estimation under the Federal Credit Reform Act of 1990 are

provided in OMB Circular No. A-11, and instructions for budget

execution are provided in OMB Circular No. A-34. For further

information on Financial Standards, see OMB Circular 

No. A-129, Section II. 3.
Introduction

1-14

The Credit Management and Debt Collection Cycle

The DCIA and OMB Circular No. A-129 have placed increased

emphasis on credit management and debt collection. New tools

and techniques have been introduced to reduce the Federal

Government’s risk of losses and strengthen the Government’s

ability to collect its debts. The major elements of the “credit

management and debt collection cycle” will be explained in this

document as follows:

C credit extension - screen applicants for creditworthiness

and financial responsibility, including the required use of

credit reports; verify the accuracy of applicant credit

information and whether the applicant owes delinquent

Federal debts (and is barred by the DCIA from obtaining

loan assistance); and determine the applicant’s inability to

obtain funding from private sector markets;

C account servicing - bill and collect accounts, including

automating this process and reporting current (nondelinquent) consumer and commercial accounts to credit

reporting agencies (also known as credit bureaus) on a

routine, non-exclusive basis. Lenders participating in the

Federal Government’s guaranteed loan programs are also

required to report accounts to credit bureaus;

C debt collection - collect delinquent accounts, including the

referral of delinquent debts to FMS for collection, offset,

administrative wage garnishment, referral to private

collection agencies, referral to the Department of Justice

for litigation, and reporting of delinquent consumer and

commercial accounts to credit bureaus; 

C write-off/currently-not-collectible - remove the account

from the agency’s receivables, determine whether the debt

is “currently not collectible” and place the account on a

subsidiary ledger for continued collection activity;

C write-off/close out - cease all collection action on

uncollectible debt and report the discharged debt amount to

the Internal Revenue Service (IRS) as potential income to

the debtor. 
Introduction

1-15

Each element of the cycle applies to guaranteed and direct loan

activities. Individual elements, such as account servicing, debt

collection, and write-off, apply to defaulted guaranteed loans,

grants, contracts, and administrative debt. 

Document Organization

This document is divided into eight (8) chapters, with Chapters 3

through 7 covering the elements of the credit management and

debt collection cycle. The chapters are:

• Chapter 1 - Introduction;

• Chapter 2 - Budget and Legislative Policy for Credit

Programs;

• Chapter 3 - Credit Extension;

C Chapter 4 - Account Servicing;

• Chapter 5 - Management of Guaranteed Lenders and

Servicers;

• Chapter 6 - Delinquent Debt Collection;

• Chapter 7 - Termination of Collection Action, Write-off

and Close-Out/Cancellation of Indebtedness; and

• Chapter 8 - Portfolio Sales.

Separate detailed guidance on reporting debts to credit bureaus is

available in the “Guide to the Federal Credit Bureau Program,”

which is available on FMS’s web site at www.fms.treas.gov. Other

credit management and debt collection guidance is also available

on the FMS web site.

Inquiries

For information on this or other FMS publications/activities,

please contact the Financial Management Service, Director,

Agency Liaison and Reporting Division, Debt Management

Service (DMS) at 202-874-6660 or the Director, Agency

Enterprise Solutions Division, Federal Finance at 202-874-6638.
This page is left intentionally blank. 
2-1

Chapter 2 Budget and Legislative Policy for Credit Programs

Overview

This Chapter describes policies with respect to Federal credit

programs, as outlined in the Office of Management and Budget

(OMB) Circular No. A-129, “Policies for Federal Credit Programs

and Non-Tax Receivables” which may be found at the OMB web

site at www.whitehouse.gov/omb and the Department of the

Treasury’s Financial Management Service web site at

www.fms.treas.gov. When developing new or revising existing

credit programs, Federal agencies must take into consideration the

Budget and Legislative Policy for Credit Programs promulgated in

OMB Circular No. A-129, which states: 

“Federal credit assistance should be provided only when it is

necessary and the best method to achieve clearly specified Federal

objectives. Use of private credit markets should be encouraged,

and any impairment of such markets or misallocation of the

nation's resources through the operation of Federal credit programs

should be minimized.” 

OMB Circular No. A-129, Section II., provides four subsections to

assist agencies with respect to development and review of budget

and legislative policy.

Program Review

Proposals submitted to OMB for new programs and for

reauthorizing, expanding, or significantly increasing funding for

existing credit programs should be accompanied by a written

review. See OMB Circular No. A-129, Section II., subsection 1.,

paragraphs a-f, for the factors that must be included in the written

review. 
Budget and Legislative Policy for Credit Programs

2-2

Form of Assistance

When Federal credit assistance is necessary to meet a Federal

objective, loan guarantees should be favored over direct loans,

unless attaining the Federal objective requires a subsidy, as defined

by the Federal Credit Reform Act of 1990, deeper than can be

provided by a loan guarantee. See OMB Circular No. A-129,

Section II., subsection 2., paragraphs a-f, for details on the use of

guaranteed loans over direct loans and other considerations

regarding loan guarantees. 

Financial Standards

In accordance with the Federal Credit Reform Act of 1990,

agencies must analyze and control the risk and cost of their

programs. Agencies must develop models (statistical or otherwise)

predictive of defaults and other deviations from loan contracts. 

Agencies are required to estimate subsidy costs and to obtain

budget authority to cover such costs before obligating direct loans

and issuing loan guarantee commitments. Specific instructions

for budget justification, subsidy cost estimation and budget

execution under the Federal Credit Reform Act of 1990 are

provided in OMB Circular No. A-11.

Agencies shall follow sound financial practices in the design and

administration of their credit programs. Where program objectives

cannot be achieved while following sound financial practices, the

cost of these deviations shall be justified in agency budget

submissions in comparison with expected benefits. Unless a

waiver is approved, agencies should follow the financial

practices discussed in Circular No. A-129, Section II.,

subsection 3., paragraphs a-g.
Budget and Legislative Policy for Credit Programs

2-3

Implementation

The provisions of OMB Circular No. A-129, Section II will be

implemented through the OMB Circular No. A-19 legislative

review process and the OMB Circular No. A-11 budget

justification and submission process. 

For accounting standards for Federal credit programs, see

Accounting for Direct Loans and Loan Guarantees, Statement of

Federal Financial Accounting Standards Number 2, developed by

the Federal Accounting Standards Advisory Board. See OMB

Circular No. A-129, Section II., subsection 4., paragraphs a-c, for

details on such matters as:

a. proposed legislation on credit programs, reviews of credit

proposals made by others, and testimony on credit activities

submitted by agencies under the OMB Circular No. A-19.

The legislative review process should conform to the

provisions of this OMB Circular No. A-129;

b. How to request a waiver from OMB for use of proposed

provisions or language not in conformance with the

policies of OMB Circular No. A-129. Agencies will be

required to request in writing that OMB waive the

requirement, and the request must be submitted on a

standard waiver request form, available from OMB. See

OMB Circular No. A-129, Section II., subsection 4.,

paragraph (c) 1, for details on how requests should be

completed;

c. the checklist for review of legislative and budgetary

proposals. See Appendix B of OMB Circular No. A-129;

and

d. the model bill language to be used in developing and

reviewing legislation (unless OMB has approved the use of

alternative language that includes the same substantive

elements) See Appendix C of OMB Circular No. A-129.
Budget and Legislative Policy for Credit Programs

2-4

Every four years, or more often at the request of the OMB

examiner with primary responsibility for the account, the agency's

annual budget submission (required by OMB Circular No. A-11,

Section 15.2) should include:

a. a plan for periodic, results-oriented evaluations of the

effectiveness of the program, and the use of relevant

program evaluations and/or other analyses of program

effectiveness or causes of escalating program costs. See

OMB Circular No. A-129, Section II. for further details on

program evaluation;

b. a review of the changes in financial markets and the status

of borrowers and beneficiaries to verify that continuation of

the credit program is required to meet Federal objectives, to

update its justification, and to recommend changes in its

design and operation to improve efficiency and

effectiveness; and

c. proposed changes to correct those cases where existing

legislation, regulations, or program policies are not in

conformance with the policies of OMB Circular No. A129, Section II. When an agency does not deem a change

in existing legislation, regulations, or program policies to

be desirable, it will provide a justification for not

conforming with the Circular.

Questions regarding this chapter should be referred to the Office of

Management and Budget, Budget Review Division at

202-395-3945.
3-1

Credit

Reports

Purchase 

RECEIVE 

APPLICATION

SCREEN 

PROSPECTIVE 

BORROWERS 

CAIVRS, DEBT 

CHECK 

CREDIT BUREAU 

REPOSITORIES 

APPLICATION 

REJECTED

LOAN AGREEMENT SIGNED 

ACCOUNT 

SERVICING 

SELL LOAN ON 

PRIVATE 

MARKET 

Report 

Consumer and 

Commercial 

Accounts 

Other 

Credit 

History 

Chapter 3 Credit Extension

Extending Credit

This Chapter details how Federal agencies and lenders

participating in guaranteed loan programs (guaranteed loan

lenders) should manage, process, evaluate, and document loan

applications and awards for loan assistance. See Chapter 5

“Management of Guaranteed Loan Lenders and Servicers” for

information on how Federal agencies should manage lenders and

servicers that participate in Federally insured guaranteed loan

programs. See also Office of Management and Budget (OMB)

Circular No. A-129, “Policies for Federal Credit Programs and

Non-Tax Receivables,” which may be found online at

www.whitehouse.gov/omb or www.fms.treas.gov.

Credit Extension
Credit Extension

3-2

When extending credit through a Government loan program,

agencies and guaranteed loan lenders must ensure that applications

are processed and that credit is analyzed in accordance with all

statutory and regulatory requirements. Lenders and agencies need

to assess and document their loan applicants' eligibility for the

specific type of credit offered. Except where required by statute,

an agency will not extend credit to individuals or entities who

could obtain credit from private sector sources. Further, except in

limited circumstances, no agency or guaranteed loan lender may

extend credit to an individual or entity that is delinquent on a

Federal non-tax debt, until the delinquency is resolved and proof

of the resolution is presented by the debtor. Where permitted by

law, individuals who owe delinquent child support obligations are

likewise barred from obtaining Federal loan assistance. Federal

credit granting agency personnel should work with their agency

counsel to determine whether the eligibility requirements may be

extended to principals of entities in commercial transactions.

The Application

Federal credit granting agencies and private sector lenders in

guaranteed loan programs shall determine whether applicants

comply with statutory, regulatory, and administrative eligibility

requirements for loan assistance. Lenders and agencies should use

the application process as a first step in their effort to evaluate an

applicant’s request for credit and to determine eligibility for the

credit being sought by the applicant. The application form itself is

a critical piece of documentation for capturing key information

about the applicant(s), co-applicant(s) and guarantor(s), including:

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

C taxpayer identification numbers (TINs) (Social Security

Numbers [SSNs] for individuals or Employer Identification

Numbers [EINs] for all other entities). An agency must

require a loan applicant to provide the applicant’s TIN for

any program under which the agency makes, guarantees, or

insures loans. See 31 U.S.C. 7701(b). Applicants must be

asked to identify all prior TINs that were used in other

Federal Government applications;

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

3-3

C any personal information, such as number in household,

required by the program in accordance with provisions of

the Privacy Act of 1974, as amended;

C name(s), address(es), and telephone number(s) of

applicant’s and co-applicant’s employer(s);

C all relevant financial information, such as income, assets,

payments, and liabilities; and

C collateral information, including collateral location,

estimated value and description.

The application form will also contain the following:

C a statement signed by each applicant attesting to the

accuracy of the information provided. The statement will

describe any penalties the Federal Government imposes on

those who knowingly provide false information on a

Federal credit or financial assistance application;

C a “Certification of Non-Delinquency” signed by each

applicant stating that he/she/it is not delinquent on a

Federal Government debt, including any tax debt, and does

not own any property that is subject to a judgment lien

securing a debt to the Government. If the applicant is

unable to make such certification, the applicant should be

asked to explain any delinquencies or defaults and

informed that the applicant must resolve the delinquency or

default, and present evidence of that fact to the agency,

before the application process can proceed. The agency

shall stop processing on the application until such

evidence is presented. 
Credit Extension

3-4

Pursuant to the Debt Collection Improvement Act of 1996

(DCIA), persons owing outstanding delinquent non-tax debt

to the United States may not obtain Federal loan assistance

until the delinquency is resolved. The DCIA eligibility

requirement does not apply to disaster loans, or if the

requirement is waived by the head of the lending agency. 

Otherwise, the DCIA eligibility requirement applies to all

Federal direct, guaranteed and insured loans regardless of

whether creditworthiness is an eligibility requirement. An

agency is not required to grant a loan merely because the

DCIA does not render an applicant ineligible (for example,

in the case of a delinquent tax debt or if the delinquent debt

has been resolved but evidences bad credit history);

C to the extent allowed by law, a statement that each applicant

does not owe delinquent child support obligations. As

permitted by law, lenders and agencies shall deny Federal

loan assistance to individuals who owe delinquent child

support obligations that have been submitted to the

Department of the Treasury (Treasury) for collection

through the offset of Federal tax refund and other payments. 

See Executive Order 13109, “Supporting Families:

Collecting Delinquent Child Support Obligations.” An

agency that is authorized to deny a loan pursuant to

Executive Order 13109 must provide the loan applicant with

a review process described in “Minimum Due Process

Guidelines: Denial of Federal Financial Assistance” issued

by the Attorney General. The Executive Order and due

process guidelines may be found on the web site of

Treasury’s Financial Management Service (FMS) at

www.fms.treas.gov; 

C a statement requiring the applicant(s) to affirm that he/she

has been unable to obtain credit from private sector sources

(where it is consistent with statutory, regulatory and

administrative eligibility requirements); and

C a “Debt Collection Certification Statement” signed by the

applicant, detailing the consequences of delinquency (for

example, credit bureau reporting, tax refund offset, etc.) and

certifying that the Federal Government's debt collection

policies have been discussed with the applicant at the time

of application.
Credit Extension

3-5

All applicants and co-applicants must be required to sign and

date the completed application form.

The Application

Application and Origination Fees

The agency should assess a non-refundable application fee that, at

a minimum, covers the costs of obtaining credit reports, appraisals,

and supplemental data, where applicable. The application fee

should be collected at the time the applicant(s) completes and

submits the application form. The amount of the application fee

should be reviewed on a regular basis and adjusted accordingly.

Names, addresses,

phone numbers

Employer

name, address,

phone numbers

Signed 

statement

certifying

accuracy of

information

Taxpayer Identification

Numbers

LOAN

APPLICATION

Signed debt

collection

certification

Applicant

financial

information

Collateral 

information

Signed non-delinquency

certification

Signed certification 

of non- delinquency of

child support payments
Credit Extension

3-6

In addition, the agency should charge an origination or funding fee

which covers the costs of making the loan, including an amount

sufficient to cover as much of the estimated losses as possible,

based on past performance of the portfolio. The agency should

reassess and adjust, as necessary, the amount of the origination or

funding fee at least annually, where permitted by statute.

The agency must inform the applicant at the time of application of

any application, origination or funding fees. The agency must

collect the origination or funding fee at the time of application,

upon loan approval, or at the time the loan funds are disbursed as

agency regulations require.

Verifying Information Provided by the Applicant

After receiving the completed application form and making an

initial determination based on the application alone that the

applicant is eligible for the credit being sought, the agency and/or

its lender, as appropriate, should verify the information provided

by the applicant by:

C matching the applicant's name and social security number

against the Internal Revenue Services’s delinquent tax files

to determine if the applicant has a Federal tax liability. 

Applicants with such liablity are ineligible until the liability

is satisfied;

C using, as appropriate, the Department of Housing and Urban

Development’s Credit Alert Interactive Voice Response

System (CAIVRS), the Debt Check program operated by

FMS, and other databases including internal agency

information systems, to determine if the applicant is

delinquent or has defaulted on a Federal Government loan

or has an outstanding Federal judgment;

C obtaining and using credit reports available through the

General Services Administration's (GSA) Federal Supply

Schedule for Business Information Services. The credit

report will also be used to conduct the credit analysis and

determine the applicant’s creditworthiness (see “Conducting

the Credit Analysis” in this chapter); and
Credit Extension

3-7

C requesting verification of the applicant's employment and

income, credit history, and bank deposits from the

appropriate sources. Requests for verification of this

information should carry an expiration date. Information

should be reverified if more than 90 days old at the time of

loan approval, 120 days old at closing, or at any time prior

to closing if there is reason to believe that changes have

occurred since the original verification. These time limits

may be extended 30 days based upon market conditions in

effect at the time of application. All information received

during the origination and underwriting process becomes

part of the permanent loan file.

Credit Scoring

Credit scoring is a specific standardized, statistical method of

rating applicants by assigning points to certain attributes and

criteria of the applicant. For example: low consumer debt and no

delinquencies -- 5 points; high consumer debt with 3 delinquencies

-- 2 points; or, as a second example, occupancy in the same

residence for 5 years -- 10 points; occupancy in the same residence

for 2 years -- 3 points. In this example, a higher score would

indicate greater financial stability and responsibility and,

presumably, represent a lower credit risk.

Criteria used in a credit scoring system must be relevant to an

applicant's ability to repay and must be uniformly applied to all

applicants to ensure agency/lender impartiality in its credit

analysis. In developing a credit scoring system, an agency must be

able to demonstrate that there is a positive statistical relationship

between specific criteria, such as length of time at the same

residence, and its applicants' creditworthiness. Where

creditworthiness is a criterion for loan approval, agencies and

private sector lenders shall determine if applicants have the ability

to repay the loan and a satisfactory history of repaying debt. 

Credit scoring may be used to determine whether an applicant

meets baseline creditworthiness requirements prior to conducting a

full credit analysis. Credit scoring should not be used as a

substitute for conducting such analysis, nor as the only means for

determining creditworthiness.
Credit Extension

3-8

Using Credit Reports

Agencies and guaranteed loan lenders shall use reports originating

from credit bureau repositories as a screening tool. Credit reports

and supplementary data sources, such as financial statements and

tax returns, should be used to verify or determine employment,

income, assets and credit history. In addition to using a credit

report to verify information supplied by the applicant and where

creditworthiness is a criterion for loan approval, the agency shall

also use it to answer two key questions: (1) does the applicant have

the ability to repay the loan or credit award in question; and 

(2) does the applicant have a satisfactory history of repaying debt?

Guaranteed loan lenders and agencies need to determine what

type(s) of credit report(s) will best help them answer these

questions and order the appropriate report. Through the GSA’s

Federal Supply Schedule for Business Information Services,

Federal agencies have access to a number of different types of

reports, with different types of information. 

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

C the type of credit history that has been established, including

whether the applicant has met the terms of established credit

accounts;

C whether there have been any recent inquiries about the

applicant's credit status; and

C whether there are any outstanding liens against the

applicant's property.

The credit report will contain information on amounts owed to, and

the status of accounts held by, private sector companies, as well as

Government agencies, and public record information, such as

judgments, liens and bankruptcies. The agency needs to evaluate

all of the information in the credit report in terms of the following

questions:

C How long has credit been established? A six month credit

history may be acceptable if the applicant just graduated

from college, but may be a cause of concern if the applicant

has indicated that he/she has a well-established credit history.
Credit Extension

3-9

C Are the credit accounts being paid as agreed? The

answer to this question will indicate whether the applicant is

able to handle the debts he/she incurs, identify potential

problem accounts, and identify outstanding delinquent

amounts owed to the United States or delinquent child

support obligations that need to be resolved before

additional Federal loan assistance may be approved.

C Who is responsible for a given account? Applicant? 

Co-applicant? Information on the credit report will tell the

agency who is liable for paying a given account. The

agency should follow-up with the applicant on any accounts

which show up on the credit report, but which the applicant

did not reveal.

C At the time of application, is there any bad credit? Has

there been in the past? And, if so, what were the

circumstances -- medical problems, death, divorce,

unemployment? If past due accounts have been brought

current, the applicant may be trying to reestablish a good

credit rating. Repeated one or two month delinquencies

may indicate a cash flow problem -- or someone who knows

how to "play the system" so that the delinquencies never

look so serious as to affect the applicant's ability to obtain

new credit.

Agency personnel should exercise judgment when reading an

applicant's credit report and should not hesitate to ask the applicant

to clarify or explain any items of concern to the agency. (See

Appendix 1 for a key to reading credit reports.)
Credit Extension

3-10

Credit Ratings

A credit rating may assist the agency in determining the

creditworthiness of the applicant. The rating is based upon the

applicant's financial condition, experience, and credit history. 

Under a credit rating system, each application is independently

evaluated using specific standards and acceptable deviations from

those standards developed by the agency. Ratios, in particular

income ratios, are often used to determine a credit rating. Income

ratios, which indicate the relationship between expenses and

income, are used to assess an applicant's ability to make additional

payments or absorb future expenses.

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

C determine, based on past credit experience, what it considers

to be an acceptable level of risk for its loans;

C establish standards, including acceptable ratio levels, that it

can apply to relevant financial information obtained from

the applicant;

C calculate all applicable ratios; and

C apply the appropriate standards to a loan application for a

specific type of credit to determine the credit rating.

If the agency determines that an applicant has an unacceptable

credit rating, it must decide if there are compensating factors

which may mitigate the poor rating. Such factors would include

the applicant's:

C demonstrated ability for increased annual earnings, based

upon employment history;

C long-term employment prospect; and

C conservative use of credit or minimal amount of debt.
Credit Extension

3-11

Conducting the Credit Analysis

Using the information on the credit report, the verified application

information, and the results of the credit rating, the agency should

conduct a credit analysis to determine an applicant's

creditworthiness, that is, the applicant’s ability and willingness to

repay the loan.

A credit analysis for a consumer applicant will consider the

following:

C employment history for the past 2 years;

C current and potential income and benefits;

C financial statements including current assets, financial

obligations, and liabilities;

C income tax returns for the past 2 years;

C credit rating;

C repayment history of prior debts;

C guarantees and collateral, ensuring that they are not pledged

to other debts;

C value of any pledged collateral; and

C homeownership status and residential stability.
Credit Extension

3-12

A credit analysis for a commercial entity will consider the

following:

C financial condition, as documented by annual and interim

financial statements such as the balance sheet, income

statement, and cash-flow statements. The agency should use

audited statements whenever possible and not require

documentation that is cost prohibitive for the applicant to

obtain;

C any income tax returns for the past 2 years;

C ratios, such as total liability to total equity, net income to

interest expense, current assets to current liabilities, net

income to assets, and net income to equity;

C profit margin;

C amount and type of working capital;

C evaluation of the actual or potential market for the

commodity or service being offered and the entity's

marketing strategy for expanding or creating that market;

C company ownership (e.g., sole proprietor, partnership,

corporation);

C managerial ability and/or experience of key company

personnel;

C guarantees and collateral, ensuring that they are not pledged

or attached to other debts; and

C credit rating.

Generally, an agency should give particular attention to a

company's cash flow since it will be the source of the debt

repayment. The agency should also consider whether debts owed

to the United States by officers, directors, major shareholders and

partners render the commercial entity ineligible for loan assistance

under the DCIA. See 31 C.F.R. 285.13(c)(2).
Credit Extension

3-13

The agency should conduct comparable credit analyses on any coborrower(s) and guarantor(s) listed on the application form. The

agency must document and maintain the appropriate credit

analyses in the applicant’s file.

Appraisal of Real Property

For many types of loans, the Federal Government can reduce its

risk of default and potential losses through well managed collateral

requirements. Appraisals of real property serving as collateral for

a direct or guaranteed loan (or property required for grant

agreements and procurement contracts) must be conducted in

accordance with the following guidelines:

C agencies should require an independent, unbiased appraisal

of property used as collateral. The appraisal should be

consistent with the "Uniform Standards of Professional

Appraisal Practice" (USPAP), as promulgated by the

Appraisal Standards Board of the Appraisal Foundation, and

any additional requirements established by the agency; and 

C the appraiser should be qualified in accordance with the

applicable State and Federal regulatory requirements.

Lenders and/or agencies shall determine whether an

appraisal must be performed by a State licensed or certified

appraiser based on the size of the loan and/or complexity of

the appraisal. For non-business loans over $100,000 and for

business loans over $250,000, lenders and agencies should

ensure that a State licensed or certified appraiser prepares

the appraisal. Agencies may also require the services of a

State licensed or certified appraiser for smaller direct or

guaranteed loan transactions. The services of a State

licensed or certified appraiser are not required for loans with

no cash out and for those transactions where the collateral is

not a major factor in the decision to extend credit.

The appraisal will establish the fair market value of the property

and serve as the basis for the agency's decision as to the maximum

loan it will make on the property. The property should be

appraised close to the commitment date of the lender. The

property should be reappraised if the appraisal is more than 6

months old.
Credit Extension

3-14

Major elements addressed on the appraisal include:

C neighborhood analysis, including data related to the

economic background of the region, city and neighborhood;

C site analysis, including data related to the size and shape of

the property, the types of buildings on the property, front

footage and parking;

C improvement analysis. A lot is considered "improved" if it

contains a structure. The improvement analysis focuses on

the structure or other dwelling(s), such as floor plans,

energy efficiency, and age; and

C property condition and appraiser comments. The

appraiser must express an opinion about the condition of the

property.

The “Subject Property Section” of the appraisal provides a

complete description of the property and its surroundings. A map,

floor plan, and photographs of the property reflecting the

property’s “curb appeal” should also be attached.

The appraiser uses the sales price of similar properties and

estimated replacement costs to estimate the property's market

value. This estimate will be documented in the report's valuation

section.

In some credit programs, the primary purpose of the loan is to

finance the acquisition of an asset, such as a single family home,

which then serves as collateral for the loan. Lenders and Federal

agencies should ensure that borrowers assume an equity interest in

such assets to reduce defaults and losses. Federal agencies should

explicitly define the components of the loan-to-value ratio (LTV)

for both direct and guaranteed loan programs. Lenders and

agencies will review and approve the appraisal report containing

the estimated market value in order to determine the maximum

available loan on the property (loan-to-value ratio). The approved

appraisal report will be placed in the permanent loan file.
Credit Extension

3-15

Unless exempted or otherwise authorized by law, agencies should

establish:

C a maximum acceptable LTV ratio. This could be in the

range of 80 to 95%. Financing should be limited by not

offering terms (including the financing of closing costs) that

result in a LTV equal to or greater than 100 percent. 

Further, the loan maturity should be shorter than the

estimated useful economic life of the collateral;

C limitations on the proportion of up-front fees or transaction

related expenses that a borrower can finance;

C an acceptable minimum down-payment amount; and

C a process for assessing higher loan premiums on loans with

higher loan-to-value ratios.

Loan Closing

Processing a Loan to Loan Closing

YES 

Application Completed 

Credit Analysis acceptable

Appraisal supports loan amount

Applicant Information verified

Private funding available

Non-delinquency verified

Eligible for type of credit

Loan Approved 

YES 

STOP 

STOP 

STOP 

STOP 

STOP 

YES 

STOP 

NO 

NO 

NO 

NO 

NO 
Credit Extension

3-16

Loan closing occurs after the completion of the processing of a

loan which results in loan approval. At loan closing, the agency or

lender will collect any loan documents or monies due. The agency

is responsible for ensuring that all legal documents including the

promissory note, collateral documents (such as security agreement,

mortgage, and/or deeds of trust), loan agreement, certification of

non-delinquency, and debt collection certification statement, are

signed by both the borrower(s) and co-borrower(s). 

Where appropriate, the loan documents will state the terms of

repayment, including:

C the frequency, due dates, and amount of principal and

interest payments. Generally, loan payments should be

monthly unless the borrower’s projected cash flow would

make monthly installments inappropriate;

C the amount of escrow payments, if required;

C the length of the loan - loan maturity should be shorter than

the useful economic life of the asset being financed;

C the acceptable means of repayment, i.e., checks, money 

orders, credit cards, pre-authorized debit or electronic

payment via the internet (see, for example, www.Pay.gov);

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

C any special exemptions, such as cases of possible

forbearance or deferment;

C Federal delinquent debt collection policies and procedures;

C agency policies regarding the assessment of late charges on

delinquent payments. Amounts and/or rates to be assessed

should also be provided, when possible; and

C agency policies regarding the acceleration of the debt in the

event of a delinquency.
Credit Extension

3-17

Non-Loan Screening

Where financial responsibility is a factor, an agency should screen

its potential contractors and grant applicants, in accordance with

all statutory and regulatory requirements. Standards in Part 9 of

the Federal Acquisition Regulations (FAR) apply to the screening

of contractors. As part of the application process, the agency must

obtain the following information from contractors and grant

applicants:

C taxpayer identification number(s); and

C certification of non-delinquent status. The applicant will

certify that he/she is not delinquent on a Federal

Government debt, including tax debt. Agencies should

include the certification statement on the application form.

Processing of contractor agreements and grant applications shall be

suspended when applicants are delinquent on Federal tax or nontax debts, including judgment liens against property for a debt to

the Federal Government. Processing should continue only when

the debtor satisfactorily resolves the debt(s) (e.g., pays in full or

negotiates a new repayment plan). 

Agencies shall obtain and use credit reports to verify the

information provided by contractors and grant applicants, assess

financial condition, and ascertain other financial agreements, if

any, between the applicant and the Federal Government. The

agency should also check the "List of Contractors Indebted to the

United States" (Army Hold-Up List), published by the Defense

Finance and Accounting Service as part of its contractor eligibility

evaluation and verification process.

When an applicant is listed as debarred or suspended in the "List of

Parties Excluded from Federal Procurement or Non-procurement

Programs," the agency will not make an award except as

authorized under agency regulations implementing Executive

Order 12549 or FAR 9.4.
Credit Extension

3-18

LOAN AGREEMENT

_________________________________

_________________________________

_________________________________

_________________________________ 

_________________________________

_________________________________

_________________________________ 

_________________________________

_________________________________

_________________________________

_________________________________

_________________________________

_________________________________ 

9 Signed Loan Application 

9 L oan C om m itm ent 

9 C redit R eport 

9 V erification D ocum ents 

9 CAIVRS and Debt Check 

9 Debt Collection Certification 

9 N on-delinquency C ertification 

9 C redit Analysis 

9 Appraisal 

Credit Extension Documentation

Credit Extension Documentation

Loan origination files should contain loan applications, credit

bureau reports, credit analyses, loan closing documents, and other

documents necessary to conform to private sector standards for

that type of loan. Accurate and complete documentation is critical

to providing proper servicing of the loan, pursuing collection of

delinquent debt, and, in the case of guaranteed loans, processing

claim payments.

At loan origination, the agency or lender will start building the

loan file with the following documents, as applicable:

C original signed loan application including the certification

by the borrower of non-delinquency of Federal debts;

certification by the borrower that he/she sought private

sector financing and was denied or a copy of the application

form for private sector financing with the letter denying the

loan; and certification by the borrower of the accuracy of the

information provided on the loan application; 
Credit Extension

3-19

• supporting papers including credit approval documentation

(credit report(s) and agency analysis of credit information,

along with records of subsequent approval action); and an

appraisal of the property along with supporting

documentation;

C statement that the borrower has not been suspended,

debarred, or voluntarily excluded from procurement or nonprocurement dealings with the Federal Government;

C signed certificate that the borrower was informed of the

Federal Government’s debt collection policies and

procedures;

C financial and market analyses for commercial loans;

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

commercial loans;

C insurance documents;

C copy of the loan commitment and the terms and conditions

of the loan, including a complete payment schedule for

principal and interest;

C original copy of the accepted loan commitment signed by

the applicant(s);

C all original internal review documents required for financial

and legal findings (all letters, memoranda, legal opinions

and requisitions for disbursement concerning negotiations

and closure of the loan, including summary of written,

telephone, and electronic mail contacts between lending

officials and applicant);

C evidence of necessary public record filings securing loan

collateral including current Uniform Commercial Code

filings and searches; and

C list of scheduled reports required by the agency, including

financial statements from the borrower.
Credit Extension

3-20

Lenders and agencies should use a manual or automated checklist

to ensure that they have fully documented their credit extension

activities. (See Appendix 2). While much of this information may

be contained in an automated system, lenders and agencies may

still need to maintain all original documentation to support

possible future legal action. 

Questions regarding this chapter can be directed to the Agency

Enterprise Solutions Division, Federal Finance, Financial

Management Service at 202-874-6875.
4-1

Chapter 4 Account Servicing

Servicing Government Loans

Accurate and complete documentation is critical to providing

proper servicing of debt, pursuing collection of delinquent debt,

and in the case of guaranteed loans, processing claim payments. 

Once credit has been extended or a financial obligation to repay an

administrative debt established, an agency becomes responsible for

servicing or controlling the account. This Chapter describes

Federal loan and debt servicing requirements as described in

Office of Management and Budget (OMB) Circular No. A-129

“Policies for Federal Credit Programs and Non-Tax Receivables,”

which may be found online at: www.whitehouse.gov/omb or

www.fms.treas.gov. 

The Federal Government can efficiently meet its servicing

responsibilities and reduce its costs in several ways. First, under

loan guarantee programs, credit servicing provided by private

sector lenders tends to be more efficient and result in lower

portfolio management costs than direct servicing by Federal

agencies. Second, under certain conditions, an agency may find it

advantageous to sell loans or other debts, thus allowing the agency

to shift staff resources from servicing to mission critical functions. 

Finally, an agency may contract with a private sector firm for all or

some of its servicing activities, as best meets the agency’s needs.

Basic servicing activities include:

C billing the debtor;

C processing and crediting payments;

C monitoring the account;

C documenting servicing action;

C timely responding to borrower inquiries;

C providing agency management with regular aggregate

reports on receivables; and

C providing central regulatory agencies with required

receivables and debt collection reports.
Account Servicing

4-2

Billing the Debtor

An agency shall ensure that invoices are routinely sent to

borrowers/debtors and that efficient mechanisms are in place to

collect and record payments. Where appropriate, borrowers should

be encouraged to use agency systems established by the

Department of the Treasury (Treasury) which collect payments

electronically, such as pre-authorized debits, credit cards, and

electronic payments via the Internet (see, for example,

www.Pay.gov). The billing cycle established by a repayment

agreement should be the same as that used by private lending

institutions for equivalent types of debts, generally monthly. The

billing cycle will contain all of the regular mechanisms needed to

bill debtors, collect and apply payments to appropriate accounts,

and document account activity. 

For housing and other long-term real estate loans, an agency or its

lender/servicer should establish, at the time of loan origination,

escrow accounts to process tax and insurance deposits. Agency

servicing systems must process tax and insurance payments

through escrow accounts. 

For installment loans, the agency or its lender/servicer should

initiate the billing process upon the first regular payment due from

the debtor. In the case of administrative debt, the agency should

initiate the billing process when it determines that the debt exits,

e.g., the debtor owes a fine or penalty or has received an

overpayment. 

The initial billing notice or invoice for an administrative debt

should include:

C the amount of the debt;

C the basis of the indebtedness;

C the opportunities available to the debtor to dispute the debt,

obtain copies of documents related to the debt, and enter

into a repayment agreement acceptable to the agency if the

debtor is unable to pay the debt in full;
Account Servicing

4-3

C the date on which payment is due, usually 30 days after the

date of the billing. The billing notice should also indicate

the agency’s policies with respect to the assessment of

interest, administrative costs, and penalties, and that if

payment is not received on or before the due date, the

agency will begin assessing such charges as stated;

C the steps the agency will take to enforce collection, such as

reporting a debt to a credit bureau; referring the debt to

Treasury for collection actions, including offset; referral to

a private collection agency; administrative wage

garnishment; and litigation (see Chapter 6, Delinquent Debt

Collection). The agency cannot threaten to take collection

action it is not authorized or does not intend to take;

C if not previously provided by the debtor, the request that

the debtor provide his/her/its taxpayer identification

number, either through the submission of a Form W-9,

"Request for Taxpayer Identification Number and

Certification" available through the Internal Revenue

Service website at www.irs.gov/formspubs, or on any

payment or returned correspondence if legally authorized to

do so; and

C the name, phone number, and address of an individual to

contact within the agency. It is important for a debtor to be

able to contact a person knowledgeable about the agency’s

billing and collection policies and practices and who can

respond promptly to the debtor’s concerns.

Failure of a debtor to respond to the billing notice or indicate a

desire to negotiate a reasonable repayment agreement or

compromise should lead the agency to renew the demand for

payment and proceed into the full collection process described in

Chapter 6, Delinquent Debt Collection. 
Account Servicing

4-4

Reporting Account Information to Credit Reporting Agencies

An agency or its lender/servicer must be able to identify and report

non-delinquent and delinquent debts to credit reporting agencies

(also known as “credit bureaus”) in accordance with the

requirements of 31 U.S.C. 3711(e), OMB Circular No. A-129, and

the “Guide to the Federal Credit Bureau Program” published by

the Treasury’s Financial Management Service (FMS). Copies of

the statute, OMB Circular, and guide are available on FMS’s web

site at www.fms.treas.gov. 

C Credit extension by lenders. Under the Debt Collection

Improvement Act of 1996 (DCIA), an agency must, as a

condition for insuring or guaranteeing any loan, financing,

or other extension of credit under any law to a person,

require that the lender provide information relating to the

extension of credit to credit bureaus. Credit extension

reporting provides a true picture of the borrower’s

outstanding obligations with respect to Federal direct and

indirect loan assistance.

C Federal agency debts. OMB Circular No. A-129 requires

agencies to report to credit bureaus all non-tax, non-tariff

commercial accounts (current and delinquent). In addition,

the DCIA requires agencies to report all delinquent nontax, non-tariff consumer accounts. Agencies may report

current consumer debts to credit bureaus as well and are

encouraged to do so. The reporting of current debts (in

addition to any delinquencies) provides a truer picture of a

borrower’s outstanding indebtedness while simultaneously

reflecting accounts that the borrower has maintained in

good standing.

There is no minimum dollar threshold below which debts cannot

be reported, i.e., accounts for as low as $5 may be reported to a

credit bureau. For detailed information on credit bureau reporting,

including information concerning the required agency procedures

for reporting delinquent consumer debts, agencies should refer to 

FMS’s “Guide to the Federal Credit Bureau Program.”
Account Servicing

4-5

Account Monitoring

An agency or its lender/servicer is responsible for monitoring each

of its accounts. As a primary means for monitoring account

activity for administrative debts in particular, the billing system

should enable the agency to "flag" or "mark" overdue payments for

special attention. With overdue payments, the agency should

contact the debtor by telephone or letter, in accordance with its

collection procedures and strategies.

A loan classification (or risk rating) system is designed to assist an

agency in monitoring and assessing loan performance. Such a

system allows the agency to mark for special monitoring those

loans which have been identified as potentially or actually weak. 

Any loan classification system established by the agency should be

the same as, or comparable to, the system established by the

Comptroller of the Currency.

Systematic monitoring of individual accounts provides an agency

with a mechanism for:

C identifying and correcting potential problems before

accounts go into default;

C evaluating the overall quality of its portfolio; and

C identifying trends, such as deficiencies in account

documentation.
Account Servicing

4-6

Consumer

Problemless “good” loan 

Substandard delinquent loan/ 

 Possible loss 

Loss “bad” 

 (uncollectible) loan 

Commercial

Problemless “good” loan 

Program Standard limited risk 

Substandard possible loss 

Doubtful “probable” loss 

Loss “bad” 

 (uncollectible) loan

Loan Classification

When using a loan classification system, the agency will reassess

and reclassify each loan in its portfolio annually. It should

periodically examine all accounts within each classification to

ensure that they meet the standards for that classification. It

should further ensure that each classification accurately reflects the

agency’s historical experience with accounts in that program area.

The following factors should be evaluated in classifying an

account:

C the debtor’s ability to manage an income-generating

activity (particularly relevant for some types of commercial

loans);

C the debtor's financial position and history, including

employment history and financial responsibility;

C the type of business and ability to generate profits (for

commercial entities only);

C the structure of the loan and its purpose; and

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

4-7

Consumer Loan Classification

An agency will use a three-tiered classification system for

consumer accounts. Substandard and loss categories are adverse

classifications with respect to potential or actual loss to the Federal

Government. The classifications are:

C Problemless - a loan on which payments are consistent

with the terms of the agreement. Thus, it does not pose an

abnormal credit risk to the Federal Government.

C Substandard - a loan which is 90 to 119 days delinquent. 

If the deficiencies are not corrected, there is a distinct

possibility the Federal Government will sustain some loss.

C Loss - a loan which is 120 days or more delinquent. This

class of loan is judged uncollectible and of such little value

that continuing to record it as a loan receivable is not

warranted even though partial recovery may be possible in

the future.

Agencies should consider using the following more stringent

criteria when classifying single family housing loans:

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

delinquent;

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

and

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

The reason for using more stringent criteria for single family

housing loans is because the amount of the monthly mortgage

payment must be considered when determining the risk of these

loans. The size of typical mortgage payment is usually about 25 to

30 percent of the household's disposable income. When a

borrower becomes delinquent by more than 30 days, the likelihood

of full repayment under the original loan terms decreases

significantly; the agency may wish to move such loans into the

substandard category earlier than other types of loans.
Account Servicing

4-8

Commercial Loan Classification

Commercial loans will be classified using the categories defined

below. Substandard, doubtful, and loss categories are deemed

adverse classifications with respect to potential or actual loss to the

Federal Government.

C Problemless - a loan which is performing as expected. 

Payments are current; the borrower is in general

compliance with the terms of the loan; and projected

receipts and expenses show that repayment is very likely. 

The loan does not pose an abnormal credit risk to the

Federal Government.

C Program Standard - the loan does not presently expose

the Federal Government to a sufficient degree of risk to

warrant an adverse classification; however, it poses

sufficient credit risk to deserve more attention than a

problemless loan. Included in this category are loans with

inadequate collateral, inadequate written agreements, or

other deficiencies indicating deviations from prudent

lending practices which expose the Federal Government to

a higher than normal credit risk.

C Substandard - a loan in which the borrower's paying

capacity and/or the collateral pledged, if any, jeopardizes

payment of the debt in full. If the deficiencies are not

corrected, there is a distinct possibility the Federal

Government will sustain some loss.

C Doubtful - a loan in which liquidation of an asset(s) for full

value is improbable and the possibility of loss, based on

currently known facts, is highly probable. However,

certain conditions exist that may positively affect the

asset(s) and increase the possibility of recovery.

C Loss - a loan that is uncollectible and of such little value

that continuing to record it as a loan receivable is not

warranted even though partial recovery may be possible in

the future.
Account Servicing

4-9

The classification of commercial loans involves a more detailed

analysis than that for consumer loans since commercial loans have

different characteristics such as:

C unstable repayment due to heavy impact of economic

factors;

C potential for large dollar loans; and

C shorter repayment periods, with larger monthly payments.

In making a loan classification decision, there are a number of

significant factors which should be considered when evaluating the

potential viability of a business:

C cash flow and budget projections;

C past income performance; and

C future economic conditions.

Delinquency, however, remains a key indicator when classifying a

commercial loan. (See Appendix 3 for a list of early warning signs

of potential problems.)

Allowance Accounts

An agency shall recognize and record its projected debt losses by

setting up allowance accounts, such as a “loan loss reserves”

account. Separate accounts should be established for accounts and

loans receivable. The agency should establish the amounts in the

allowance accounts based on any one of the following:

C Portfolio condition and composition. For loan portfolios,

the aggregate totals of all loans classified in the "loss"

category and a percentage of those considered to be in the

"doubtful" and "substandard" categories should be placed

in the allowance account. The agency should determine

what proportion of its "doubtful" and "substandard" loans

can be reasonably projected as a loss.
Account Servicing

4-10

For administrative debt, the agency should consider the

type of debt (e.g., fines, fees, penalties, etc.) and its

experiences with collecting a given type of debt, such as

the likelihood of the courts enforcing repayment of punitive

charges.

C Historical experience with losses. Using past account

records, the agency should determine the number and

percentage of its accounts that can reasonably be

considered uncollectible.

C Actual write-offs taken in the preceding year or groups

of years.

By accurately estimating its potential losses and putting that

amount in its allowance accounts, an agency is recognizing that it

is unlikely to effect recovery on a portion of its portfolio and that

the estimated uncollectible amount constitutes a "bad debt"

expense to the Government. The agency must subsequently

recognize amounts it deems uncollectible as write-offs against the

allowance account.

Servicing Documentation

To monitor its accounts successfully, the agency needs to maintain

and update, in each account file, all information pertaining to an

account. During the account servicing phase, the agency or

lender/servicer servicing a loan account should simply build upon

the documentation generated during credit extension.

The agency which is servicing an administrative debt begins its

process of documenting account activity in the account servicing

phase. It is, therefore, critical that the agency document any

contact with the debtor since such contacts may be needed to

support the legitimacy or legality of the debt.
Account Servicing

4-11

LOAN CLASSIFICATION 

1

0

1

1

Account File for 

Joe E. Doe 

9 Credit Extension Document 

9 Account Servicing Documents 

PAYMENT HISTORY

$1000.....................................5/1/00 

$1000.....................................6/1/00 

$1000.....................................7/1/00 

$1000.....................................8/1/00 

$1000................................9/1/00 

$1000..............................10/1/00 

$1000..............................12/1/00 

Account Servicing Documentation

Information to be incorporated into the account file should include:

C the basis for the creation or establishment of the debt,

including any loan documents; or, for administrative debt,

assessment of a fine or penalty, a copy of the invoice that

was overpaid, the supporting payment schedule, and/or any

other documentation that would substantiate and support

the debt; 

C payment history and schedules, including delinquencies

and defaults and subsequent deferrals, rescheduling, or

refinancing, if any;

C loan classification or risk rating, if any;

C documentation of each contact between the servicing

official and borrower/debtor including demand letters; and

C reports submitted to the agency for monitoring the account,

such as financial statements for commercial loans.
Account Servicing

4-12

Agencies should maintain the originals of any documents

generated which indicate that the debtor was aware of the loan or

debt obligation, such as the loan commitment or repayment

agreement, since such documents may be required in any future

actions involving litigation to enforce collection. The agency may

use an automated system to maintain the account and create the

account history and documentation as the account ages (see

Appendix 2 for servicing checklist).

Contract Servicing

Depending upon the size of the portfolio and the cost of

automating its functions, it may be cost effective for an agency to

have a cross-servicing agreement with another Federal agency or

contract out its account servicing functions. If the agency

contracts out its account servicing, it is also responsible for

developing standards consistent with its needs and with the

reporting requirements of OMB and FMS.

Each agency should establish penalties for any contractor that fails

to conduct operations in accordance with the established standards. 

For example, the agency can require a contractor to absorb any

delinquencies caused by negligent servicing.

The agency must ensure that the contractor fully documents all

servicing undertaken and require the contractor to promptly

communicate information on delinquent accounts so that the

agency may initiate action. The agency must establish a means to

move and store the servicing information for delinquent accounts

into its debt collection activities.
Account Servicing

4-13

Treasury Report on Receivables 

Federal agencies are required to regularly provide information

concerning their non-tax receivables and delinquent debts to FMS

for inclusion in the “Treasury Report on Receivables” (TROR). 

See 31 U.S.C. 3719.

The TROR is the Treasury’s only comprehensive means for

periodically collecting data on the status and condition of the

Federal Government’s non-tax debt portfolio. The information

contained in the report is disseminated to Congress, OMB, agency

Chief Financial Officers, the Federal Credit Policy Working

Group, other officials and representatives of Federal and state

organizations, private sector organizations, and the public.

The TROR serves as a management report which informs Federal

decision-makers of the gross book value of the debts held by the

Federal Government and the actions taken to enforce collection of

the Government’s receivables. Thus, the debt amounts listed in an

agency’s receivables report are not necessarily identical to the

amounts reported on an agency’s financial statements, which are

presented in accordance with Credit Reform guidance, i.e., using

net present value. Agencies are, however, required to reconcile

their TROR reporting with the receivables data reported on their

financial statements.

To assist agencies in properly reporting receivable and debt

information to FMS, FMS has published an “Instructional

Workbook for Preparing the Treasury Report on Receivables.”

The workbook and contact information are available on FMS’s

website at www.fms.treas.gov/debt. 

For further information on this chapter, please contact the Agency

Enterprise Solutions Division, Federal Finance, at 202-874-6875. 

For information on the TROR, please contact the Agency Liaison

and Reporting Division, Debt Management Services, at

202-874-6660.
This page is left intentionally blank.
5-1

Chapter 5 Management of Guaranteed Lenders and Servicers

Managing Risks in Guaranteed Loan Programs

An agency that extends credit through a guaranteed loan program

must take appropriate steps to minimize the risk of loss to the

Federal Government. This goal can be efficiently achieved by

monitoring the approved lenders and servicers, rather than

monitoring the credit extension and servicing actions taken on

each guaranteed loan. Accordingly, an agency should focus its

efforts on assuring that only qualified lenders and servicers take

actions on federally guaranteed loans, and that these qualified

lenders and servicers continue to adhere to agency rules and

standards concerning credit extension and loan servicing. The key

components of a successfully managed guaranteed loan program

are:

C lender eligibility, including lender participation criteria,

continuing review of a lender's eligibility to participate in

the agency's guaranteed loan programs, decertification of a

lender that fails to meet an agency's standards, and use of

loan servicers;

C lender agreements, including terms of lender participation

agreements, performance standards, reporting

requirements, and terms applicable to loan servicers;

C lender and servicer reviews, including requirements for

on-site reviews by the agency on a regular basis (annually

or biennially, depending on volume and performance); and

C corrective actions, including actions to be taken when a

lender or servicer is not in compliance with program

requirements.

Agencies responsible for the management of guaranteed lending

programs must comply with the applicable provisions of the Office

of Management and Budget (OMB) Circular No. A-129, “Policies

for Federal Credit Programs and Non-Tax Receivables.” These

provisions are set out in detail below. The OMB Circular No. A129 is available in its entirety on line at www.whitehouse.gov/omb

or www.fms.treas.gov. 
Management of Guaranteed Lenders and Servicers

5-2

Lender Eligibility

Participation Criteria. Federal credit granting agencies shall

establish and publish in the Federal Register specific eligibility

criteria for lender participation in Federal guaranteed loan

programs. These criteria should include:

C requirements that the lender is not currently

debarred/suspended from participation in a Government

contract or delinquent on a Government debt;

C qualification requirements for principal officers and staff of

the lender;

C fidelity/surety bonding and/or errors and omissions

insurance with the Federal Government as loss payee,

where appropriate, for new or non-regulated lenders with

questionable performance under Federal guarantee

programs; and

C financial and capital requirements for lenders not regulated

by a Federal financial institution regulatory agency,

including minimum net worth requirements based on

business volume.

Review of Lender Eligibility. Agencies shall review and

document a lender’s eligibility for continued participation in a

guaranteed loan program at least every two years. Ideally, these

reviews should be conducted in conjunction with on-site reviews

of lender operations or other required reviews, such as renewal of a

lender agreement (“Lender Agreements,” see below). Lenders not

meeting standards for continued participation should be

decertified. In addition to the participation criteria above, agencies

should consider lender performance as a critical factor in

determining continued eligibility for participation.

Fees. When authorized and appropriate for such purposes,

agencies should assess non-refundable fees to defray the costs of

determining and reviewing lender eligibility.
Management of Guaranteed Lenders and Servicers

5-3

Decertification. Agencies should establish specific procedures to

decertify lenders or take other appropriate action any time there is:

C significant and/or continuing non-conformance with agency

standards; and/or 

C failure to meet financial and capital requirements or other

eligibility criteria.

Agency procedures should define the process and establish

timetables by which decertified lenders can apply for reinstatement

of eligibility for Federal guaranteed loan programs.

Loan Servicers. Lenders transferring and/or assigning the right to

service guaranteed loans to a loan servicer should use only

servicers meeting applicable standards set by the Federal credit

granting agency. Where appropriate, agencies may adopt

standards for loan servicers established by a Government

Sponsored Enterprise (GSE) or a similar organization (e.g.,

Government National Mortgage Association for single family

mortgages) and/or may authorize lenders to use servicers that have

been approved by a GSE or similar organization.

Lender Agreements

Agencies should enter into written agreements with lenders that

have been determined to be eligible for participation in a

guaranteed loan program. These agreements should incorporate

general participation requirements, performance standards and

other applicable requirements of OMB Circular No. A-129. 

Agencies are encouraged, where not prohibited by authorizing

legislation, to set a fixed duration for the agreement to ensure a

formal review of the lender eligibility for continued participation

in the program.
Management of Guaranteed Lenders and Servicers

5-4

General Participation Requirements

Lender participation requirements include:

C requirements for lender eligibility, including participation

criteria, eligibility reviews, fees, and decertification (see

Lender Eligibility, Participation Criteria, above);

C agency and lender responsibilities for sharing the risk of

loan defaults (see Chapter 2, Budget and Legislative Policy

for Credit Programs, Financial Standards) and, where

feasible;

C maximum delinquency, default and claims rates for lenders,

taking into account individual program characteristics.

Performance Standards

Agencies should include in their lender agreements due diligence

requirements for originating, servicing, and collecting loans. This

may be accomplished by referencing agency regulations or

guidelines. Examples of due diligence standards include collection

procedures for past due accounts, delinquent debtor counseling

procedures and litigation to enforce loan contracts. 

Agencies should ensure through the claims review process, that

lenders have met these standards prior to making a claim payment. 

Agencies should reduce claim amounts or reject claims for lender

non-performance.
Management of Guaranteed Lenders and Servicers

5-5

Reporting Requirements

Agencies should require certain data to monitor the health of their

guaranteed loan portfolios, track and evaluate lender performance

and satisfy OMB, the Department of the Treasury, and other

reporting requirements. Examples of the data which agencies must

maintain include:

C activity indicators. The number and amount of

outstanding guaranteed loans at the beginning and end of

the reporting period and the agency share of risk; number

and amount of guaranteed loans made during the reporting

period; and number and amount of the guaranteed loans

terminated during the period; and

C status indicators. A schedule showing the number and

amount of past due loans by age of the delinquency, and

the number and amount of loans in foreclosure or

liquidation (when the lender is responsible for such

activities).

Agencies may have several sources for such data, but some or all

of the information may best be obtained from lenders and

servicers. Lender agreements should require lenders to report

necessary information on a quarterly basis (or other reporting

period based on the level of lending and payment activity).

Loan Servicers

Lender agreements must specify that loan servicers meet

applicable participation requirements and performance standards. 

The agreement should also specify that servicers acquiring loans

must provide any information necessary for the lender to comply

with reporting requirements to the agency. Servicers may not

resell loans except to qualified servicers.
Management of Guaranteed Lenders and Servicers

5-6

Lender and Servicer Reviews

To evaluate and enforce lender and servicer performance, agencies

should conduct on-site reviews on a biennual basis, except as

noted below. Agencies should summarize review findings in

written reports with recommended corrective actions and submit

them to agency review boards. (See Chapter 1 - Introduction,

Responsibilities of Departments and Agencies.) 

Agencies should conduct annual on-site reviews of all lenders and

servicers with substantial loan volume or whose:

C financial performance measures indicate a deterioration in

their guaranteed loan portfolio;

C portfolio has a high level of defaults for guaranteed loans

less than one year old;

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

C poor performance results in monetary penalties imposed on

the lender or servicer or an abnormally high number of

reduced or rejected claims.

Agencies are encouraged to develop a lender/servicer classification

system which assigns a risk rating based on the above factors. 

This risk rating can be used to establish priorities for on-site

reviews and monitor the effectiveness of required corrective

actions.

Reviews should be conducted by guarantor agency program

compliance staff, Inspector General staff, and/or independent

auditors. Where possible, agencies with similar programs should

coordinate their reviews to minimize the burden on

lenders/servicers and maximize the use of scarce resources. 

Agencies should also utilize the monitoring efforts of GSEs and

similar organizations for guaranteed loans that have been

“pooled.”
Management of Guaranteed Lenders and Servicers

5-7

Corrective Actions

If a review indicates that the lender/servicer is not in conformance

with all program requirements, agencies should determine the

seriousness of the problem. For minor non-compliance, agencies

and the lender or servicer should agree on corrective actions. For

more serious and frequent offenses, agencies should establish

penalties. Penalties may include loss of guarantees, reprimands,

probation, suspension and decertification. 

For further guidance or information, agencies should contact the

Agency Enterprise Solutions Division at 202-874-6875.
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Chapter 6 Delinquent Debt Collection

6-1 

Overview 

Agencies should have fair but aggressive programs to recover 

delinquent debt, including defaulted guaranteed loans acquired by 

the Federal Government. Each program should include a debt 

collection strategy, consistent with governmentwide and agency 

requirements, to restore the delinquent debts to current status or, if 

unsuccessful, maximize collection on the agency's accounts. The 

strategy should further promote the resolution of delinquencies as 

quickly as possible, since the ability of an agency to collect its 

delinquent debts will generally decrease as the debts become older. 

The strategy should take into account that debts within the 

jurisdiction of the bankruptcy courts are subject to the provisions 

of the United States Bankruptcy Code (see page 6-57). When a 

debtor has filed for bankruptcy protection, legal counsel should be 

consulted prior to continuing any collection activities, including 

those described in this Chapter. 

This Chapter describes the collection techniques and tools 

available to assist agencies in collecting delinquent debts, and 

supplements the debt collection requirements contained in statutes 

and regulations. In this Chapter, a Federal agency that is owed a 

debt is sometimes referred to as a “creditor agency.”

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Debt Collection Rules and Guidance Hierarchy

This Chapter is divided into three parts: 

Part I, Managing Delinquencies, provides information on debt 

collection strategies and principles; 

Part II, Debt Collection Tools and Programs, discusses 

delinquent debt collection tools, such as cross-servicing (transfer 

of debts to Bureau of the Fiscal Service (Fiscal Service) for 

collection), offset, administrative wage garnishment, collateral 

liquidation, and litigation; and

Part III, Miscellaneous Topics, describes several techniques an 

agency uses to support the debt collection process. 

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This Chapter applies to debts owed to the United States, including 

loans, fines, penalties, overpayments, and fees, but does not apply 

to the collection of Federal tax debts, debts owed by Federal 

agencies, or debts owed by foreign countries. Debts based in 

whole or in part on conduct in violation of the antitrust laws or 

involving fraud, the presentation of a false claim, or 

misrepresentation on the part of the debtor or any party having an 

interest in the claim must be referred to the Department of Justice 

(DOJ) for action. At its discretion, DOJ may return the debt to the 

agency for handling in accordance with the procedures described 

in this Chapter. 

The policies and procedures detailed in this Chapter do not create 

any right or benefit, substantive or procedural, enforceable at law 

or in equity by a party against the United States, its agencies, its 

officers, or any other person. The failure of an agency to comply 

with any of the provisions in this Chapter shall not be available to 

any debtor as a defense, except as otherwise allowed by law. 

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6-4 

Part I – Managing Delinquencies

Background 

Delinquency Defined. A debt becomes delinquent when: 

 payment is not made by the due date or the end of the

“grace period” as established in a loan or repayment

agreement, in the case of a debt being paid in installments.

The date of delinquency is the payment due date.

Example: Borrower’s loan payment is due January 1. 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). 

 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.

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, 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). 

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Delinquent Debt Collection

6-5 

Debt Collection Improvement Act of 1996. T h e Debt Collection 

Improvement Act of 1996 (DCIA) provided Federal agencies with a 

variety of delinquent debt collection tools. The DCIA: 

centralized delinquent debt collection at the Department of the 

Treasury (Treasury), requiring Treasury to pursue delinquent debts 

that are not actively being collected by Federal creditor agencies, a 

program known as “cross- servicing”; 

established a centralized offset process at Treasury, known as the 

“Treasury Offset Program”; authorized Treasury to manage a 

governmentwide, performance-based private collection agency 

contract for referral of delinquent debts for collection; 

 requires Federal agencies to report delinquent consumer debts

to credit bureaus;

 permits Federal agencies to administratively garnish the wages

of non-Federal employees; and

 requires credit-granting agencies to bar debtors from

receiving Federal direct, guaranteed, or insured loans until

their delinquent debts owed to the United States are

resolved.

Debt Collection Statutes. A list of the Federal statutes applicable 

to governmentwide debt collection is found at Appendix 4. 

Governmentwide Debt Collection Regulations. The following 

regulations apply to governmentwide debt collection: 

 The Federal Claims Collection Standards (FCCS) are the

governmentwide debt collection standards published jointly

by Treasury and DOJ in Title 31 of the Code of Federal

Regulations (CFR), Parts 900 through 904 (31 CFR Parts

900 – 904);

 The debt collection regulations issued by Treasury’s Fiscal

Service at 31 CFR Part 285 govern Treasury’s crossservicing procedures; Treasury’s centralized offset program,

including administrative, tax refund, and salary offset

programs; administrative wage garnishment; and, the

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6-6 

barring of delinquent debtors from receiving Federal loans 

and loan guaranties; and 

 Salary offset regulations published by the Office of

Personnel Management at 5 CFR Part 550.

 The Office of Management and Budget (OMB) has issued

OMB Circular No. A-129, “Policies for Federal Credit

Programs and Non-Tax Receivables.”

 The Treasury Financial Manual Chapter I TFM 4-4000, "Debt

Management Services Collection of Delinquent Nontax Debt."

Governmentwide Debt Collection Guidance. Fiscal Service has 

issued this document and other debt collection guidance, such as the 

“Guide to the Federal Credit Bureau Program” and the “Treatise on 

Federal Nontax Debt Collection Law.”

Debt collection statutes, regulations, and guidance are found at the 

Fiscal Service website at 

https://fiscal.treasury.gov/debt-management/resources.html.

Agency and program-specific statutes, regulations, and policies are not 

covered in this Chapter, but they also govern the debt collection 

programs of a specific agency. Agency personnel should contact 

agency counsel for information about agency-specific laws and 

requirements.

Key Debt Collection Principles 

Federal agency personnel who collect debts for the government 

should understand the following key principles: 

Agency Regulations. Regulations are rules and procedures governing 

an agency’s programs or administrative processes. In many cases, an

agency is required to publish rules and procedures in the Federal 

Register. After publication in the Federal Register, regulations are 

codified in the Code of Federal Regulations (CFR). Federal Register 

and CFR documents may be accessed online at 

www.gpoaccess.gov/fr/index.html.The governmentwide regulations 

mentioned above (Part I, Background) provide general rules and 

standards for a Federal agency to follow when using various debt 

Revised March 2015
Delinquent Debt Collection

6-7 

collection tools. Each agency must promulgate its own debt 

collection regulations. An agency should adopt the governmentwide 

debt collection rules and standards for its own programs, when

appropriate. Additionally, an agency’s rules and standards should 

cover any additional debt collection tools the agency intends to use. 

Agency counsel should be consulted to determine when an agency’s

rules and procedures must be published in the Federal Register.

Program Goals and Debt Collection. Delinquent debts arise from 

various Federal Government programs and actions. For some types 

of debts, the government’s interests may be best served by resolving 

debts in a way that achieves an important goal of a specific program.

For example, it may be in the government’s best interest to lower a 

debtor’s monthly payments to allow a debtor to remain in his or her 

own home, keep a business, or to recover from a disaster. An

agency may agree to reduce fines and penalties in exchange for the 

correction of the health and safety violations that triggered the debt. 

Perhaps it is in the government’s interest to compromise a medical 

profession debt if the debtor completes a service agreement that

would allow the medical needs of an underserved community to be 

met. An agency should determine early in the debt collection 

process (normally, in the first 60 days) whether a debtor is willing 

and able to work with the agency to achieve the important 

government objective associated with the debt. If not, the agency’s

primary objective should be to maximize the collection of the debt 

and minimize potential losses. 

Due Process. 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.... ” In the context of 

Federal debt collection, the constitutional right of “due process” 

requires an agency to provide debtors with notice of, and the 

opportunity to dispute, a debt or intended debt collection action. 

 Notice must include the amount and type of debt owed, and

the actions to be taken by an agency to collect the debt, such

as adding interest and late charges, offset or garnishment,

foreclosure of collateral property, and credit bureau

reporting. Opportunity to dispute the debt or the adverse

collection action to be taken includes, at a minimum, an

opportunity for the debtor to challenge (1) the existence of

all or part of the debt, and/or (2) whether the agency has met

Revised March 2015
Delinquent Debt Collection

6-8 

the statutory or regulatory prerequisites for using the 

collection action mentioned in the notice. 

The minimum “due process” required is generally established by the 

statutes that authorize the use of a specific debt collection tool or by

implementing regulations. As the chart below indicates, the notices 

and opportunities to be provided to the debtor are not uniform for all 

debt collection actions and tools. Additionally, an agency, through 

its regulations and procedures, can require administrative processes 

in excess of the minimum due process standards (that is, processes 

that are more beneficial to the debtor). 

Minimum Due Process Requirements

Debt Collection Tool Notice Opportunity to Dispute

Non-centralized 

administrative offset

Prior to offset, no specific 

time frame

Review with an agency official

Salary offset (noncentralized) 30 days prior to offset

Hearing with hearing official 

not under the control of the 

agency

Tax refund offset 60 days prior to offset Review with an agency official

Treasury Offset Program

(TOP) (centralized offset

includes administrative, salary

& tax refund offset)

60 days prior to submitting 

the debt to TOP

Review and/or hearing, as 

appropriate

Administrative wage 

garnishment

30 days prior to 

garnishment

Hearing with agency official or 

any qualified individual

Credit bureau reporting

60 days prior to report to 

consumer credit bureau Review with an agency official

Additional details on due process requirements are discussed later in

this Chapter. 

Privacy Protections. Many of the debt collection tools discussed in 

this Chapter require disclosure of personal information concerning 

debtors to individuals and entities outside the creditor agency. For 

example, disclosures of information about debtors might be made to

Fiscal Service for offset or cross-servicing, to private collection 

agencies, to credit bureaus, to employers to effectuate wage 

Revised March 2015
Delinquent Debt Collection

6-9 

garnishment, and/or to DOJ for litigation or concurrence in the 

agency’s termination of collection action. 

The Privacy Act of 1974 provides certain protections for individuals 

whose information is contained in records maintained by the Federal 

Government. Among other things, an agency may not improperly 

disclose information about individuals whose records are maintained 

in a “system of records” (a group of records where information about 

an individual can be accessed by name or personal identifier, such as

a taxpayer identification number). An agency is required to publish 

notices in the Federal Register to identify its systems of records and 

to describe permissible disclosures, known as “routine uses,” for 

those records. 

When implementing its debt collection strategy, an agency should 

review its debtor records and consult with agency counsel to 

determine if: 

 the records are a “system of records” as defined in the

Privacy Act;

 a system of records notice has been published in the Federal

Register and updated, where necessary; and

 the routine uses listed in the system of records or other

legal authorities permit disclosures necessary for all

appropriate debt collection tools and to prevent and

identify improper payments or awards to delinquent

debtors.

Within governmentwide rules and standards and an agency’s own 

statutory authority, an agency has some flexibility in determining 

what collection techniques and tools to use and in what order. The 

best mix of tools for collecting delinquent debts at one agency may 

vary from that of another agency. However, all agencies must 

comply with Federal laws that require the use of certain debt 

collection tools, such as cross-servicing, offset, and credit bureau 

reporting. 

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Determining the Appropriate Collection Technique to Use

Key factors to consider when determining the technique or tool to 

use include: 

 whether the agency is required by law to use the debt

collection tool;

 the size and age of the debt;

 the type of debt, particularly whether commercial or

consumer;

 the availability of the debt collection tool. For example,

the Treasury Offset Program is not available until the

agency knows the debtor’s taxpayer indentification number

(TIN);

 the requirements for use of the debt collection tool, such as

minimum dollar thresholds;

COLLECTION 

TECHNIQUES

Late 

Charges

Litigation

Liquidating 

Collateral

Cross-servicing

Private Collection 

Agencies

Treasury Offset 

Program

Non-centralized Offset 

including Internal 

Offset

Agency Workout 

Group

Credit Bureau 

Reporting

License 

Revocation

Barring 

Delinquent 

Debtors

Acceleration

Rescheduling Compromise

Administrative 

Wage 

Garnishment

Installment 

Payments

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6-11 

 whether one tool can be used concurrently with another

tool, such as private collection agencies and the Treasury

Offset Program;

 the time and resources required to use the collection

tool; the feasibility of using each tool, including any

legal or contractual constraints; and

 the cost of each tool relative to the size of the debt. Costs

include administrative costs, as well as fees charged by a

private collection agency, Fiscal Service, or DOJ. The

agency should weigh costs against the probability of

collecting the debt.

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. Collection 

strategies must meet all statutory requirements. A collection 

strategy will facilitate debt collection by providing a systematic, 

uniform method for collecting accounts. 

An agency should first seek to collect delinquent debts in one lump 

sum. If a debt cannot be collected in a lump sum, an agency should 

next attempt to collect the full amount in installment payments 

within a reasonable time (generally, less than three years). Finally, 

if a debt cannot be collected in full in a lump sum or through

installments, an agency should consider partial collection of the debt 

through a compromise agreement. 

Debt collection strategies will be based on the decisions made by an 

agency in determining what tool or technique to use at different 

points in the debt collection cycle. An agency’s strategies will take 

into account that debts over 180 days delinquent must be referred to

Fiscal Service for cross-servicing and offset. If an agency relies on 

Fiscal Service to submit debts for administrative offset on the 

agency's behalf, the agency must transfer the debts to Fiscal 

Service no later than 120 days delinquent. An agency should 

periodically (e.g., every three to five years) evaluate the soundness 

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of its strategies and collection activity. Samples of collection 

strategies are contained in Appendix 5. 

Collection Action Documentation 

During the debt collection phase of the credit cycle, the agency will 

build upon the documentation created during its credit extension and 

account servicing activities. It is essential that the agency continue 

to document all agency contacts with a debtor and actions taken to

enforce collection in order to protect the government's interests. 

Documentation will also be critical if the agency decides to pursue 

litigation and for subsequent agency decisions to write-off and

ultimately close-out a debt. An agency’s automated systems may be 

used to document contacts with the debtor and other debt collection 

activities so long as the manner in which the information is retained 

is sufficient for evidentiary purposes in a court or administrative 

proceeding. See Appendix 6 for a list of collection activities that 

should be documented. 

An agency should also consider using digital imaging as a way to 

maintain copies of debt collection documentation. Digital imaging 

allows an agency to electronically maintain copies of documentation 

in various formats. 

Agency Workout Groups 

Agency workout groups are established for the sole purpose of 

resolving troubled debts, primarily loans. As such, agency workout 

groups should have the authority to decide on appropriate actions 

necessary to maximize debt recovery, including rescheduling debt. 

Strategies developed by workout groups should be case specific;

however, the workout group should establish policies which outline 

options for handling different debt problems. The agency may want to

establish a workout group if the volume and amount of its debts are 

large enough to warrant a special “problem account” department or if

extraordinary effort or special expertise is required to enforce 

recovery. A workout group consists of loan officers, legal staff, and 

accounting personnel. Team members should have working 

knowledge of and abilities in the following areas: 

 credit management and debt collection;

 business law;

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6-13 

 accounting;

 agency policies and procedures;

 liquidation proceedings;

 collateral appraisal;

 communication and interpersonal skills; and

 management policies and procedures.

Contact With the Debtor 

Contact with the debtor is critical because contact: 

 provides the debtor with notification of the existence of the

debt and the amount of the debt if the debtor is otherwise

unaware (for example, a beneficiary receives a benefit

payment for more than the amount statutorily authorized, or a

person is liable to the Federal Government for property

damage but the amount of damage has not been determined);

 provides the debtor with the opportunity to repay the debt in

full, or, if the debtor cannot pay the debt in full, to work out

a satisfactory repayment arrangement with the agency;

 provides the debtor with information on the agency’s

policies regarding accrual of interest, penalties, and

administrative costs;

 if in writing, can provide evidence of due process compliance

when the letter advises the debtor of the agency’s intent to

use certain debt collection tools, as well as any rights the

debtor may exercise to avoid the use of the debt collection

tools;

 provides a means of responding to debtors who exercise

due process rights; and

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 for some programs, provides the opportunity to resolve the

debt by meeting a specific program objective or goal (such

as a medical professional complying with an agreement to

practice in an underserved area, or an employer correcting a

health and safety violation).

An agency must provide appropriate guidelines and training to its 

employees whose duties include contacting debtors. While Federal 

agencies are not subject to the 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 

and can be used as a source in developing an agency’s guidelines. 

See Appendix 7 for a sample list of appropriate practices. 

It is critical for an agency to take action on a delinquent debt 

immediately to prevent the delinquency from becoming more 

serious. Acting on the delinquency quickly will greatly enhance 

the probability that the delinquency can be “cured” or the debt fully 

collected. Within 20 days after the payment due date or at the end 

of any grace period contractually established, the agency should 

contact the debtor, by letter or phone, in an attempt to resolve the 

non-payment. The agency should utilize personal contact with the 

debtor when such practice has proven to be effective. It is critical 

that all contact with the debtor be documented in the account files. 

In the case of an administrative debt (for example, a fine, fee, 

penalty, overpayment, or other non-loan type of debt), the agency 

should have covered most of the items listed below in its initial 

billing notice, but may find it effective to contact the debtor to 

inform the debtor of the delinquency, remind the debtor of the 

agency’s policies and procedures for collecting a delinquency, 

renew the request for payment, and attempt to resolve the 

delinquency. Although form letters are useful and can be 

dispatched quickly, the agency may find that a personalized letter or 

a phone call is more effective in emphasizing the seriousness of a 

delinquency, especially for those debtors who are routinely 

delinquent. 

If the delinquency is not resolved after the initial contact with the 

debtor, the agency must notify the debtor of the debt’s delinquent 

status through a demand letter or dunning notice. One demand 

letter sent no later than 30 days after delinquency should be 

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sufficient. Except in rare circumstances, the agency should not 

send any more than two demand letters, no more than 30 days apart, 

as established in its debt collection strategy. The agency should 

terminate the process of sending demand letters at any time that it

determines that the letters are no longer serving any useful 

purpose. Any contacts beyond the first demand letter should be 

tailored to the circumstances of the debt, i.e., the size, type, and age 

of the debt, and the debtor’s response to the initial contact. Each 

succeeding demand for payment must be progressively stronger and 

firmer in tone. 

When not already covered in a prior invoice or letter, the demand 

for payment, which should be sent no later than 30 days after the 

date of delinquency, must include: 

 the status of the debt as overdue;

 the amount owed;

 the basis of the indebtedness;

 policies on assessing interest, penalties, and administrative

costs, and the applicable rates and amounts, especially if not

provided in a loan agreement;the agency’s intention to use

various collection tools to collect the debt, including

referral of the debt to Fiscal Service for collection (known

as “cross-servicing”), offset, private collection agencies,

administrative wage garnishment, and litigation. The

agency should not threaten to take a collection action it is

not authorized or does not intend to take;

 opportunities for the debtor to review the debt records,

contest the debt and provide evidence to support the

contentions, and enter into a reasonable repayment

agreement;

 the need for the debtor to make immediate payment or

contact the agency within a specified period of time from

the date of the demand letter in order to avoid enforced

collection; and

Revised March 2015
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 the name, phone number, and address of an individual to

contact within the agency to resolve the delinquency. It is

extremely important for a debtor to be able to contact a

person who is knowledgeable about the agency’s debt

collection policies and practices and who can respond to the

debtor’s questions and concerns.

In developing its demand letter procedures, an agency must 

consider that, for debts that will be referred to Fiscal Service for 

cross-servicing, the information listed in the Demand Letter 

Checklist found at Appendix 8 must be sent to the debtor at least 

60 days prior to referral.

If possible, the agency should respond to any communication from 

the debtor within 30 days. The agency should develop clear policies 

and procedures on how to respond to a debtor’s request for copies of 

records related to the debt, consideration for a voluntary repayment 

agreement, or a review or hearing on the debt. 

Assessing Interest, Penalties and Administrative Costs 

The Debt Collection Act of 1982, as amended (codified at 31 U.S.C. §

3717), requires agencies, unless expressly prohibited or restricted by

statute or contract, to assess three separate and distinct types of late 

charges on all delinquent debts, including debts owed by state and 

local governments. Late charges are categorized as interest, penalties, 

and administrative costs. 

(1) Interest, sometimes referred to as additional interest, 

compensates the government for the loss of use of funds 

when the debt is not paid timely and accrues from the date of 

the delinquency. At a minimum, the interest rate will be set 

at the same rate as Treasury's Current Value of Funds Rate 

(prescribed and published annually by the Secretary of the 

Treasury in the Federal Register and available on the Fiscal 

Service website at 

http://www.fiscal.treasury.gov/fsreports/rpt/cvfr/cvfr_home.h

tm for the period in which the debt became delinquent. The 

rate is published annually, but is subject to quarterly 

revisions if the annual average changes more than 2%. The 

agency may assess a higher rate if necessary to protect the 

government's interests. 

Revised March 2015
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The rate of interest remains fixed for the duration of the 

delinquency. The agency may not compound the interest or 

assess interest on administrative costs and penalties. 

(2) Penalties discourage delinquencies and encourage early 

payment of the delinquent debt in full. As set by statute, the 

penalty to be assessed to a delinquent debt is an amount not 

to exceed 6% per year. An agency should not charge a 

penalty of less than 6% without a compelling reason. 

Accruing from the date of delinquency, the penalty charge is

assessed on any portion of a debt that is outstanding for 

more than 90 days, including any interest and administrative 

costs. 

(3) Administrative costs cover the costs associated with 

collecting a debt from the date of the delinquency. The 

agency will set the amount at either the actual costs incurred 

for the individual debt or the average cost incurred at similar 

stages of delinquency for similar types of debt. Costs may be

assessed as a percentage of the amount collected. 

Administrative costs should include the staffing and 

resources costs incurred to recover delinquent debts and 

other costs associated with using various collection tools to 

enforce recovery, including, but not limited to, the costs of 

obtaining a credit report and collection fees charged by 

Fiscal Service, DOJ and private collection agencies. To the 

extent allowed by law, an agency should add to the debt 

as administrative costs all fees charged by Fiscal Service, 

DOJ, private collection agencies and other entities that

collect debt for creditor agencies. 

The agency will continue assessing these late charges at the rates 

established by the agency until final payment is received, unless 

debt collection activity is suspended or terminated, the debt is 

compromised, the late charges are waived, or the late charges are 

altered as the result of a court judgment. 

If a debtor defaults on an agreement to repay the delinquent debt, 

the agency should add all late charges to the principal amount. The 

Revised March 2015
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agency should start anew to accrue late charges, at the rate in effect 

at the time of default, on the new principal amount. 

Waiver of Interest, Penalties, and Administrative Costs. The 

agency is required to waive interest and administrative costs on a 

debt paid within 30 days of the date of delinquency. The agency has 

discretion to waive interest, penalties, and administrative costs in 

accordance with its regulations, either (1) pursuant to a compromise 

or settlement agreement, or (2) when collection of these charges is

against equity and good conscience or is not in the best interests of 

the United States. For example, a waiver may be appropriate when 

an agency cannot conduct a hearing within the statutorily required 

time frame (e.g., 60 days for salary offset). A waiver may be in

whole or in part for each separate type of charge. 

COLA Alternative to Assessment of Late Charges. In limited 

circumstances, an agency may increase an administrative debt by the 

cost of living adjustment (COLA) in lieu of charging interest, 

penalties, and administrative costs. The COLA alternative can be 

used only when: (1) the debt is an administrative debt (e.g., a fine, 

penalty, fee or overpayment), not a loan or debt arising from a loan 

guaranty; and (2) assessment of late charges is not cost effective or 

technically feasible, and a complete waiver of late charges is not 

supportable. Before using the COLA alternative, an agency should 

determine if charging interest alone and waiving penalties and

administrative costs could accomplish the same objective as using 

the COLA. Agencies should ensure that new debt collection 

systems are developed with the capabilities to assess late charges in

accordance with the requirements noted above, rather than using the 

COLA alternative. 

The COLA is the percentage by which the Consumer Price Index 

for the month of June of the calendar year preceding the adjustment 

exceeds the Consumer Price Index for the month of June of the 

calendar year in which the debt was determined or last adjusted. 

Increases to administrative debts using the COLA alternative shall 

be computed annually as of the date the COLA is published during 

each calendar year. 

Each agency must publish regulations establishing agency policy 

regarding the accrual and waiver of interest, penalties and 

Revised March 2015
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administrative costs, including the circumstances under which these 

charges will not be imposed when collection action is suspended

because of an appeal or other reason. An agency must inform 

debtors of its policies prior to accruing interest and other charges, 

either through incorporating the policies in a loan agreement or

through inclusion of appropriate language in the initial demand

letter.

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Installment Payments 

Whenever possible, an agency should try to collect an overdue 

debt in a single lump sum. In the event that the debtor claims 

financial inability to repay the debt in a single lump sum, the 

agency may consider collecting the overdue debt in installments. 

Before using certain collection remedies, such as offset and 

administrative wage garnishment, an agency must provide a 

delinquent debtor with the opportunity to enter into a reasonable 

repayment agreement. See Demand Letter Checklist at 

Appendix 8. 

Prior to entering into an installment agreement, an agency should 

obtain a financial statement or credit report to verify the debtor's 

claim of inability to repay in a lump sum. See Appendix 9 for a 

sample financial statement. Additionally, an agency should enter 

into such agreements only when there is evidence the debtor has 

(1) a willingness to abide by the terms of the agreement, including 

the repayment schedule; and (2) an ability to make the agreed upon 

payments. When determining the debtor's ability to pay, an agency 

should consider the following factors: 

 age and health of the debtor;

 present and potential income inheritance prospects;

 possibility of hidden assets or fraudulent transfers;

 assets/income available through enforced collection; and

 reasonable and necessary living expenses for the debtor and

the debtor's dependents.

An agency may wish to consult the Collection Financial Standards 

used by the Internal Revenue Service to determine reasonable 

amounts that an individual or family needs for living expenses. The 

Collection Financial Standards may be found at www.irs.gov.

Revised March 2015
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The installment agreement should provide for as large an initial 

lump sum payment as the debtor can afford. While payments 

normally should be sufficient in size and frequency to liquidate the 

debt in three years or less, a greater amount of time may be 

appropriate based on the size of the debt and the debtor’s ability to 

repay. The agency should seriously consider requiring the debtor to

use pre-authorized debit to make the required installment payments. 

The agency may also require the debtor to post new or additional 

collateral to secure the outstanding balance of the account, 

especially in cases where the debtor’s willingness to abide by the 

terms of the agreement is questionable, or where the amount of time 

to liquidate the account exceeds three years. 

The installment agreement will be a legally enforceable written 

agreement in which all the terms and conditions of the installment 

arrangement, including those governing the assessment of financing 

interest and late charges, are stated. The interest rate to be charged 

on installment agreements of one year or less is the Current Value of

Funds Rate in effect at the time of the agreement; for installment 

agreements of more than one year, the rate is the rate for a Treasury 

security of comparable length. If a debtor has defaulted under a 

previous repayment agreement, late charges that accrued but were 

not collected under the defaulted agreement must be added to the 

principal under the new agreement. The written agreement should 

provide for the acceleration of the debt (declaring the full amount of 

the debt due and payable) in the event that the debtor defaults. 

Where the term for payment of installments exceeds one year, an

agency should consider including a clause that allows the agency to

re-evaluate the amount of the installment payment on a periodic 

basis, with the goal of increasing the installment amount or 

requesting an additional lump sum payment, in order to collect the 

debt sooner. 

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Acceleration 

Acceleration of a debt occurs when an agency calls the full amount 

of the debt due and payable. When a debt is accelerated, the agency 

demands that the debtor pay the entire debt (both the delinquent and 

non-delinquent portions of the debt), and considers the total amount 

of the debt delinquent. The agency should delineate circumstances 

in which acceleration is appropriate and develop procedures to

incorporate acceleration into its debt collection activities. For 

example, acceleration is particularly appropriate when a debtor has 

failed to repay a debt in accordance with an installment agreement. 

Rescheduling 

Rescheduling signifies a change in the existing terms of a loan. An 

agency should consider rescheduling a debt when it has determined 

that the rescheduling is in the government's interests and that 

recovery of all or a portion of the debt is reasonably assured. 

As with installment payments, before rescheduling a debt, the 

agency should reassess the debtor's financial position and ability to 

repay the debt if rescheduled. The agency should also determine if 

it should require the debtor to use pre-authorized debit to make 

payment. As with any repayment arrangement, the terms and 

conditions of the rescheduling, including the acceleration clause, 

must be in writing and signed by the debtor. The agency should 

discourage informal workout arrangements with debtors. 

Each agency should establish uniform policies, procedures and 

criteria for rescheduling and other types of workouts for each 

program area. Its policies and procedures should provide for the 

recognition of gains and losses on rescheduled accounts in 

accordance with the provisions of OMB guidance and changes in 

subsidy amounts as required under the Federal Credit Reform Act. 

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Compromise 

An agency compromises a debt whenever it accepts less than the 

full amount of the outstanding debt in full satisfaction of the entire 

amount. 

A compromise may be considered (but is not required) when one or 

more of the following criteria apply: 

1. the debtor is unable to pay the debt within a reasonable

time period, as verified through credit reports or other

financial statements (see sample financial statement in

Appendix 9);

2. the agency is unable to enforce collection within a

reasonable time period. This may be the case when the

agency cannot determine the amount it may realize if it

forces the liquidation of available collateral;

3. the cost of collection does not justify enforced collection

of the full amount. An agency may compromise statutory

penalties, forfeitures, and claims established as an aid to

enforcement and to compel compliance, if the agency’s

policies in terms of deterrence and securing compliance will

be adequately served. Conversely, an agency may determine

that enforced collection is justified regardless of the cost in

Revised March 2015
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order to ensure compliance with the agency’s policies or 

programs; or 

4. there is real doubt concerning the government's ability

to prove its case in court. In this situation, the agency

may be in dispute with the debtor over the amount or have

serious concerns related to the agency's ability to legally

prove its case in court.

Using the Claims Collection Litigation Report, CCLR, an agency must 

refer compromise proposals where the principal amount of the debt 

exceeds $100,000 (or such larger amount as may be determined by the 

Attorney General) to DOJ for its concurrence in the compromise. The 

CCLR instructions can be found at: 

http://www.justice.gov/sites/default/files/jmd/pages/attachments/2014/

12/12/cclr_instructions.pdf

and the form at: 

http://www.justice.gov/sites/default/files/jmd/legacy/2014/05/26/cclrform-fillable.pdf. 

DOJ has delegated to Fiscal Service, the authority to compromise a 

debt with a principal amount of $500,000 or less when the debt is

being serviced by Fiscal Service in its Cross-Servicing Program. It is

not necessary for the agency to refer proposals for compromise that do

not meet the agency requirements for compromise and that the agency 

does not, therefore, intend or want to accept. 

Compromise agreements should be in writing and signed by the 

debtor and the agency, whenever feasible. The agency should 

discourage the use of installment agreements to pay compromises. 

If, however, an agency does accept an installment agreement, the 

agreement must provide that, in the event of default, the full amount 

of the debt (less any amounts paid) will be reinstated and 

immediately due and payable. To further protect its position, the 

agency may also ask the debtor to pledge collateral to secure the 

debt. 

Where two or more persons are jointly and severally liable on that 

same delinquent debt, an agency should ensure that a compromise 

with one debtor does not inadvertently release the agency’s claim 

against the remaining debtor(s). The amount of a compromise with 

one debtor shall not be considered a precedent or binding in 

Revised March 2015
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determining what the appropriate compromise amount and terms 

might be with other co-debtors. 

The agency needs to clearly indicate to the debtor that the 

compromise agreement applies to the amount of the debt and that 

the agency is not authorized to release the debtor from any other 

liabilities owed to the United States, including tax liability which 

may be incurred on the compromised amount. Depending on the 

type and amount of debt being compromised, 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 on Form 1099-C. See Chapter 7, 

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

Cancellation of Indebtedness, for information on Form 1099-C 

reporting. 

Taking Action Against Co-borrowers/Guarantors 

An agency should take action to recover a debt from secondary 

debtors (co-borrowers or guarantors) when it becomes apparent that 

the primary debtor cannot or will not repay a debt. The agency 

should employ the same debt collection techniques and tools in 

pursuing secondary debtors as it uses for primary debtors. To 

successfully pursue secondary debtors, the agency must have 

obtained sufficient identifying information, including taxpayer 

identifying numbers, on all co-borrowers and guarantors. It is not 

necessary to allocate the amount of the debt among the secondary 

debtors in proportion to any investment or pursuant to any agreement 

or court order in a case to which the agency is not a party (for 

example, a partnership agreement or divorce judgment). Enforced 

collection should be taken against each debtor for the full amount of 

the debt, unless otherwise prohibited. In certain cases where a 

primary debtor has filed for bankruptcy protection, an agency may be

precluded from pursuing the non-bankrupt secondary debtor.

Whenever a debtor has filed for bankruptcy protection, an agency 

should consult with counsel to determine whether a bankruptcy stay 

is in effect and must be lifted before proceeding with collection 

action against a secondary debtor. 

Revised March 2015
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Application of Payments 

Except as otherwise contractually provided, payments made by a 

debtor towards a delinquent debt are applied to the outstanding 

balance of the debt in the following order: 

1. penalties;

2. administrative costs;

3. additional interest;

4. financing interest; and

5. principal.

If the debt is being collected by Fiscal Service through crossservicing or TOP, or if a private collection agency is collecting the 

payment for an agency, each payment will first be applied to the 

amount of the contingency fee due Fiscal Service or the private 

collection agency. The rest of the payment would then be applied as 

indicated, to liquidate in full penalties, other administrative costs, 

interest, and principal. Other than the application of payment of the 

aforementioned fees, the agency may alter this order of payment if it

determines that such a change is in the government's interests. 

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Part II – Debt Collection Tools and Programs

One of the major purposes of the DCIA is to “maximize collections 

of delinquent debts owed to the government by ensuring quick 

action to enforce recovery of debts and the use of all appropriate 

collection tools.” An agency is required to aggressively collect all 

debts arising out of the agency’s activities. If a debtor fails to pay or 

otherwise resolve a delinquent debt, an agency must react quickly to

determine the appropriate debt collection tools to be used to enforce 

collection. An agency may use more than one of the available tools 

at the same time in order to maximize its recovery on a bad debt. 

This part explains how to use the various debt collection tools and 

programs.

Transfer of Debts to Fiscal Service for Collection - CrossServicing. The DCIA requires that related debt collection activities be 

consolidated within the government, to the extent possible, to 

minimize the government’s delinquent debt collection costs. One way 

that the government’s delinquent debt collection operations have been 

consolidated is through the Cross-Servicing Program operated by 

Fiscal Service. Once an agency refers its delinquent debts to the 

Cross-Servicing Program, Fiscal Service then uses a variety of 

collection tools to collect the debt. Information on Fiscal Service’s 

Cross-Servicing Program is available on the Fiscal Service website at 

http://fiscal.treasury.gov/fsservices/gov/debtColl/dms/xservg/debt_cro

sserv.htm or by calling the Cross-Servicing Agency Liaison staff, 

Client Services Branch, at (800) 858-0725. Fiscal Service will 

provide an overview of the debt collection services available to an 

agency and will assist the agency in taking the steps necessary to 

participate in the Cross-Servicing Program.

Debt Referral Requirements. An agency should send its 

delinquent debts to Fiscal Service as early as possible in the debt 

collection cycle. See Appendix 5 for sample debt collection 

strategies. If a debtor has not paid the debt, entered into a 

repayment arrangement, or otherwise resolved the debt within 60

days after the agency’s last demand letter, the agency should refer 

the debt to Fiscal Service. The last demand letter, together with 

prior notices sent to the debtor, must include all of the items 

described in the Demand Letter Checklist (see Appendix 8). An

agency could refer its debts to Fiscal Service as early as 61 days 

Revised March 2015
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after the delinquency date assuming that the appropriate demand

letter was sent to the debtor on the delinquency date and that all 

other due process pre-requisites have been met. 

As required by the DCIA, an agency must refer any eligible debt 

more than 180 days delinquent to Fiscal Service for cross-servicing. 

At least 60 days before a debt is submitted to Fiscal Service, an

agency must have sent to the debtor one or more notices with the 

information in the Demand Letter Checklist in Appendix 8.

Therefore, to meet the statutory debt referral requirement, an agency 

must send the due process letter to the debtor as soon as possible, 

preferably no later than 60 days delinquent. 

The Digital Accountability and Transparency Act amended the DCIA 

to require agencies to notify Fiscal Service of all debts delinquent 120 

days or more for purposes of administrative offset. If an agency relies 

on Fiscal Service to submit debts for administrative offset on the 

agency's behalf, the agency must transfer the debts to Fiscal Service 

no later than 120 days delinquent.

A debt is eligible for referral to Fiscal Service for cross-servicing if

the debt is: 

 past due;

 legally enforceable;

 owed by an individual or entity (including a state or local

government) other than a Federal agency; and

 $25 or more (including interest, penalties and administrative

costs).

A debt is considered legally enforceable for purposes of referral to 

Fiscal Service if there has been a final agency determination that the 

debt is due and there are no legal bars to one or more of the 

collection actions to be taken by Fiscal Service, as described

beginning on page 6-28. 

Exceptions to Referral Requirements. A debt is not eligible for 

referral to Fiscal Service for cross-servicing if the debt is: 

Revised March 2015
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 not past due or legally enforceable;

 owed by a debtor who has died;

 owed by a debtor who has filed for bankruptcy protection

or the debt has been discharged in a bankruptcy

proceeding;

 owed by a Federal agency;

 the subject of an administrative appeal, until the appeal is

concluded and the amount of the debt is fixed; or

 less than $25 (including interest, penalties and

administrative costs).

An agency is not required to refer a debt to Fiscal Service for crossservicing if the debt is: 

 delinquent for 180 days or less, unless the agency relies

on Fiscal Service to submit debts for administrative

offset; in which case, the debt must be referred no later

than 120 days delinquent (however, an agency may send

such debts to Fiscal Service if they are otherwise eligible

for referral);

 in litigation, that is, the debt has either been referred to DOJ

for litigation, or is the subject of proceedings pending in a

court of competent jurisdiction, including bankruptcy and

post-judgment matters;

 in foreclosure, that is, the debt is secured by collateral that is

being foreclosed, either through a court proceeding or nonjudicially (see page 6-55 for information on liquidating

collateral)

 scheduled for sale within one year under an asset sales

program approved by OMB;

 at a private collection agency with the approval of Fiscal

Service;

Revised March 2015
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 at a Treasury-designated debt collection center;

 expected to be collected from payments issued to the debtor

by the creditor agency within three years of the date of

delinquency (commonly referred to as “internal offset”);

 less than $100 and the agency is unable to obtain the

debtor’s taxpayer identifying number; or

 otherwise exempt from the statutory referral requirement

by law or official action of Treasury.

Requirements for Agency Participation in Cross-Servicing. 

Chapter 4000 of the Treasury Financial Manual, Volume I, entitled 

“Debt Management Servcies Collection of Delinquent Nontax Debt,” 

describes the requirements for agency participation in the CrossServicing Program and is available on the Fiscal Service website at 

http://tfm.fiscal.treasury.gov/v1/p4/c400.html. 

Agency personnel should contact the Cross-Servicing Agency Liaison 

assigned to assist their agency or the Cross-Servicing Agency Liaison 

staff, Client Services Branch, at (800) 858-0725 for questions related 

to agency debts that have been referred to Cross-Servicing. 

An agency must provide the debtor with proper due process before 

submitting a debt to Fiscal Service for cross-servicing. This means 

that, at a minimum, the agency has sent the debtor one or more

demand letters with the information contained in the Demand Letter 

Checklist at Appendix 8, and has provided the debtor with the 

opportunity to dispute or challenge the debt. For each debt submitted 

to Fiscal Service for cross-servicing, an agency is required to certify 

that the debt is eligible for cross-servicing and all pre-requisites to

collection have been met. 

NOTE: Once a debt is referred to Fiscal Service, the agency must stop 

its own collection activity related to the referred debt. Any payments 

received by an agency for a debt that has been referred to Fiscal 

Service must be reported to Fiscal Service as a payment (not as an

adjustment to the debt balance) to allow Fiscal Service to properly 

assess its fees. 

Revised March 2015
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Debt Collection Actions at Fiscal Service . When a debt is

referred to cross-servicing for collection, the debt remains a debt 

owed to the referring agency and the referring agency shall continue 

to maintain all the official records, including accounting records, 

pertaining to the debt. 

Cross-Servicing Programs require agencies to complete a profile 

for each distinct program under which a debt may arise. The 

profile identifies points of contacts and defines how the agency’s 

debt portfolio will be serviced. It also specifies any unique laws 

that apply to an agency’s debts, Debts referred to Fiscal Service 

are subject to the following actions, as appropriate: 

 Treasury demand letter within five business days of referral;

 telephone calls between debtors and Fiscal Service personnel

and repayment negotiations;

 submission of debt to the Treasury Offset Program (TOP)

within 20 days of referral if the debtor’s taxpayer

identification number (TIN) is available. The debt remains

in TOP until the debt is returned to the agency (see page 6-

34 for a description of TOP);

 credit bureau reporting;

 referral to at least one private collection agency. In most

cases, the debt is referred to a second agency if the first one

is unable to resolve the debt;

 administrative wage garnishment, if the debtor is employed

by an entity other than a Federal agency;

 referral to DOJ for litigation; and

 unpaid debt is reported to the Internal Revenue Service as

potential income to the debtor on Form 1099-C.

Revised March 2015
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If a debtor offers to compromise a debt or enter into a repayment 

agreement, Fiscal Service decides whether such offer is acceptable 

based on the FCCS and the parameters set by the creditor agency, 

i.e., the terms under which Fiscal Service may compromise an

agency’s debts or enter into repayment agreements. An agency 

must respond timely, as referenced in the TFM Chapter 1TFM 4-

4000 to Fiscal Service’s request for approval of any compromise or 

repayment offers to ensure that valid offers are promptly acted upon 

by the government. 

While the debt is in the Cross-Servicing Program, Fiscal Service 

maintains debt balance information, collects the funds paid by the 

debtor, and returns the funds to the creditor agency for proper 

deposit and accounting. The creditor agency must maintain its

original debtor records and remains responsible for any and all 

financial reporting associated with the debt. The creditor agency is

responsible for the accuracy of the debt information submitted to

Fiscal Service, and must provide updates and corrections of debtor 

information on a regular basis. Among other things, the creditor 

agency must immediately notify Fiscal Service when it learns that a 

debtor referred to Fiscal Service has filed for bankruptcy protection. 

Agency personnel should contact the Fiscal Service liaison assigned 

to assist their agency or Fiscal Service’s Cross-Servicing Agency 

Liaison staff, Client Services Branch, at (800) 858-0725 for questions 

related to agency debts that have been referred to cross-servicing. 

Revised March 2015
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Cross-Servicing Fees. Fiscal Service charges fees to cover its costs 

for collections through cross-servicing. The fee is a percentage of 

all collections received from the debtor after the debt is referred for 

cross-servicing. Fees are collected from amounts recovered or 

billed to the creditor agency. The creditor agency should add this 

fee to the debt as an administrative cost to the extent allowed by 

law. 

Administrative Offset (Including the Treasury Offset Program) 

Administrative offset occurs when the government withholds or 

intercepts monies due to, or held by the government for, a person to 

collect amounts owed to the government. Offsets may occur 

against tax refund payments, salary payments, military and civilian 

retirement pay, contractor payments, grant payments, tax 

overpayments, benefit payments, travel reimbursements and other 

Federal and state payments. 

An agency may offset a debtor’s payments using two methods –

centralized offset via the Treasury Offset Program (TOP) operated 

by Fiscal Service and non-centralized offset, that is, ad hoc offset on 

a case-by-case basis. An agency should use TOP to effectuate 

offset except in certain limited circumstances as explained on page 

6-41.

Centralized Offset Through TOP

In 1996, the DCIA required agencies to submit eligible delinquent 

debts to Fiscal Service for administrative offset once the debt was 

delinquent 180 days or more. In 2014, the Digital Accountability and 

Transparency Act amended the DCIA to require agencies to notify 

Fiscal Service of all debts for administrative offset at 120 days 

delinquent. 

Agencies are encouraged to submit delinquent debts to TOP as early 

as 60 days after the required demand letter is sent to the debtor. (See 

the Demand Letter Checklist at Appendix 8.) For an agency that

refers its debts to Fiscal Service’s Cross-Servicing Program, Fiscal 

Service will submit the referred debts to TOP on behalf of the 

referring agency. 

Revised March 2015
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The information in this Chapter about TOP applies only to the offset 

of Federal and state payments to collect delinquent non-tax debts 

owed to the United States. The collection through TOP of Federal 

tax debts and state debts, such as delinquent child support and state 

income tax debts, is not discussed in this Guide. 

How TOP Works 

TOP allows agencies to submit debts to one centralized location for 

offset of all eligible Federal and state payments. Creditor agencies 

submit information about delinquent debts to Fiscal Service, which 

maintains the information in its delinquent debtor database. Federal 

payment agencies prepare and certify payment vouchers to Fiscal 

Service and other Federal disbursing agencies (such as the 

Department of Defense (DOD) or the United States Postal Service 

(USPS)). The payment vouchers contain information about the 

payment, including the name and taxpayer identification number 

(TIN) of the recipient. Before an eligible Federal payment is

disbursed to a payee, Fiscal Service compares the payment 

information with debtor information in Fiscal Service’s delinquent 

debtor database. If the payee’s name and TIN match the name and 

TIN of a debtor, the disbursing agency offsets the payment, in

whole or part, to satisfy the debt, to the extent allowed by law. 

In addition to offsetting eligible Federal payments, Fiscal Service has 

entered into reciprocal agreements with states, whereby states agree to 

offset certain payments to payees who owe delinquent nontax debts to 

the United States. In return, TOP offsets federal vendor and other nontax payments to payees who owe delinquent debts to state agencies. 

Fiscal Service notifies the debtor, the creditor agency, and the 

payment agency when an offset occurs. The debtor is instructed to

contact the creditor agency to resolve any issues related to the 

offset. An agency should respond promptly to a debtor’s questions 

related to TOP collections.

Fiscal Service transmits amounts collected through offset to the 

appropriate creditor agencies after deducting the fees that Fiscal 

Service charges the creditor agencies to cover the cost of 

conducting the offset through TOP. The creditor agency should 

add such fees to the amount of debt to the extent allowed by law. 

Fiscal Service maintains information about a delinquent debt in the 

Revised March 2015
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TOP delinquent debtor database and continues to offset eligible 

Federal payments until the debt is paid in full or the creditor agency 

suspends or ceases debt collection or offset activity for the debt. 

Debts Eligible for TOP. A debt is eligible for referral to TOP if 

the debt is delinquent and legally enforceable. A debt is considered 

legally enforceable for TOP purposes if there has been a final 

agency determination that the debt is due and there are no legal bars 

to collection through the offset of Federal payments. 

Exceptions to Referral Requirements. A debt is not eligible for 

referral to TOP if the debt is: 

 owed by a debtor who has filed for bankruptcy protection

or the debt has been discharged in a bankruptcy

proceeding;

 owed by a Federal agency;

 the subject of an administrative appeal, until the appeal is

concluded and the amount of the debt is fixed;

 less than $25 (including interest, penalties and administrative

costs); or

An agency should not refer directly to TOP those debts that have 

been referred to Fiscal Service or another Treasury-designated debt 

collection center for cross-servicing, or to DOJ for litigation. Fiscal 

Service, debt collection centers, and DOJ are responsible for 

submitting these referred debts to TOP on behalf of the creditor 

agency. Debts that are not referred to Fiscal Service for crossservicing may be eligible for TOP. If an agency does not submit its

debts to Fiscal Service for cross- servicing, agency personnel may

contact Fiscal Service’s Treasury Offset Program Division at (202) 

874-6810 for information on how an agency submits debts directly 

to TOP. 

An agency should carefully review its portfolio of debts that are not 

sent to Fiscal Service for cross-servicing and submit all TOPeligible debts for offset. Agency personnel should contact their 

agency’s legal counsel for questions regarding whether a debt is

eligible for referral to TOP. 

Revised March 2015
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Due Process Requirements. Before submitting a debt to TOP, an 

agency must provide due process to the debtor(s) owing the debt. If 

not already completed through the demand letter process, an agency 

must send notice to the debtor, at the debtor’s most current address 

known to the agency, at least 60 days in advance of referring the 

account to TOP. For information on how to obtain a current 

address, see “Locating the Debtor” on page 6-71. 

The Demand Letter Checklist at Appendix 8 includes the 

information that must be sent to the debtor prior to submitting a 

debt to TOP. For each debt submitted to Fiscal Service for TOP, an

agency is required to certify that the debt is eligible for TOP and all 

pre-requisites to collection through offset have been met. 

Types of Payments Eligible for Offset Under TOP. All Federal 

payments may be offset under TOP except as prohibited by law or

exempted by action of Treasury. This includes payments disbursed 

by Fiscal Service, DOD, USPS, and other government disbursing 

agencies. The following types of Federal payments are eligible for 

offset under TOP: 

 Internal Revenue Service tax refunds;

 retirement payments issued by the Office of Personnel

Management (OPM);

 vendor payments;

 Federal salary payments;

 travel advances and reimbursements;

 certain Federal benefit payments, such as Social Security

retirement and disability payments;

 grant payments; and

 active military and military retirement payments.

For some types of payments, the government may not offset the 

entire payment. Limitations apply to OPM retirement payments 

Revised March 2015
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(25%); Federal salary payments (15% of disposable pay); and social 

security, railroad retirement, and black lung benefit payments 

(15%). In addition, a debtor’s social security, railroad retirement, or 

black lung benefit payment may not be reduced to less than $750 per 

month after offset. These limitations apply to offset only. 

When a debtor’s payment is subject to reduction via other legal 

processes to collect debts, such as tax levy or garnishment, the 

debtor’s payment could be reduced by more than the limitation 

described here. 

In addition, Fiscal Service has entered into reciprocal agreements with 

states that agree to offset certain payments to payees who owe 

delinquent nontax debts to the United States. The amount of the offset 

is dependent on the state’s rules. 

Payments Exempt from Offset Under TOP. Federal law prohibits 

the offset of certain types of Federal payments. Additionally, Treasury 

has granted requests by Federal payment agencies to exempt from TOP 

other types of payments. A complete list of payments that are exempt 

from offset under TOP is available on the Fiscal Service website at 

https://fiscal.treasury.gov/debt-management/resources/guides-formsdownloads.html.

Special Provisions for Certain Recurring Payments. For certain 

types of Federal recurring payments, such as monthly retirement or 

social security benefit payments, TOP sends the debtor at least one 

warning notice before the offset occurs. The debtor is advised to 

contact the creditor agency to resolve the debt or to discuss alternatives 

to offset. An agency should be prepared to respond promptly to a 

debtor’s request to discuss alternatives to offset, especially in those 

cases where the debtor presents evidence of financial hardship. 

Offset of Federal Salary Payments Under TOP. Before Federal 

salary payments may be offset, the agency must send to the Federal 

employee/debtor, at least 30 days in advance, notice in writing of 

the intent of the agency to collect the debt by offsetting the debtor’s 

salary payments. The written notice must provide opportunities for the 

debtor to (1) inspect the relevant records, (2) enter into a written 

repayment agreement, and (3) to have an administrative hearing 

concerning the existence and amount of the debt and/or terms of the 

Revised March 2015
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repayment schedule. Additionally, if the debtor requests a hearing, 

the hearing official must be someone who is not under the control of 

the creditor agency. 

An agency may opt to temporarily exclude a debt from Federal 

salary offset if the agency has not completed the special due process 

pre-requisites for Federal employees. If, through TOP, the agency 

learns that the debtor is a Federal employee, the agency must 

provide the necessary due process immediately in order to certify the 

debt as eligible for Federal salary offset through TOP as soon as 

possible. 

TOP offsets of Federal salary payments are limited to 15% of a 

debtor’s disposable pay (as defined in 5 CFR Part 550.1103). For 

judgment debts, travel advance recoveries, and other debts that may 

be collected by offsetting more than 15% of a debtor’s Federal 

salary, the creditor agency must initiate non-centralized 

administrative offset, discussed below, by directly contacting the 

debtor’s employing Federal agency. 

TOP Fees: Fiscal Service charges fees to cover its costs for 

collections through TOP. The fee is set annually and is collected 

from amounts offset. The creditor agency should add this fee to the 

debt as an administrative cost to the extent allowed by law. 

Computer Matching and Privacy Protection Act of 1988. The 

Computer Matching and Privacy Protection Act of 1988 regulates 

certain matching activities of the Federal government where the 

intent of the match is to take an adverse action against an individual. 

The Act does not apply to tax refund offsets. In addition, the Act’s

requirements to enter into matching agreements and to provide postmatch notice and verification to the debtor have been waived for 

debts properly certified to TOP for offset purposes. 

Non-Centralized Administrative Offset 

In cases where offset through TOP is not available or appropriate, an

agency may request that another agency offset a Federal payment to

satisfy a debt. This type of ad hoc case-by-case offset is known as

“non-centralized administrative offset.” Another type of noncentralized administrative offset occurs when the payment agency is

the same as the creditor agency, referred to as “internal offset.”

Revised March 2015
Delinquent Debt Collection

6-39 

Non-centralized offset can be used for internal offset, or when the 

payment to be offset is not processed through TOP or the creditor 

agency is unable to meet the 60-day notice requirement for debt 

submission to TOP (see Due Process Requirements, on page 6-36 

but is otherwise able to comply with the due process pre- requisites 

for offset (see “Minimum Due Process Requirements” on page 6-8). 

Agencies should be aware that some payment types that have been 

exempted from TOP by Treasury may be eligible for 

non-centralized offset. 

In order to use non-centralized offset, an agency must identify the 

payment that can be offset and the agency responsible for making 

the payment. Financial statements and copies of tax returns 

submitted by the debtor or credit reports may be a source of 

information about any relationship(s) between the debtor and other 

Federal agencies, which may help identify payments available for 

offset. For example, the creditor agency may learn that the debtor 

receives regular grant payments (that are not processed through 

TOP) from another agency. If the payment agency is not the same 

as the creditor agency, then the creditor agency should contact the 

payment agency directly and request the offset. Prior to requesting 

the offset, the creditor agency must certify to the payment agency 

that all due process pre-requisites have been met except as 

otherwise allowed by law. This means that the creditor agency has 

sent the debtor advance notice of the nature and amount of the debt 

to be collected and its intent to administratively offset payments to 

collect the debt. In addition, the notice must give the debtor the 

opportunity to: 

 make voluntary repayment;

 inspect and copy records related to the debt;

 request a review of the debt; and

 enter into a repayment agreement.

Prior notice and an opportunity for a review may be omitted, as 

authorized under an agency’s regulations, in cases when the agency 

first learns of the existence of a debt owed by a debtor when there is 

insufficient time before payment would otherwise be made to

provide notice and opportunity to the debtor. When omitted prior to 

Revised March 2015
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offset, the agency shall give the debtor notice and an opportunity for 

review as soon as practicable. The agency is required to promptly 

refund any money ultimately found not to have been owed to the 

agency. 

Another method of identifying payments available for offset is to 

conduct computer matches (outside of TOP) to determine if there is 

a payment available for offset. Before conducting such matches, an 

agency should consult with its legal counsel to determine if the 

computer matches contemplated are subject to the requirements of 

the Computer Matching and Privacy Protection Act. 

When evaluating the feasibility of pursuing non-centralized 

administrative offset, an agency may also take into consideration a 

debtor's financial condition and whether offsetting the payment 

would create significant financial hardship for the debtor and his/her 

family. The payment agency should honor the request of the creditor 

agency for offset or, at a minimum, put a hold on funds if feasible. 

Types of Non-Centralized Administrative Offset 

Examples of circumstances for which non-centralized offset would 

be appropriate include internal offset and the offset of contractor 

payments when the creditor agency is the same as the payment 

agency; collection of travel advances and training expenses through 

a Federal employee’s pay, retirement or other amounts due; offset 

of future retirement pay; and offset of Federal salary pay when 

offset is not available through TOP. 

Internal Offsets. An internal offset occurs where an agency that is 

owed a delinquent debt is also making one or more payments to its 

debtor and the agency determines that the payments can be offset to 

collect the debt. Internal offsets are most effective when the 

creditor agency routinely offsets its own payments made to its own 

debtors early in the collection process. An agency should 

incorporate internal offset in its debt collection strategy and provide 

notice of intent to collect the debt by offset at the earliest possible 

time.

Contractor Payments. An agency cannot offset a contract 

payment if the contract is being disputed under the Contract 

Disputes Act (CDA) or Federal Acquisition Regulations (FAR). 

Revised March 2015
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Once the dispute is settled under the CDA or FAR, then offset can 

be initiated against any balance of funds still owed the contractor. 

This does not preclude an agency from offsetting non-disputed 

contract payments to a contractor involved in a CDA adjudication. 

Recoupment is a special type of administrative offset, where, within 

the terms of a given contractual relationship, the agency can offset 

amounts it is owed against payments due the contractor for services 

rendered. 

Collection of Travel Advances and Training Expenses from 

Federal Employees. An agency should follow administrative offset 

notification requirements when attempting the collection of 

delinquent travel advances and training expenses -- not those 

associated with Federal employee salary offset. Once these 

notification procedures have been followed, the agency has the 

authority to withhold all or part of an employee/debtor's salary, 

retirement benefits, or any other amounts due the employee, 

including lump sum payments, to recover amounts owed. There are 

no statutory or regulatory limitations on the amount that can be 

withheld or offset. The agency should, in fact, withhold or offset as 

much as necessary to fully liquidate or satisfy the amount of the 

debt. 

Retirement Pay. Generally, administrative offset against a debtor’s

current civilian retirement pay [whether Civil Service Retirement 

Fund (CSRS) or the Federal Employees Retirement System (FERS)] 

is conducted through TOP. If the agency knows that the debtor will 

be receiving a retirement payment that is not available for offset 

under TOP, the agency must notify the Office of Personnel 

Management (OPM) of its intention to use its administrative offset 

authority to collect on the delinquent debt. OPM will respond by

“flagging” the account and will initiate offset when the debtor 

requests retirement pay or the release of the retirement funds (if the 

debtor is departing Federal service), regardless of the age of the debt 

itself. If the request for offset is outstanding for more than one year 

at the time the debtor files for retirement or requests the funds, then 

OPM will contact the agency to determine if the debt is still 

outstanding and the offset still valid, allowing enough time for the 

agency to contact the debtor to try to resolve the debt. In the case of

lump sum payments, OPM will offset up to 100% of the payment 

amount; if an annuity payment is involved and the debt is too large 

to collect in one offset, OPM will offset the dollar amount or 

Revised March 2015
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percentage requested by the agency, up to 50% of the amount of the 

payment. Agencies should use SF 2805, “Request for Recovery of a 

Debt Due the United States,” in making requests to OPM for these 

types of offsets (see CSRS and FERS Handbook, Chapter 4 - Debt 

Collection, available at www.opm.gov).

For offset against military retirement pay, the agency must contact 

each military service's finance and accounting center. 

Federal Employee Salary Offset. Federal employee salary offset 

should be conducted through TOP, except in three circumstances: 

(1) where the debtor is employed at the creditor agency, (2) salary 

offset cannot be accomplished through TOP because the debtor’s 

salary payments are not processed through TOP, or (3) the amount 

of offset can legally exceed 15% of the employee/debtor’s 

disposable pay. Only in these limited circumstances should an 

agency use non-centralized offset of the debtor’s Federal salary to 

recover delinquent debts owed by current Federal employees. The 

agency must comply with the provisions of the Privacy Act, as 

amended, and OMB guidelines on implementing the Privacy Act, as 

well as the salary offset regulations issued by OPM. 

If the agency does not know if the debtor is a Federal employee or 

does not participate in TOP, the agency can identify delinquent 

debtors who are Federal employees by matching its delinquent 

debtor files with current and retired employee files of OPM, the 

DOD's Manpower Data Center (DMDC), the USPS, or other 

control sources. Once a debtor is identified on such a file, the 

agency must: 

 provide due process notification to the debtor and request

voluntary repayment of the debt;

 if the debt is still unresolved, contact the agency employing

the debtor to arrange a salary offset, and certify the debt as

being delinquent; or

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

Under the following circumstances, the agency does not need to

provide a Federal employee with notice and an opportunity for a 

hearing prior to offset of Federal pay: 

Revised March 2015
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 any adjustment to pay arising out of an employee’s election

of coverage or a change in coverage under a Federal benefits

program requiring periodic deductions from pay, if the

amount to be recovered was accumulated over four pay

periods or less;

 a routine intra-agency adjustment of pay that is made to

correct an overpayment of pay attributable to clerical or

administrative errors or delays in processing pay

documents, if the overpayment occurred within the four

pay periods preceding the adjustment and, at the time of

such adjustment, or as soon thereafter as practical, the

individual is provided written notice of the nature and

amount of the adjustment and point of contact for such

adjustment; or

 any adjustment to collect a debt amounting to $50 or less,

if, at the time of such adjustment, or as soon thereafter as

practical, the individual is provided written notice of the

nature and the amount of the adjustment and a point of

contact for contesting such adjustment.

As with administrative offset cases, an agency must honor the 

request of another agency to arrange for a salary offset. As much as 

15% of the debtor's disposable pay can be collected each pay period 

through offset until the full amount of the debt is repaid. If the 

agency has obtained a judgment against the employee, it may 

request the employing agency to offset up to 25% of the debtor’s 

disposable salary and no hearings are required. However, in the 

case of military employees, even if a judgment has been obtained, 

the amount of the offset cannot exceed 15%. At no time can the 

employing agency unilaterally change or adjust the amount being 

withheld, without the consent of the creditor agency. The 

employing agency must remit the amount offset within each pay 

period; it cannot accumulate offset amounts until the entire debt is 

collected. 

Reporting Delinquent Debts to Credit Bureaus 

Reporting delinquent debts to credit bureaus is an essential part of 

an agency’s debt collection efforts. The DCIA requires Federal 

agencies to report to credit bureaus information on all delinquent 

Revised March 2015
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Federal consumer debts. Federal agencies have been required, as a 

matter of policy, to report all delinquent commercial debts since 

September 1983. This requirement is incorporated into OMB 

Circular No. A-129 and the FCCS. 

Specific requirements that govern the reporting of consumer and 

commercial debts to credit bureaus are set forth in the “Guide to the 

Federal Credit Bureau Program,” issued by Fiscal Service and

available on the Fiscal Service website at

http://fiscal.treasury.gov/fsservices/gov/debtColl/pdf/fedcreditbureauguid

e.pdf. An agency should review the guide for detailed information on

reporting current and delinquent debts to credit bureaus. The guide 

provides information on topics such as: 

 distinction between the reporting of consumer and

commercial debts;

 legal requirements;

 handling disputed information;

 agreements known as Memoranda of Understanding

(MOUs) with credit bureaus;

 reporting formats for debts, including the use of Metro 2

format and frequency of reporting;

 credit bureau reporting on consumer debts when the debts

change from “current” to “delinquent” status; and

 reporting of debts being collected by Fiscal Service

through cross- servicing.

NOTE: An agency that elects to use expedited referral to crossservicing, i.e., referral of debts within 60 days of the date of 

delinquency, does not need to report its debts to credit bureaus 

because Fiscal Service will report the debts on the agency’s behalf. 

See Appendix 5 for a debt collection strategy that includes 

expedited referral to Fiscal Service. 

Revised March 2015
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The Demand Letter Checklist at Appendix 8 includes the 

information that must be sent to the debtor prior to reporting a 

consumer debt to a credit bureau. 

Private Collection Agencies 

In its efforts to recover a delinquent debt, an agency may use the 

services of private collection agencies (PCAs). As mandated by the 

DCIA, Fiscal Service maintains a list of PCAs eligible for referral of 

debts from Fiscal Service. In order to minimize the government’s

collections costs and avoid duplication of efforts, an agency should, 

whenever possible, refer debts to Fiscal Service for cross-servicing 

in order to obtain the services of a PCA. Fiscal Service monitors the 

performance of its PCAs in accordance with the terms of a task 

order for PCA services under a contract administered through a 

General Services Administration (GSA) Federal Supply Schedule 

(FSS). The terms of the task order reward better performing PCAs 

(based on collections and debt resolutions) with additional referrals 

and bonus monies. 

Debts that are referred to Fiscal Service for cross-servicing will be 

referred to a PCA on Fiscal Service’s list. When using PCAs on

Fiscal Service’s list, funds collected by the PCAs are remitted to the 

creditor agency by Fiscal Service with supporting detailed debt 

information. Under the terms of the Fiscal Service task order, PCAs 

charge fees, which are paid out of amounts collected. The creditor 

agency retains the final authority to resolve disputes, compromise 

debts, suspend or terminate collection action, and refer accounts to

DOJ for litigation. Agencies are strongly encouraged to delegate this 

authority to Fiscal Service, as appropriate. Fiscal Service provides 

guidance and standards for PCAs to follow when negotiating 

acceptable repayment plans and compromise agreements with 

debtors based on creditor agency parameters provided to Fiscal 

Service. 

An agency may refer debt that is less than 180 days delinquent to a 

PCA pursuant to a contract between the creditor agency and the 

contractor, as authorized by law. Further, in some cases, a creditor 

agency may not be able to use the services of PCAs through Fiscal 

Service because such services are materially insufficient to collect 

the agency’s debts. For example, if an agency has unique debt 

Revised March 2015
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collection tools, the agency may justify establishing its own 

contract with PCAs for assistance in utilizing those tools. A 

creditor agency that independently contracts for PCA services 

should use GSA’s FSS contract to obtain collection services. An 

agency should ensure that the following terms are required under 

any PCA contract: 

 The contract should allow the agency to contract with a

number of PCAs who receive referrals based on

performance, unless this is not cost-effective or not in the

best interest of the government.

 The referral period for sending debts to any single PCA

should not exceed 180 days and must not interfere with the

statutory requirement to refer debts to Fiscal Service for

cross- servicing unless the debts are exempt from such

requirement. Unless exempt, an agency should consider

that all debts at a PCA that are not subject to an acceptable

repayment arrangement must be referred to Fiscal Service

for cross- servicing no later than 30 days after the debt is

eligible for referral (generally at 180 days delinquent or

less, unless the agency relies on Fiscal Service to submit

debts for administrative offset, in which case, the debt

must be referred no later than 120 days).

 The contract must include provisions to clearly indicate that

the collection efforts of PCAs are governed by the Privacy

Act and Federal and state laws related to debt collection

practices, including, but not limited to, the Fair Debt

Collection Practices Act and the FCCS (as applicable to the

agency).

 The contract should include controls to ensure that debtors

are treated fairly, such as periodic monitoring of contractor

performance, investigation and resolution of complaints, and

a requirement that the PCA submit to periodic audits of its

work.

 The agency must retain the final authority to resolve

disputes, compromise debts, suspend or terminate

collection action, and refer accounts to DOJ for litigation

(it should be clear that the PCA is not authorized to retain

Revised March 2015
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legal counsel to represent the United States in any 

litigation). 

 The agency should establish procedures to monitor the

performance of the PCAs it uses and develop an

information tracking system to account for cases referred.

Administrative Wage Garnishment 

In the absence of extenuating circumstances, if a debtor is 

employed, the debtor should be repaying his or her debt to the 

government. The DCIA (as codified at 31 U.S.C. § 3720D) 

authorizes an agency to collect a delinquent debt by administrative 

garnishment of the pay of a delinquent debtor who is employed by 

any organization, business, state or local government, or other 

entity other than a Federal agency. See pages 6-38 and 6-42 for 

procedures on how to offset the salary of a Federal employee to 

collect a debt. Fiscal Service has issued regulations governing the 

administrative wage garnishment process (see 31 CFR 285.11). 

Administrative wage garnishment is a process whereby a Federal 

agency issues a wage garnishment order to a delinquent debtor’s 

non-Federal employer. No court order is required. The employer 

withholds amounts from the employee’s wages in compliance with 

the order and pays those amounts to the Federal creditor agency to 

which the employee owes a debt. 

Requirements for Agency Use of Administrative Wage 

Garnishment. Generally, an agency should use the services of 

Fiscal Service, through its Cross-Servicing Program, to implement 

administrative wage garnishment proceedings. An agency may, 

however, implement administrative wage garnishment directly if 

the agency has the appropriate procedures in place. 

Before using administrative wage garnishment, an agency must do 

the following: 

 adopt hearing procedures as described in, or consistent with,

the procedures described in Fiscal Service’s wage

garnishment regulations; and

Revised March 2015
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 authorize Fiscal Service to implement administrative wage

garnishment for the agency through the Cross-Servicing

Program.

Notice Requirements. For debts referred to Fiscal Service for 

cross- servicing, Fiscal Service or its PCA will send to a debtor, on 

behalf of the creditor agency, proper notice of the government’s

intent to collect a debt through deductions of his or her pay. 

Otherwise, at least 30 days before issuing a wage garnishment 

order, an agency must send written notice to the debtor, at the 

debtor’s most current address known to the agency, informing the 

debtor of: 

 the nature and amount of the debt;

 the intent of the agency to collect the debt through

deductions of pay; and

 an explanation of the debtor’s rights.

The debtor’s rights include an opportunity to: 

 inspect and copy the agency’s records pertaining to the

debt;

 enter into a repayment agreement acceptable to the agency;

and

 receive a hearing concerning the existence or amount of the

debt and the terms of the repayment schedule.

Hearing Requirements. An agency’s procedures for 

administrative wage garnishment hearings must, at a minimum, 

provide for the following: 

 If a request for a hearing is received within 15 business days

following the mailing of the written notice to the debtor, a

hearing must be held prior to the issuance of a wage

garnishment order. If a request for a hearing is received

after 15 business days, a hearing must still be held; however,

Revised March 2015
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the garnishment order may be issued before the hearing is

concluded; 

 The hearing official may be any qualified person, as

determined by the creditor agency, who will maintain an

official summary record of the hearing. There is no

requirement that the hearing official be an administrative

law judge or someone outside the agency;

 Oral hearings are not required unless the matter cannot be

resolved based on written evidence; and

 A final written decision on the hearing must be issued

within 60 days of the date of receipt of the request. If a

wage garnishment order has been issued and a final

decision has not been issued by the 61st day, the agency

must notify the employer to suspend collection on that

order. An agency may begin collecting on that garnishment

order again only after a final written decision in the

agency’s favor is mailed to the debtor.

Administrative Wage Garnishment Form (SF-329). An authorized 

agency official issues an administrative wage garnishment order using 

a standard form known as Administrative Wage Garnishment Form 

SF-329, which may be obtained through Fiscal Service’s web site at

http://fiscal.treasury.gov/fsservices/gov/debtColl/rsrcsTools/debt_for

ms.htm. The form consists of the following four parts: 

 Letter to Employer & Important Notice to Employer (SF329A) which is sent to the employer with the garnishment

order to explain why a garnishment order is being issued;

 Wage Garnishment Order (SF-329B) which describes the

terms of the garnishment and the amount the employer

must garnish;

 Wage Garnishment Worksheet (SF-329C) which assists the

employer in calculating the amount to be garnished; and

Revised March 2015
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 Employer Certification (SF-329D) which is completed and

returned to the agency by the employer with information

related to the garnishment.

After the wage garnishment order is completed and signed by an 

authorized agency official, all four parts of form SF-329 should be 

sent to the debtor’s employer. For debts referred to Fiscal Service 

for cross- servicing, Fiscal Service will sign the wage garnishment 

order on behalf of the creditor agency. Fiscal Service or its private 

collection contractor will then send the order to the employer and

monitor the employer’s compliance with the order. 

Amount of Garnishment. Generally, an agency may garnish up to 

15% of a debtor’s disposable pay. “Disposable pay” is the debtor’s 

net pay after deductions for taxes and health insurance premiums as 

described in the Wage Garnishment Worksheet (SF-329C). For 

example, if the gross amount paid to an employee is $500 per week, 

and taxes and insurance deductions total $150 per week, the 

employee’s disposable pay is $350, and the amount of the 

garnishment should not exceed $52.50 (15% of $350). The 

employer is responsible for calculating the amount of the 

garnishment, and may use the Wage Garnishment Worksheet to 

calculate the amount available for garnishment. Below is an 

example of how the amount of garnishment would be calculated 

using the Wage Garnishment Worksheet (see the following page). 

Revised March 2015
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WAGE GARNISHMENT WORKSHEET

Pay Period Frequency (Select One): 

 Weekly or less Every other week Two times per month Monthly Other (Specify: ) 

DISPOSABLE PAY COMPUTATION 

1. Gross Amount paid to Employee 500.00

2. Amount Withheld:

a. Federal Income tax 75.00

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

c. Medicare 5.00

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

e. City/Local tax

f. Health insurance premiums 30.00

g. Involuntary retirement or pension plan payments

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

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

WAGE GARNISHMENT AMOUNT COMPUTATION 

If the Employee’s wages are not subject to any withholding orders with priority, skip to line 8. 

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

6. Total Amounts Withheld Under Other Wage Withholding Orders with

Priority. See section 2(b) of the Order.

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

8. Multiply the percentage from section 2(b)(1) of the Order by line 4. (The

percentage from section 2(b)(1) of the Order may not exceed 15%). Example: If 

the percentage from section 2(b)(1) of the Order is 15%, multiply .15 by line 4.

52.50

9. Amount equivalent to 30 times the Fed. min. wage ($7.25)

If the employee is paid Line 9 is If the employee is paid Line 9 is

Weekly or less 217.50 2x per month 471.45

Every other week 435.00 Monthly 942.50

217.50

10.

Subtract line 9 from line 4 [if line 9 is more than line 4, enter zero] 132.50

$$$13

2.50 11. WAGE GARNISHMENT AMOUNT

Line 7, 8, or 10, whichever amount is the smallest 52.50

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

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9. Amount equivalent to 30 times the Fed. min. wage ($7.25)

If the employee is paid Line 9 is If the employee is paid Line 9 is

Weekly or less 217.50 2x per month 471.45

Every other week 435.00 Monthly 942.50

217.50

10. Subtract line 9 from line 4 [if line 9 is more than line 4, enter zero] 2.50

11. WAGE GARNISHMENT AMOUNT

Line 7, 8, or 10, whichever amount is the smallest 2.50

An agency may issue multiple garnishment orders for the same 

debtor, but the total may not exceed 15% of the debtor’s disposable 

pay. 

Limitations on Amount of Garnishment. If a debtor owes multiple 

debts and the debtor’s pay is already subject to other garnishments, 

the total amount garnished, including other garnishment orders, may

not exceed 25% of the debtor’s disposable pay. For example, if the 

pay of the debtor in the example above was subject to a prior 

withholding order of 15%, then the amount available for garnishment 

would be limited to $35 (10% of the debtor’s disposable pay). An

example of how this would be calculated within the Wage 

Garnishment Worksheet is detailed below. 

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

WAGE GARNISHMENT AMOUNT COMPUTATION 

If the Employee’s wages are not subject to any withholding orders with priority, skip to line 8. 

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

6. Total Amounts Withheld Under Other Wage Withholding Orders with Priority. 

See section 2(b) of the Order.

52.50

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

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

The amount to be garnished may be limited further if withholding 

15% of the debtor’s disposable pay would reduce the debtor’s pay to 

an amount less than $217.50 per week (30 times the minimum wage 

of $7.25 per hour). For example, if the disposable pay of a debtor is

$220.00 per week, deduction of 15% ($33) would leave the debtor 

with $187 per week. Since the debtor’s pay cannot be reduced to less 

than $217.50 per week, the garnishment amount would be limited to

the amount by which the debtor’s pay exceed the minimum, or $2.50. 

This would be calculated on the Wage Garnishment Worksheet as

follows: 

4. 220.00

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

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Assuming wage garnishment is cost-effective and available, this 

highly effective collection tool should be used whenever an 

employed debtor fails to meet his or her obligations to the 

government. 

Financial Hardship. At any time during the garnishment process, a 

debtor may ask the creditor agency for a review of the amount being 

garnished based on a claim of financial hardship due to materially 

changed circumstances. If an agency finds that a debtor has properly 

documented financial hardship, the agency should downwardly 

adjust the amount of garnishment, or terminate or suspend collection 

through administrative wage garnishment, as appropriate. 

Eligibility for Administrative Wage Garnishment. An agency 

may not garnish a debtor’s wages if: 

 The debtor earns less than 30 times the Federal minimum

wage. Based on a minimum wage of $7.25 per hour, the

wages of a debtor who earns less than $217.50 per week

are not eligible for garnishment. Information about a

debtor’s wages may not be available until after the

garnishment order is served on the employer. The

employer would inform the agency that the debtor earns

less than the minimum required for garnishment;

 The debtor is in a repayment agreement with the agency

and is meeting his or her obligations under the agreement;

or

 The agency knows that the debtor has not been working in

his or her current job for at least 12 months and the debtor

was involuntarily separated from his or her prior job. The

debtor is required to inform the agency that he or she is

ineligible for wage garnishment based on this requirement.

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Termination of the Wage Garnishment Order. The agency 

must terminate the wage garnishment order when: 

 the debt is paid in full, or otherwise resolved through

compromise or other agreement with the agency;

 the debtor files for bankruptcy and the automatic stay is in

effect, or the agency learns that the debt has been

discharged in bankruptcy;

 the agency, a hearing official, judge or other appropriate

adjudicator determines that the debt is not valid; or

 the agency otherwise determines that the wage garnishment

order should be terminated due to the debtor’s financial

hardship or other appropriate reason.

The agency must send a letter or use Form 329E, Notice of 

Termination of Wage Garnishment, to inform the employer that the 

garnishment is terminated and that all withholdings from the 

employee’s pay should stop. 

Liquidating Collateral 

For a secured debt, an agency should take action to liquidate the 

collateral, in accordance, with its specific statutory authority, when 

it becomes apparent that a debtor will not or cannot repay the 

amount owed and collateral liquidation is the best method for 

protecting the government's financial interests. The agency must 

ensure that the account was properly serviced prior to deciding to 

proceed with foreclosure or voluntary conveyance of the property; 

that is, the debtor was provided reasonable opportunity to cure the 

delinquency, including forbearance and rescheduling, in accordance 

with agency-specific statutes and regulations. 

Revised March 2015
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As a general rule, an agency should avoid taking title to the 

collateral property as part of its liquidation strategy; rather, an 

agency’s goal should be to force a sale of the collateral to a third 

party so that the sales proceeds may be applied to the debt. 

However, if taking title to the collateral property would result in a 

better collection result or would further an agency’s program 

purpose(s), the agency may seek to secure title to a collateralized 

property through voluntary conveyance by the debtor or enforced 

foreclosure proceedings, as it determines best in any given situation. 

If an agency obtains title to a property, the agency is responsible for 

maintaining and insuring the property from the time it assumes title 

to the property until final property disposition. Each agency should 

establish procedures for the acquisition, management, and 

disposition of property acquired as a result of direct or guaranteed 

loan defaults. 

If the amount of the debt is not fully satisfied by either the voluntary 

conveyance of the collateral or its liquidation, then the agency may

decide to obtain a deficiency judgment or otherwise continue to

pursue collection on the unrecovered portion of the debt, using the 

appropriate collection techniques, such as cross- servicing. Under 

certain circumstances, the agency may alternatively consider a debt 

“compromised” for the market value of the collateral, and report the 

unrecovered amount to the IRS as potential income to the debtor on 

Form 1099-C if required by IRS (see Chapter 7, Termination of 

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

Indebtedness). It is an agency's responsibility to liquidate any 

collateral, when appropriate, prior to referral of the debt to Fiscal 

Service for cross-servicing. 

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Bankruptcy 

Generally, when a debtor files for bankruptcy protection, an agency 

is prohibited from pursuing further collection action while the 

bankruptcy is pending because of the automatic stay. An agency or

individual found to have violated the automatic stay could be held 

in contempt by the bankruptcy court. The automatic stay is

effective as of the date of the filing of a bankruptcy. In most cases, 

an agency will not be able to recover funds from a debtor in

bankruptcy. However, there are cases in which funds may be

available in the debtor’s estate to pay some of the debtor’s debts. 

Therefore, it is important for an agency to file a Proof of Claim 

form when allowed to do so by the bankruptcy court in order to

ensure that the agency will receive its share of any proceeds 

available to pay creditors from the bankruptcy estate. The 

appropriate Proof of Claim form may be found at 

www.uscourts.gov/bankform.

An agency should determine whether other steps must be taken in a 

bankruptcy matter to protect the agency’s position and to comply 

with the law. An agency probably will have to return funds 

inadvertently collected while the automatic stay is in effect, but 

agency counsel should be consulted for specific legal advice. In 

some cases, an agency may ask the bankruptcy court for “relief from 

the automatic stay,” that is, permission to pursue collection. An

agency must obtain relief from the automatic stay to pursue 

collection on all types of debts, including “non-dischargeable 

debts,” that is, those debts that survive bankruptcy. An agency must 

also seek relief from the automatic stay in order to retain funds upon 

which the agency places a temporary freeze. See “Litigation” below 

for information on how to refer a matter to DOJ, which is

responsible for legal representation of agencies before U.S. 

Bankruptcy Courts. 

The debtor is released, or discharged, from having to repay most 

types of debts after the bankruptcy process is completed, unless the 

bankruptcy case is dismissed. In certain types of bankruptcy cases, 

however, the debtor is obligated to pay creditors according to the 

provisions of a bankruptcy plan before being discharged. In most 

cases, after a debtor is discharged in bankruptcy, an agency is forever 

precluded from pursuing collecting on most types of debts incurred 

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by the debtor prior to filing for bankruptcy protection. Agency 

personnel should consult with agency counsel to determine whether 

the debtor’s debts are dischargeable in bankruptcy, whether the 

agency should take any action to protect its right to recover funds 

from a debtor in bankruptcy, and for other information concerning 

bankruptcy laws and procedures. 

Litigation 

Unless an agency has specific statutory authority to litigate its own 

debts, it must refer debts to DOJ for litigation, including bankruptcy 

litigation. Debts for which the principal amount is $1,000,000 or 

less must be referred through DOJ's Nationwide Central Intake 

Facility (NCIF): 

DOJ/NCIF 

Attn: Case Processing 

1110 Bonifant Street, Suite 220

Silver Spring, MD 20910-3358.

The NCIF tracks, by agency, the number and dollar value of 

referred debts, their age at referral, and case rejection rates. The 

NCIF will acknowledge receipt of debts referred by the agencies, 

route the debts to the appropriate U.S. Attorney or private counsel 

for litigation, and provide the referring agency with contact 

information for the office receiving the referral. The NCIF will 

return incomplete referrals with a letter specifying the reason for the 

declination. Debts greater than $1,000,000 should be referred 

directly to the Civil Division at DOJ: 

U.S. Department of Justice 

Civil Division 

Attn: Corporate/Financial 

Litigation Branch 

P.O. Box 875 

Ben Franklin Station 

Washington, DC 20044 

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The agency must make every effort to refer a debt within one year of the 

date of delinquency, and only in limited circumstances should the 

agency delay referral to a time when less than one year remains on the 

applicable statute of limitations for litigation. Fiscal Service will refer 

to DOJ for litigation, debts that have been referred to Fiscal Service for 

cross-servicing, when appropriate. When referring a debt to DOJ for 

litigation, an agency must provide a fully completed Claims 

Collection Litigation Report (CCLR). The CCLR instructions can be 

found at: 

http://www.justice.gov/sites/default/files/jmd/pages/attachments/2014/

12/12/cclr_instructions.pdf

and the form at: 

http://www.justice.gov/sites/default/files/jmd/legacy/2014/05/26/cclrform-fillable.pdf. 

The CCLR should include the following: 

 Copies, not originals, of the relevant account

information. Originals may be requested by DOJ at a later

date so the agency must be prepared to produce them

promptly;

 A fully completed Certificate of Indebtedness, submitted

as part of the CCLR package. The Certificate of

Indebtedness must be an original document, not a copy, and

must be signed by an authorized official of the agency;

 A checklist or report of prior collection actions taken. If

the agency has not taken an appropriate collection action, then

the checklist or report must explain why;

 The current address of the debtor. This may be obtained

through various types of research (see page 6-71); and

 Credit data for the debtor. The data must have been

obtained within the past 6 months and can be in any of the

following formats:

- A credit report. The credit report may be obtained 

through GSA’s Federal Supply Schedule for 

Business Information Services (see page 6-71);

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- an investigative report stating the debtor's assets, 

liabilities, income, and expenses; 

- an individual's financial statement indicating assets, 

liabilities, income, and expenses. This statement 

must be signed by the debtor and certified as correct 

under penalty of perjury; and/or 

- an audited balance sheet for a corporate debtor. 

Credit data may be omitted only if 

 the referring agency

- has a surety bond sufficient in amount to satisfy the 

full amount of the debt; 

- seeks liquidation of the collateral by means of

judicial foreclosure, but does not intend to obtain a 

deficiency judgment; 

- can document that the debtor is in receivership or 

bankruptcy; or 

- wants DOJ to obtain a judgment against a debtor 

and return the case to the agency for lien 

enforcement; 

 the value of collateral in a forced sale is sufficient to satisfy

the full amount of the debt. If the agency has any doubt

whether the value of the collateral covers the outstanding

amount of the debt, including all late charges assessed, then it

must provide credit data;

 the outstanding amount of the debt is fully covered by

insurance and the agency can provide all pertinent

information, including name and address, on the insurer;

and/or

 the debt is owed by an entity for which credit data are

unavailable. For example: the debt is owed by a State

Government.

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The agency must provide the equivalent of the above information 

when transmitting accounts through an automated system. The 

failure to provide adequate information, as called for in the 

CCLR, may result in the return of the case from DOJ. You may

contact DOJ to discuss the information available if you are unsure 

whether it meets these standards. 

Further agency collection actions must cease at the point an 

account is referred for litigation. DOJ will submit an agency’s 

eligible debts to TOP on behalf of the creditor agency. The agency 

should not do so once the account is referred for litigation. 

Fraud/False Claims. In case of fraud, the account should be referred 

immediately to the Fraud Section of the Civil Division at DOJ for 

action. It is the responsibility of the party who first learns of the fraud 

to notify DOJ so that such cases can be acted on promptly. If DOJ 

advises the agency that it does not intend to pursue fraud or False 

Claims Act litigation, the agency should pursue collection of the debt 

just as it would any other debt. 

Statute of Limitations. Federal law limits the time period within 

which an agency may file a lawsuit to collect a debt. If the “statute 

of limitations” has expired, the agency is barred from initiating 

litigation to collect its debt; however, other debt collection tools, 

such as administrative offset and referral to a private collection 

agency, may be available. Generally, a lawsuit to collect a debt 

based on a contract must be initiated within six years after the date 

of delinquency (see page 6-4 for the definition of the “date of 

delinquency”). A lawsuit for money damages based on property 

damage or personal injury caused by the debtor must be initiated 

within three years after the date of the damage or injury. Other 

statutes of limitations may apply to a particular type of debt being 

collected. Therefore, referrals to DOJ for collection through 

litigation or for termination of collection action should be made 

timely, that is, at least one year before the applicable statute of 

limitations expires. Also, it is extremely important that agency 

personnel consult with agency counsel to determine the statute of 

limitations applicable to the debts being collected by the agency. 

Further, agency counsel should be consulted to determine whether 

the statute of limitations has been extended in a particular case 

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based on the debtor’s written acknowledgement of the debt, a 

voluntary payment made by the debtor, the debtor having fled the 

country, the fact that the agency did not know and reasonably could 

not have known about its claim when it first accrued, or some other 

reason that allows the time period to be extended. 

Potentially Ineligible Referrals. The agency should not refer a 

debt for litigation if: 

 the debt, exclusive of interest, penalties, and administrative

costs, is less than $2,500. However, debts less than $2,500

may be referred if, after consultation with DOJ, the agency

determines that -

- litigation to collect small claims is important to

ensure compliance with the agency’s policies or 

programs,

- the debt is being referred solely for the purpose of 

securing a judgment against the debtor, or

- the debtor has the clear ability to pay the debt and 

the government effectively can enforce payment; 

 the statute of limitations for initiating litigation has expired.

However, the debt may be referred if there is a possibility that

the time to sue has been extended or legislation has been

enacted abolishing or waiving the statutes of limitations as a

defense to suits to collect its debts;

 the debt has been written-off/closed-out and collection

action terminated;

 it is unlikely that litigation will result in full or partial

recovery of the amount owed;

 all available assets have been liquidated and the debtor is

unemployed, unless the agency believes that the debtor’s

financial situation will substantially improve and the statute

of limitations is about to expire;

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 the current address of debtor cannot be provided, except in

rare circumstances where, after consultation with DOJ, an

agency deems it advisable to commence litigation to

preserve the agency’s claim;

 the documentation necessary to prove that the debtor is

liable for the debt or otherwise support the litigation effort

cannot be provided; or

 the estimated costs of pursuing litigation will probably

exceed the amount recoverable. In this case, the agency

should consider terminating collection action and writing

off the debt. Only when it is critical to an agency's

enforcement efforts and is in the government's best interests

should litigation be pursued regardless of cost. If the

agency wishes to pursue enforced collection action for these

reasons, then the checklist or report must explain why.

Pre-Referral Requirements. The agency may elect to refer a 

delinquent debt to DOJ for litigation before referring the debt to 

Fiscal Service’s Cross-Servicing Program or pursuing other 

administrative debt collection activities. This may be desirable, for 

example, if the debtor refuses to pay in response to the agency’s

demand letter and the debtor owes a large debt, or an important 

enforcement principle is at stake. At a minimum, before referring a 

debt to DOJ for litigation, an agency must send a final demand letter 

to the debtor. See Demand Letter Checklist at Appendix 8 for a list 

of the information that should be sent to the debtor before referring 

the debt to DOJ for litigation. The letter should be tailored to the 

specific case when a debt is being referred to DOJ prior to referral to

Fiscal Service for cross-servicing and/or offset. 

Post-Referral Activities. Upon referral by an agency and 

acceptance by DOJ, the U.S. Attorney's office will try to initiate 

suit within 45 days of receipt of the case. The U.S. Attorney’s 

office will notify the agency when a complaint is filed and when a 

judgment is entered, and provide the post-judgment interest rate for 

the debt as well as any other information necessary for the agency 

to properly update its account and maintain an accurate balance. 

Interest is compounded on post-judgment debts. DOJ must notify 

the agency when it closes its case. If DOJ closes the case and

returns the debt to the agency for surveillance (i.e., monitoring), the 

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agency should write-off the debt and characterize it as “currently

not collectible.”

If DOJ advises that the debt is uncollectible, the agency should 

write-off and “close-out” the debt, and if appropriate, report the 

uncollectible debt to the IRS as potential income to the debtor on 

IRS Form 1099-C. See Chapter 7, Termination of Collection 

Action, Write-off and Close-out/Cancellation of Indebtedness; and 

OMB Circular No. A-129 for an explanation of “currently not 

collectible” and “close-out.” If the U.S. Attorney’s office has filed a 

judicial lien for the debt, the agency must submit a request to that 

office to release the lien at the time the agency closes out the debt. 

In consultation with DOJ, the agency should establish a tracking 

system to account for cases referred to and returned from DOJ since 

the agency remains responsible for monitoring account activity. 

DOJ will assess a 3% administrative fee on amounts collected while 

the case is at DOJ. The agency should pass this cost along to the 

debtor whenever possible. See Appendix 10 for more information 

on assessing and accounting for the DOJ fee. 

In consultation with DOJ and the U.S. Bankruptcy Courts, the 

agency will establish bankruptcy notification procedures to ensure 

the lien position of the Federal Government is protected. DOJ is 

responsible for the legal representation of agencies before U.S. 

Bankruptcy Courts. Notice of a bankruptcy filing should be sent by

the bankruptcy court to both the creditor agency and to the U.S. 

Attorney’s office in the district where the bankruptcy is filed. In 

order to assure that the government’s proof of claim can be filed 

with the bankruptcy court, the agency’s procedures must ensure that 

the notice of bankruptcy is sent to the appropriate contact within the 

agency, and that there is consultation where necessary with the U. S.

Attorney's office. This will allow the review of bankruptcy plans to

ensure secured property is recovered for the Federal Government. 

Barring Delinquent Debtors from Obtaining Federal Loans, Guaranties and 

Loan Insurance 

As required by the DCIA, a delinquent debtor is ineligible for 

Federal financial assistance until the delinquency that triggers the 

bar is resolved. Federal financial assistance includes any Federal 

loan (other than a disaster loan), loan insurance, or loan guaranty. 

This eligibility requirement applies to all Federal loan programs 

Revised March 2015
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even if creditworthiness or credit history is not otherwise a factor for 

eligibility purposes, and may be waived only by the head of an 

agency, or if properly delegated, the Chief Financial Officer or 

Deputy Chief Financial Officer. 

It is extremely important for creditor agencies to properly report 

delinquent debt to appropriate databases so that lending agencies 

may enforce the DCIA loan bar against persons who owe debts to 

the government. Delinquent debt databases accessed by lending 

agencies as part of loan origination processes include credit bureaus, 

the Department of Housing and Urban Development’s Credit Alert 

Interactive Voice Response System (CAIVRS), and the TOP 

delinquent debtor database (parts of which are made available to

lending agencies and their lenders through a program known as “Do 

Not Pay”). More information about CAIVRS can be found at 

http://www.hud.gov/offices/adm/hudclips/letters/mortgagee/files/93-

17ml.txt. 

More information on the Do Not Pay database can be found at 

http://donotpay.treas.gov/Resources.htm. 

Delinquent Status. A debt is considered to be in “delinquent 

status” for purposes of the DCIA loan eligibility requirement if the 

debt has not been paid by the payment due date or by the end of any 

grace period. A debt is not in delinquent status for purposes of the 

DCIA requirement if: 

 the debtor has been released from any obligation to repay

the debt or there has been an adjudication or determination

that the debtor does not have to pay the debt;

 the debtor is the subject of, or has been discharged in, a

bankruptcy proceeding, including if the debtor is current on

any court authorized repayment plan; or

 the existence of the debt is the subject of an administrative

appeal that has been filed on a timely basis.

A debt may be considered “delinquent” for other purposes, such as 

making a claim in a bankruptcy proceeding, even though the debt is

not in “delinquent status” for purposes of the DCIA loan eligibility 

requirement. 

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Delinquency Resolution. A delinquent debtor may be eligible for 

loan assistance once the delinquent debt is resolved in accordance 

with regulations issued by Fiscal Service at 31 CFR 285.13. A 

creditor agency should respond promptly to debtors who seek to

resolve their debts in order to become eligible for Federal loan 

assistance. For purposes of the DCIA loan eligibility requirement, a 

debt is resolved only if the person: 

 pays or otherwise satisfies the delinquent debt in full;

 pays the amount of a compromise reached with the creditor

agency;

 cures the delinquency (that is, brings the loan or agreement

current) under terms acceptable to the creditor agency; or

 enters into a repayment agreement under terms acceptable

to the creditor agency.

A debt is not resolved if: 

 collection action is suspended or terminated;

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

or

 the debt has been reported to the Internal Revenue Service

as a discharge of indebtedness (“closed-out”).

Revoking/Suspending Licenses or Eligibility 

An agency, in accordance with its policies and procedures, should 

consider suspending or revoking Federal licenses (e.g., pilot 

licenses, concession licenses, etc.) or the eligibility of debtors who 

willfully fail to pay forfeitures, penalties, or other debts. This may 

include suspending guaranteed lenders from participation in 

guaranteed loan programs or not allowing a company to bid on a 

contract, if the organization is itself delinquent on a government 

debt. In cases where the creditor agency has no other relationship 

with the debtor, it may be able to implement a suspension or 

revocation through an agreement with another agency which does. 

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An agency may also enter into agreements with state agencies to 

withhold or revoke state-issued licenses, such as for doctors or 

attorneys, to the extent allowed by law. The agency should consider 

taking such actions, particularly for prolonged or repeated failures to

repay a debt. 

In bankruptcy cases, before advising the debtor of an agency’s 

intention to suspend or revoke licenses, permits or privileges, 

agencies should seek legal advice from their agency counsel 

concerning the impact of the Bankruptcy Code. 

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Part III – Miscellaneous Topics 

Purchasing Credit Reports and Locating the Debtor 

An agency may need to obtain additional information about the 

debtor to: 

 locate the debtor;

 determine the debtor's ability to repay the debt in full and

assess the likelihood that the debtor will do so;

 evaluate compromise offers;

 determine a reasonable installment payment plan;

 decide whether to reschedule an account;

 verify information provided by the debtor in support of

requests for compromise, repayment in installments, or

rescheduling;

 determine if an opportunity for administrative offset or

suspending/revoking licenses exists; and

 support litigation.

Credit Reports. There are two types of credit reports available, 

consumer and commercial. A consumer credit report contains credit 

information about an individual person. The DCIA expressly 

authorizes a Federal agency to obtain a consumer report on any 

person who is liable for a debt being collected or compromised by 

the agency, or for which an agency is terminating collection action. 

A Federal agency may also obtain a commercial credit report, which 

contains credit information for a business entity. 

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Consumer Credit Report. A typical consumer credit report 

includes an individual’s name, possible aliases, current and previous 

addresses, social security number, year of birth, current and

previous employer information, and if applicable, spouse’s name. A 

consumer credit report will list credit accounts with banks, retailers, 

credit card issuers and other lenders. For each credit account the 

report will list the type of loan (revolving credit, student loan, 

mortgage, etc.). The report will also include the date the account 

was opened, the credit limit or loan amounts, account balances, any 

co-borrowers responsible for paying the account, and the pattern of 

payment made by the consumer over the previous two years (noting 

the timeliness of payments). The consumer credit report includes 

public record information such as Federal, state and county court 

records related to bankruptcies, tax liens or monetary judgments. In

some states child support payments are reported. 

Commercial Credit Report. A commercial credit report includes 

general information about a business such as the business name, 

current address and telephone number, if available. The report may 

name the principal officers involved in the business, their titles and 

addresses. 

A commercial credit report will provide trade payment history, 

including the business’ credit capacity, credit rating, high credit, 

worth, payment history, and trends for payment. The report also 

will provide financial data on the business, and provide commercial 

and/or banking relationships, if this information is available. The 

commercial credit report, like the consumer credit report, includes 

public record information such as state and county court records 

related to bankruptcies, tax liens or monetary judgments. 

The commercial credit report also contains information pertaining 

to Uniform Commercial Code (UCC) filings. UCC filings are done 

at the state or county level, and indicate when a business has 

pledged personal property assets as collateral (such as inventory 

and machinery & equipment) to secure credit or debts owed by the 

business. 

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Reviewing Credit Report and Other Financial Information. An 

agency should obtain credit reports to verify or determine a debtor’s 

employment, income, assets, and credit history. To the extent 

possible, an agency should also request financial statements, copies 

of tax returns, and other supplementary data sources from the 

debtor. When using a credit report and other supplementary data 

sources to determine the debtor’s ability to pay or whether to pursue 

the enforced collection of the debt, the agency should review and 

evaluate the information on the credit report or other financial data 

in terms of the following questions: 

 Does the debtor have other delinquent accounts? If the

sole delinquency is a Federal debt it may indicate that the

debtor is giving priority to paying other creditors first. The

debtor may be able to restructure payment to other creditors

to secure payment in full of the outstanding Federal debt.

 Does the debtor own any assets that are available to

repay the debt, such as equity in real property, a second

car or a boat? If the debtor has sufficient equity in real

property or other assets, the debtor may be able to secure a

loan against an asset to pay his or her debt in full. Nonessential assets such as a boat could be liquidated to pay the

debt in full or to reduce the balance.

 Is the debtor employed? If so, by whom? If employed by

another Federal agency, then the creditor agency could

pursue collection through salary offset. If privately

employed, collection may be obtained through an

administrative wage garnishment.

 Are there any current accounts that may soon be paid in

full? The money earmarked for payment of these accounts

should be taken into consideration when determining the

debtor’s ability to make payments in installments.

 Does the debtor have too much debt? It may reflect the

debtor's inability to handle the debt incurred and must be

viewed as a potential for the filing of bankruptcy,

jeopardizing the collection of the delinquency. Conversely,

it may indicate the debtor has access to hidden income or

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assets to pay debt in excess of the debtor’s apparent ability 

to pay. 

 Has the debtor declared bankruptcy? The type and

timing of the bankruptcy filing could, in effect, force the

agency to stop or suspend all efforts to collect.

Credit reports, as well as other services (such as locating the debtor) 

are available through GSA’s Federal Supply Schedule for Business 

Information Services (Special Item Number 520-16). Each agency 

needs to identify the types of reports that will best suit its needs in a 

given situation and order the reports accordingly. The costs of 

purchasing a credit report, or obtaining other services, to assist an 

agency in collecting a debt should be passed along to the debtor as 

part of the agency's administrative costs. See Appendix 1 for a key 

to reading credit reports. 

Locating the Debtor. If an agency cannot locate a debtor, the tools 

described below may be used to locate the debtor and/or the debtor’s

assets. When contacting third parties to obtain information about a 

debtor, an agency should ensure that such contacts are in 

compliance with the Privacy Act and other Federal laws. An agency 

should review its procedures with agency counsel to ensure that any 

disclosures of information to a third party, as may be necessary to

identify a debtor about whom an agency seeks information, do not 

violate Privacy Act requirements. 

Depending on the circumstances and the information desired, the 

following tools may assist the agency in locating the debtor. 

GSA’s Federal Supply Schedule for Business Information 

Services (Special Item Number 520-16). Contractors on GSA’s 

schedule are available to supply debtor location services. 

Internet Resources. The Internet is a resource for obtaining 

information at no cost to the requestor. Information sources 

generally available include telephone directories and address 

locator services. 

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Internal Revenue Service. The Internal Revenue Service (IRS) 

will provide mailing addresses of taxpayers to a Federal agency 

collecting debt. Agencies that wish to participate in a computer 

matching program with IRS to obtain mailing addresses of debtors 

in batches of 100 or more should contact: 

IRS Office of Governmental Liaison 

Taxpayer Address Request (TAR) Program Manager 

1111 Constitution Avenue, NW

CL:GLD:GL Room 1611 IR

Washington, DC 20224 

Facsimile Number: (202) 622-3041 

For a detailed description of computer matching and applicable 

agency requirements, refer to the Privacy Act of 1974, as amended, 

which may be found at www.usdoj.gov/foia/privstat.html.

Agencies that wish to obtain mailing addresses from IRS for 

individual debtors should contact the local disclosure officer in the 

IRS office in the State where the agency is located. You can access 

your local IRS office information from www.irs.gov.

Contact with the TAR Manager must include the following: 

 Description of your agency's purpose for requesting the

information and how your agency will use the taxpayers'

addresses;

 The Internal Revenue Code section which permits your

agency to request address information from the IRS

(generally 26 U.S.C. § 6103(m) for debt collection

purposes);

 The approximate number of annual requests for addresses

you anticipate will be made; and

 Name, title, address, phone and fax number of the person

responsible for administering and maintaining this program

if/when your agency begins computer matching.

Note: Participation in computer matching requires the agency to 

provide IRS with the taxpayers' social security numbers and names. 

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The IRS advises that taxpayer information, such as name and social 

security number, should not be sent by fax. 

An agency should review IRS Publication 1075, Tax Information 

Security Guidelines for Federal, State, and Local Agencies, for 

requirements on how the IRS information must be safeguarded. 

For debts being collected through TOP, Fiscal Service will assist 

agencies in requesting taxpayer mailing address information from 

the IRS. For information on how to obtain the addresses for debts in

TOP, an agency should contact Fiscal Service’s Treasury Offset 

Division at (202) 874-6810.

Post Office Trace. A letter on agency letterhead, sent to the United 

States Postmaster located at the debtor’s last known post office, can 

be used to validate an address or obtain an updated address if a 

forwarding address was provided. A letter format is available at 39 

CFR 265.6. 

Department of Motor Vehicles. The Department of Motor 

Vehicles may provide a current home address for the debtor and a 

list of any vehicles registered to the debtor. The identity of the 

vehicle lien holder may be provided if there is an outstanding lien. 

The lien holder may be able to provide information to locate the 

debtor or his/her assets. 

Place of Employment. If the debtor’s employer is known, the 

employer may provide information about a debtor, such as a current 

address and telephone number. 

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Automated Collection Services 

Automated collection services provide an agency with a means to: 

 immediately contact a delinquent debtor by telephone after a

payment due date has passed without payment;

 set collection priorities;

 document contacts with a debtor and/or the results of any

collection actions taken;

 generate management reports; and

 track an individual collector's performance.

Automated collection services that are commercially available can 

be adapted to meet individual agency or program needs. They can 

be designed to provide an automated dialing capability and to 

require a minimum of human intervention. An agency with a large 

volume of debt should evaluate the feasibility of using automated 

collection services to facilitate debt collection. 

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Termination of Collection Action, Write-off 

Chapter 7 and Close-out/Cancellation of Indebtedness

7-1 

 Overview 

An agency has the affirmative responsibility to try to collect 

delinquent debts that are owed to the agency, or referred to the 

agency for collection. However, at some point in the collection 

process it may become evident that a debt is “uncollectible,” and it 

may be appropriate to terminate collection action, and/or writeoff the debt. 

An agency fulfills its affirmative responsibility to try to collect 

delinquent debts by engaging in “active collection.” “Active 

collection” means that the debt is being collected through the use 

of all appropriate debt collection remedies, including, but not 

limited to, demand letters, credit bureau reporting, offset, 

garnishment, foreclosure, litigation, and referral to the Department 

of the Treasury’s (Treasury) Bureau of Fiscal Service (Fiscal 

Service) for collection (known as cross-servicing). See Chapter 6, 

Delinquent Debt Collection. 

Termination of collection action occurs when “it appears [to an 

agency] that no person liable on the claim has the present or 

prospective ability to pay a significant amount of the claim or the 

cost of collecting the claim is likely to be more than the amount 

recovered.” See 31 U.S.C. § 3711(a)(3). Termination of collection 

action is a decision to cease active collection action on a debt, in 

accordance with criteria set out in the Federal Claims Collection 

Standards, because such action is not economically worthwhile or is 

otherwise inappropriate. Suspension of collection action occurs 

when an agency decides to temporarily cease collection action. 

Once an agency terminates collection action, it may pursue 

passive collection activities to try to collect the debt. “Passive 

collection” means that the debt is no longer being actively 

collected; that is, the debt remains secured by a judgment lien or 

other lien interest, has not been removed from the Treasury Offset 

Program (TOP) or is otherwise being collected by offset, and/or is 

scheduled for future sale. 

Except for agencies with independent statutory authority to 

terminate collection activity on its own debts, Department of Justice 

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(DOJ) concurrence is required before an agency terminates or 

suspends active collection on a debt over $100,000 (principal 

only). DOJ has delegated to Fiscal Service the authority to approve 

termination of collection action on a debt with a principal amount 

of $500,000 or less when the debt is being serviced by Fiscal 

Service in its Cross-Servicing Program. 

Write-off of a debt is an accounting action that results in reporting 

the debt/receivable as having no value on the agency’s financial and 

management reports. The agency does not need DOJ approval to 

write-off a debt since the agency is only adjusting its accounting 

records. Generally, write-off is mandatory for debts delinquent 

more than two years, unless documented and justified to the Office 

of Management and Budget (OMB) in consultation with Treasury. 

However, in those cases where material collections can be 

documented to occur after two years, debt cannot be written off 

until the estimated collections become immaterial. See OMB 

Circular No. A-129, Section V.5. 

Currently Not Collectible (CNC) and close-out are classifications 

for writing-off the debt that indicate whether or not the agency will 

continue debt collection actions after write-off. See OMB Circular 

No. A-129, Section V.5. At the time of write-off, an agency should 

classify the debt as CNC when it intends to continue cost effective 

debt collection action. An agency closes out a debt when it 

determines that further debt collection actions are prohibited (for 

example, a debtor is released from liability in bankruptcy) or the 

agency does not plan to take any future actions (either active or 

passive) to try to collect the debt. 

When a debt is classified as closed-out, an agency must determine 

if the amount due on the debt should be reported to the Internal 

Revenue Service (IRS) as potential income to the debtor under 

Section 6050P of the Internal Revenue Code (26 U.S.C. § 6050P). 

An agency reports such debts to the IRS using IRS Form 1099-C. 

The program decision to terminate collection action and the 

accounting decision to write-off a debt often coincide. For 

example, an agency that refers debts to Fiscal Service for crossRevised March 2015
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servicing normally should take concurrent actions to terminate 

collection action, write-off the debt and classify it as CNC when: 

 the agency is notified by Fiscal Service that active

collection action is no longer being taken through crossservicing; and

 the debt will remain in TOP.

Similarly, an agency should terminate collection action, write-off 

the debt, and classify it as close-out when the debt is discharged in 

bankruptcy, and there are no other debtors from whom collection 

can be sought. However, agencies should be aware that the 

determinations to terminate collection action and to write-off a 

debt are made for different reasons, and where appropriate and 

consistent with the agency's debt collection strategy for a 

particular class of debts, may be made at different times. 

The following charts provide some basic information concerning 

termination of collection action, write-off, and the classification of 

debts as CNC and close-out. 

Debt Collection Process Action 

Description Authority Timing Comment

TERMINATION/

SUSPENSION

OF

COLLECTION

ACTION

Termination: Agency 

stops all active debt 

collection action; may 

continue passive

collection action. 

Suspension: Agency is 

likely to resume active

collection action at a 

future time. 

31 USC 3711(a)(3);

31 CFR Part 903

Not tied to writeoff, but must occur 

before close-out.

Agency decision to

terminate/suspend

must comply with

Federal Claims

Collection Standards

(31 CFR Part 903).

DOJ concurrence

required for debts 

over $100,000.

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Accounting Action 

Description Authority Timing Comment

WRITE-OFF Agency reports debt as 

having no value on 

financial and 

management reports.

OMB Circular No. 

A-129

Usually no later 

than 2 years after 

debt delinquency; 

not tied to 

termination or 

suspension.

At time of write-off, 

agency must classify 

the debt as CNC or 

close-out.

CURRENTLY NOT 

COLLECTIBLE

(CNC)

A classification after 

write-off when the 

agency has determined 

that debt collection 

efforts should continue.

OMB Circular No. 

A-129

Can only occur at 

the time the debt is 

written-off.

CNC classification 

does not affect 

agencies’ statutory 

and regulatory 

responsibilities to 

pursue debt 

collection.

CLOSE-OUT A classification after 

write-off when the 

agency has determined 

that no further active or

passive debt collection 

action will be taken.

OMB Circular No. 

A-129

Must occur after

write-off and 

termination of 

collection action; 

can occur after CNC 

classification, if 

debt was initially 

classified as CNC at 

time of write-off.

Agency will not take 

any collection action 

after closeout; if 

required by Internal 

Revenue Code and 

regulations, agency 

must report closedout debt to IRS on 

Form 1099-C as 

potential income to

the debtor.

Termination of Collection Action Criteria 

An agency should terminate active collection when one or more of 

the following criteria apply: 

1. The agency is unable to collect any substantial amount

through its own efforts or through the efforts of others.

The following items detail factors an agency should

consider in determining the likelihood of recovering a

substantial amount of a debt:

 the results of previous collection action taken by

the agency. A good indication that the debt is

uncollectible is the return of a debt by a private

collection agency or from Fiscal Service’s CrossServicing Program without collection and with the

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recommendation for write-off, or the inability of 

DOJ to collect on a judgment. 

 the present and future financial condition of the

debtor, taking such factors into account as assets

and liabilities (as verified by a credit bureau

report or a current financial statement),

employment history and potential for future

earnings, and inheritance prospects. See Chapter

6, Delinquent Debt Collection, Installment

Payments, page 6-20. In some circumstances, the

debtor’s future financial prospects may warrant

suspension rather than termination of collection

action. See page 7-10 of this Chapter.

 the debtor’s age and health, including disability

status. If the debtor is deceased, the agency should

file a claim against the debtor’s estate for liquidation

of the debt at the time the estate is settled and all

assets disposed.

 the assets available for liquidation, including the

possibility that assets were fraudulently

transferred or concealed to avoid liquidation.

Agency personnel should consult with agency

counsel regarding fraudulent transfers or

concealments.

 any state law restriction that applies, in the

absence of Federal law, to collections taken

within a state’s borders. Where a debtor is

employed in a state that prohibits wage garnishment,

an agency should consider the use of administrative

wage garnishment under the Debt Collection

Improvement Act of 1996 (DCIA), which authorizes

wage garnishment notwithstanding state law. See

Chapter 6, Delinquent Debt Collection.

2. The agency is unable to locate the debtor. The agency

should attempt to locate the debtor using available sources

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as described in Chapter 6, Delinquent Debt Collection, 

pages 6-71 through 6-73.

3. Costs of collection are anticipated to exceed the amount

recoverable. An agency should not spend more to recover a

debt than what is owed, unless a significant enforcement

principle is at stake. For example, an agency should not

spend $200 to collect a $100 debt. The agency’s collection

strategy should dictate what is reasonable in determining the

costs and benefits of continuing enforced collection efforts.

The items below contain factors the agency should consider

when balancing the costs of collection against probable

recoveries.

 The amount of any fees associated with using a

particular collection tool. For most collection tools,

such as Fiscal Service’s Cross-Servicing Program,

TOP, and private collection agencies, the agency

will not pay a fee unless there are collections. In

many cases, the agency may recover fees by adding

these costs to the debt.

 Agency expenses associated with the time and

resources required to prepare and follow-up on a

debt. Costs may be minimal when most of the

expenses are associated with operating an automated

system for tracking account activity.

 The agency’s “success” rates for the available

debt collection tools. If a given tool has not been

used successfully to collect a particular type of debt,

then it may not be appropriate for the agency to

require the use of that tool prior to termination,

unless use of the tool is mandated by law.

 The probability that the agency will be able to

recover its collection costs.

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 The need to pursue collection when a significant

enforcement principle is at stake.

4. The debt is legally without merit or enforcement of the

debt is barred by applicable statute of limitations. A debt

that is legally without merit is one that was never owed in

the first place and should not have been classified as a debt.

For example, a court determines that the agency’s

interpretation of a statute was incorrect and should not have

resulted in a receivable to the agency. For purposes of

receivables reporting on the Treasury Report on Receivables

Due from the Public, the agency would “reclassify” the

amount.

An agency should not terminate debt collection activity 

based solely on the expiration of the statute of limitations 

for initiation of a lawsuit. An agency should consider the 

availability of other debt collection remedies that may not 

yet be time-barred, such as offset and administrative wage 

garnishment. For information on statute of limitations, see 

Chapter 6, Delinquent Debt Collection, page 6-61.

5. The debt cannot be substantiated. The agency does not or

cannot produce the evidence, witnesses, or supporting

documentation necessary to validate the debt and was not

able to obtain a voluntary repayment of the debt. For

example, the debtor signed a repayment agreement, but the

agency cannot locate it in its files, has no record that the

debtor ever agreed that the debt was owed, and the debtor

refuses to repay or compromise the debt.

6. The debt against the debtor has been discharged in

bankruptcy. The filing of a petition for bankruptcy is a

clear sign that the debtor is either unable or unwilling to

repay his/her debts; this by itself often justifies termination

of collection action. All collection activity outside the

bankruptcy process must cease upon the debtor’s filing of a

bankruptcy petition, except as allowed by law or by the

bankruptcy court. The agency can, concurrently with

terminating active collection, take action to protect its

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interests by filing a proof of claim with the bankruptcy 

court. However, an agency may determine that monies to 

repay the debt are available through the bankruptcy process. 

An agency should consult with its agency counsel to 

determine this. See Chapter 6, Delinquent Debt Collection, 

page 6-57. For example, the agency may be able to pursue 

collection on payments provided under a bankruptcy 

reorganization plan, or may be able to obtain the court’s 

permission to continue a foreclosure action. 

In general, an agency shall terminate collection activity on a 

debt that has been discharged in bankruptcy, regardless of 

the amount, where there are no other debtors or guarantors 

from whom collection may be sought. However, if 

payments to the agency are provided for under a plan of 

reorganization, an agency may continue collection activity 

regarding those payments, subject to the provisions of the 

Bankruptcy Code. Offset and recoupment rights may 

survive discharge of the debtor in bankruptcy and under 

some circumstances, debts also may survive discharge. 

Agency personnel should seek legal advice from the 

agency’s counsel to determine whether the agency’s debts 

have survived a debtor’s discharge.

Exception to Termination of Collection Activity. When a 

significant enforcement policy is involved, or recovery of a 

judgment is a prerequisite to the imposition of administrative 

sanctions, agencies may refer debts for further collection action, 

including litigation, even though termination of collection activity 

may otherwise be appropriate. Before terminating collection 

activity, the agency should have pursued all appropriate means of 

collection and determined, based upon the results of the collection 

activity, that the debt is uncollectible. Termination of collection 

activity ceases active collection of the debt. The termination of 

collection activity does not preclude the agency from retaining a 

record of the debt for purposes of: 

 selling the debt, if, in consultation with or at the request of

the agency, the Secretary of the Treasury determines that

such a sale is in the best interest of the United States;

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 pursuing collection at a subsequent date in the event there is

a change in the debtor’s status or a new collection tool

becomes available;

 offsetting against future income or assets not available at the

time of termination of collection activity; or

 screening future government loan applicants for prior

indebtedness.

Agency procedures should require that terminating collection action 

of progressively higher dollar amounts be authorized by 

progressively higher-level agency officials. These procedures 

should also require that the signatures of all agency officials 

participating or concurring in each termination of collection action 

decision be obtained before the action is taken.

DOJ Concurrence for Terminating Collection Action 

Each agency determines when it will terminate collection action on 

its debts in accordance with governmentwide policy, its own 

regulations, authorities, and debt collection strategy. Each agency is 

authorized to terminate active collection on debts with principal 

amounts of $100,000 or less. An agency may terminate active 

collection on debts with principal amounts in excess of $100,000 

only with the concurrence of DOJ, unless the agency has its own 

statutory authority for terminating collection action. If the principal 

amount of the debt is $500,000 or less, and the debt has been 

serviced by Fiscal Service in its Cross-Servicing Program, Fiscal 

Service may approve the termination of collection action. 

If DOJ concurrence is necessary, an agency should make every effort 

to request such concurrence at least one year before the expiration of 

the applicable statute of limitations for collection litigation. DOJ 

concurrence is requested by submitting a completed Claims Collection 

Litigation Report to the Department of Justice, Civil Division, 

Commercial Litigation Branch, 1100 L Street NW, Room 10057, 

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Washington, D.C., 20530. The Claims Collection Litigation Report 

instructions can be found at: 

http://www.justice.gov/sites/default/files/jmd/pages/attachments/2014/1

2/12/cclr_instructions.pdf.

and the form at: 

http://www.justice.gov/sites/default/files/jmd/legacy/2014/05/26/cclr

-form-fillable.pdf. 

As a practical matter, the agency does not need to request 

concurrence from DOJ for termination of collection action if: 

 the agency referred the debt to DOJ for litigation and DOJ

returned the debt to the agency;

 DOJ determined that litigation is not appropriate and

returned the debt to the agency;

 the debt has been discharged or terminated in bankruptcy;

 the statute of limitations for initiating litigation has expired;

or

 the agency determines that the debt is legally without merit

or cannot be substantiated.

The agency should establish: 

 a method to track and follow up on the debts referred to

DOJ for its concurrence with termination of collection

action; and

 procedures to ensure that proper action will be taken based

on the agency’s decision to terminate collection, with DOJ

concurrence. Such action may include passive collection,

write-off, and/or cancellation of indebtedness.

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Suspension of Collection Action 

An agency may determine that certain circumstances warrant 

suspending, rather than terminating, collection action. When 

collection efforts are suspended, the agency, in effect, decides to 

defer its attempts to enforce collection, for a period of time 

specified in its regulations and/or collection strategy. During a 

period of suspension, passive collection action may continue when 

appropriate. 

Collection action should be suspended only when the agency has 

reason to believe that the suspension will enhance the chances of 

recovery, or, at minimum, will not endanger the recovery of the 

debt. Such would be the case if the debtor agrees to repay the debt 

when the debtor’s financial condition improves, as would occur if 

the debtor has been only temporarily laid-off from a permanent job.

The agency should suspend collection action when one or more of 

the following criteria apply: 

1. The agency cannot locate the debtor at the present time.

The agency should attempt to locate the debtor using

available sources as described in Chapter 6, Delinquent

Debt Collection, pages 6-71 through 6-73.

2. The debtor’s financial condition is expected to improve.

Suspension would be appropriate if the debtor owns no

substantial equity in property and is unable to make

payments, but: (a) the debtor’s future financial prospects

justify retaining the debt and the statute of limitations has

not expired or has been tolled; or (b) future collections may

be realized through administrative offset; or (c) the debtor

has agreed to pay the interest accruing on the debt during

the suspension. For example, suspension might be

appropriate where the debtor has indicated that he/she is the

recipient of a trust fund or inheritance and would be willing

to pay interest until receipt of the trust fund or inheritance,

at which time the debt would be repaid in full. Suspension

may also be appropriate when the agency has evidence that

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the collectibility of the debt will improve as the debtor’s 

income potential improves over time (as has been the 

general case with education loans). 

3. The debtor has requested a waiver or administrative

review of the debt. If the waiver review or administrative

review is considered mandatory, and if suspension is

mandated by law or regulation pending such review, then

the agency must suspend collection action until the review

is completed or the waiver granted. Otherwise, the agency

may decide on a case-by-case basis whether to suspend

collection action for the duration of the review. The agency

should not suspend collection when an agency determines

that the request for waiver or review is frivolous or was

made primarily to delay collection.

4. The debtor has filed a petition in bankruptcy. When an

agency learns that a bankruptcy petition has been filed with

respect to the debtor, in most cases the collection activity on

a debt must be suspended unless the agency can clearly

establish that the automatic stay has been lifted or is no

longer in effect. Agencies should seek legal advice

immediately from their legal counsel and, if legally

permitted, take the necessary legal steps to ensure that no

funds or money are paid by the agency to the debtor until

relief from the automatic stay is obtained. In such cases, the

agency may then be able to offset such funds to collect on

the debt. See also Chapter 6, Delinquent Debt Collection,

page 6-57.

The agency’s procedures for suspending collection action should:

 distinguish between the definition and treatment of

suspended and terminated debts;

 describe the specific circumstances in which suspension is

appropriate;

 provide for the review and monitoring of suspended debts

on a regular basis;

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 require that progressively higher-level agency officials

authorize the suspension of progressively higher dollar

amounts of debt, with the signature of each agency official

participating or concurring in the decision included on the

authorizing document;

 provide for obtaining the concurrence of DOJ with the

suspension of any debts whose principal amounts exceed

$100,000, or from Fiscal Service for debts in cross-servicing

whose principal amounts are $500,000 or less; and

 provide for ending the suspension and for either: (1)

reinstating active collection on the debt, or (2) terminating

collection action on the debt, when circumstances warrant

and after review of the specific details at the highest

appropriate agency level.

Note that where a statute requires that the agency suspend 

collection action or when the debtor files for bankruptcy, as a 

practical matter, the agency does not need DOJ or Fiscal Service 

concurrence to suspend collection action. In these instances, the 

agency should seek the review of its agency counsel to assure that 

suspension of collection action is mandated by law. 

Termination and Suspension of Collection Action and Compromise Regarding 

Fraud Claims 

When an agency has a debt arising from fraud, false statements, or 

misrepresentations by a debtor, the agency must ask DOJ for 

authority to terminate or suspend collection action, or compromise 

the debt, regardless of the amount. An agency should consult with 

agency counsel to determine whether action under Title 31, Chapter 

38, “Administrative Remedies for False Claims and Statements” 

(31 U.S.C. §3801 - 3812) is appropriate. 

Regarding write-off and reporting discharges of indebtedness to 

IRS, the same rules apply to fraud debts as apply to generally all 

other types of debts. DOJ approval is not needed by the agency to 

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write-off the debt as currently not collectible. Similarly, no further 

DOJ approval is needed to close-out the debt or report the debt to 

IRS as potential income to the debtor once the agency is given the 

authority to terminate collection action on the debt by DOJ. 

 Write-off

Write-off of a debt should occur when the agency determines that 

the debt has no value for accounting purposes. As previously 

indicated in the overview of this chapter, write-off may occur 

before, concurrently with or after the agency determines that 

collection action should be terminated. Generally, write-off is 

mandatory for debts delinquent more than two years, unless 

documented and justified to OMB in consultation with Treasury. 

However, in those cases where material collections can be 

documented to occur after two years, debt cannot be written off 

until the estimated collections become immaterial. See OMB 

Circular No. A-129, Section V.5. 

All debt must be reserved for in the allowance account, and all 

write-offs must be made through the allowance account. Under no 

circumstances are debts to be written off directly to expense. See 

OMB Circular No. A-129, Section V.5 

Once the agency determines that a debt has no value for accounting 

purposes, it must determine whether or not collection action on the 

debt should continue. Specifically, at the time the debt is writtenoff, the agency must determine whether the debt should be further 

classified as one of the following: 

 Currently Not Collectible (CNC): If the agency

determines that cost effective collection efforts should

continue after write-off, then the debt will be classified as

CNC. Debt collection activities, such as referral to Fiscal

Service for collection action for cross-servicing or TOP,

should continue.

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 Close-out: If the agency determines that collection action is

legally barred or it is no longer cost effective to pursue

collection, the debt should be classified as close-out. In

most cases, the closed-out debt must be reported to IRS as

potential income to the debtor.

Cost effective collection efforts should continue if an agency 

determines that continued collection efforts after mandatory writeoff have some potential to result in collections. This is especially 

true if the debt has not yet been referred to Fiscal Service for 

collection action, as required by the DCIA. See Chapter 6, 

Delinquent Debt Collection. 

In summary, within two years of the date of delinquency, the 

agency should be able to evaluate the likelihood that it will collect 

on a delinquent debt and either: 

 write-off and classify the debt as CNC, which will allow for

further collection action;

 write-off and classify the debt as close-out, which means

that the agency will cease all debt collection activities on the

debt; or

 document and justify why the debt is not being written-off.

If the debt is written-off and classified as CNC, the debt may be 

reclassified as close-out in the future, when all collection 

activities pertaining to the debt cease. 

The agency does not need DOJ approval to write-off a debt since 

the agency is only adjusting its accounting records. Except for 

agencies having independent statutory authority, DOJ concurrence 

or Fiscal Service concurrence as applicable, is required, however, 

when an agency suspends or terminates debt collection action on 

debts over $100,000. See page 7-9 of this Chapter. 

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Pursuit of Collection After Write-off/CNC 

When pursuing collection of a debt after write-off and classification 

as CNC, an agency should: 

 if material to its financial statements, disclose its actions

regarding the pursuit of collection on its written-off debts in

a note to its financial statements (i.e., the agency should

specifically state the amount of written-off debts under

collection and whenever possible based upon historical

experience, the amount it expects to collect); and

 establish accounting procedures to account for collections

on written-off debts (e.g., if the agency receives a one-time

payment on a written-off debt, it may restore the amount

collected as a receivable at the time of collection or credit

the amount to a recovery account; and/or if the payment on

a written-off debt is recurring and/or regular, the agency

should restore the total amount of the debt as a receivable in

both its General and Subsidiary Ledgers and record each

collection as if the debt had never been written-off).

Write-Down 

Rather than writing-off the entire amount of a collateralized 

debt, an agency may write-down the debt to the collateral’s net 

realizable value. The agency may not write-down noncollateralized debts. The agency must appraise the value of the 

collateral in relation to the amount of the debt. If the value of the 

collateral has declined to the point where its liquidation would not 

satisfy the debt in full and there is no other source for the collection 

of the debt, then the agency should reduce the amount of the debt to 

the new appraised value of the collateral. The written down amount 

should be recognized as a loss. For information on real estate 

appraisals, see Chapter 3, Credit Extension, page 3-13. 

As is true for write-off, the agency does not need DOJ concurrence 

to write-down a debt since the agency is simply adjusting its 

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records to more accurately reflect the amount it expects to collect 

through the liquidation of the collateral. 

Close-out Classification and Discharge of Indebtedness/Issuance of 

Form 1099-C 

Close-out Classification. As previously stated, the classification of 

a debt as close-out occurs when an agency, after determining that 

additional future collection efforts on a debt are prohibited or would 

be futile, determines to cease all collection activities on the debt. 

This action may occur concurrently with the initial write-off of a 

debt, or at a later date, depending upon the agency’s own collection 

strategy and its determination that no further collection activity is 

warranted. The determination that a debt should be classified as 

close-out is different than the determination that collection action 

should be terminated or suspended. When collection action for a 

debt is terminated or suspended, there is a determination to cease 

active collection action on the debt. The agency may still pursue 

debt collection activities at its discretion, for example, maintaining 

the debt in TOP. The determination that the debt should be 

classified as close-out occurs only after the agency has 

determined to cease all collection activity on the debt. 

The decision to classify a debt as close-out triggers the need to 

determine if the debt must be reported to the IRS as potential 

income to the debtor on Form 1099-C, “Cancellation of Debt.” 

Close-out and Form 1099-C reporting are linked because both 

actions occur as a result of the agency's decision to cease all 

collection activity. Additionally, the two actions are linked 

because further collection action on the debt is generally 

prohibited once the agency reports the uncollected amount to 

the IRS on Form 1099-C as potential income to the debtor. 

Therefore, before making the decision to cease all collection 

activity and to classify the debt as close-out, an agency must take 

all appropriate steps to collect the debt, including, as applicable: (1) 

TOP, (2) non-centralized administrative offset, (3) referral to Fiscal 

Service, Treasury-designated debt collection centers or private 

collection contractors, (4) credit bureau reporting, (5) 

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7-18

administrative wage garnishment, (6) litigation, and (7) foreclosure. 

Typically, once a debt has been through Fiscal Service’s crossservicing process (as described in Chapter 6, Delinquent Debt 

Collection) and returned to the agency, any remaining balance due 

will be classified as close-out. 

Discharge of Indebtedness. After it is determined that the debt 

will be classified as close-out, the amount of indebtedness is 

reported to the IRS as potential income to the debtor via Form 

1099-C, “Cancellation of Debt.” Under the Internal Revenue Code 

(26 U.S.C. § 61(a)(12)), income from discharge of indebtedness is 

defined as “gross income.” Section 6050P of the Internal Revenue 

Code, as amended by the DCIA, requires all Federal agencies and 

private financial institutions to report certain discharged debts to 

the IRS. The reporting requirement covers debts owed by 

individuals, sole proprietorships, partnerships, and corporations. 

Types of debts include those arising from loan programs, as well as 

administrative actions such as the assessment of fines, fees, and 

penalties. 

The discussion that follows concerning reporting discharges of 

indebtedness to IRS contains some of the general rules. For 

more detailed information, agencies should refer to IRS 

regulations 26 CFR 1.6050P-l and any other applicable IRS 

publications and guidance.

Section 6050P(a) of the Internal Revenue Code requires the filing 

of Form 1099-C for discharges of indebtedness of $600 or more. 

IRS regulations list eight identifiable events that trigger the 

reporting requirement. Note that these identifiable events, listed 

below, generally dovetail with the reasons an agency would cease 

all collection activity on a debt and classify the debt as close-out. 

The following are identifiable events that trigger reporting 

discharge of indebtedness to IRS on Form 1099-C:

 a discharge of indebtedness under Title 11 of the United

States Code (bankruptcy). Note that reporting is required

only if the agency knows from information included in its

Revised March 2015
Termination of Collection Action, Write-off 

Chapter 7 and Close-out/Cancellation of Indebtedness

7-19

books and records pertaining to the debt that the debt was 

incurred for business or investment purposes; 

 a cancellation or extinguishment of an indebtedness that

makes a debt unenforceable in a receivership, foreclosure,

or similar Federal or state court proceeding;

 a cancellation or extinguishment of an indebtedness where a

debtor's affirmative statute of limitations defense is upheld

and can no longer be challenged by appeal, or a cancellation

or extinguishment upon expiration of a statutory period for

filing a claim or commencing a deficiency judgment

proceeding. Note that Federal agencies may still have the

ability to collect by offset after the statute of limitations for

enforcing a claim in court has expired; no Form 1099-C

should be filed if collecting by offset;

 a cancellation or extinguishment of an indebtedness that

occurs when the creditor elects foreclosure remedies that by

law extinguish or bar the creditor's right to collect the debt;

 a cancellation or extinguishment of an indebtedness that

renders a debt unenforceable pursuant to a probate or

similar proceeding;

 a discharge of indebtedness pursuant to an agreement

between the creditor and the debtor to discharge

indebtedness at less than full consideration (a

“compromise,” see page 7-21 of this Chapter);

 a discharge of indebtedness pursuant to a decision by the

creditor, or the application of a defined policy of the

creditor to discontinue collection activity and discharge the

debt; and

 the expiration of the non-payment testing period (generally

a rebuttable presumption of this identifiable event occurs

when the creditor agency does not receive any payment on a

debt for a 36 month lookback period as of December 31).

Revised March 2015
Termination of Collection Action, Write-off 

Chapter 7 and Close-out/Cancellation of Indebtedness

7-20

See 26 CFR § 1.6050P-1(b)(2) for more information on identifiable 

events. 

When reporting a debt to the IRS, the agency is responsible for all 

of the actions detailed below: 

 the agency should capture and provide to the IRS all

information required by the statute and IRS regulations,

including taxpayer/debtor taxpayer identification number,

date of the final debt disposition/discharge, and amount of

the debt. To obtain a taxpayer identification number, the

agency should request that the debtor complete and return a

Form W-9, “Request for Taxpayer Identification Number

and Certification” available through the Internal Revenue

Service website at www.irs.gov/formspubs or other

applicable form, to the extent authorized by law. The debtor

is obligated to provide this information under the Internal

Revenue Code;

 the agency must report the debt after all collection efforts

have been exhausted. The agency is not obligated to wait to

report a debt until the statute of limitations (SOL) has

expired, even though the expiration of the SOL constitutes a

reason for the debt to be considered discharged;

 the agency must report amounts of $600 or more, but has

the option of reporting amounts less than $600;

 the agency must report the outstanding principal,

administrative costs (but not contingency fees), and

penalties for non-lending transactions. In the case of lending

transactions, only the principal must be reported. In both

lending and non-lending transactions, reporting interest is at

the discretion of the creditor;

 the agency must report any deficiency judgment once the

agency has stopped its attempts to collect on the judgment

(note that once the agency determines to file a Form 1099-

Revised March 2015
Termination of Collection Action, Write-off 

Chapter 7 and Close-out/Cancellation of Indebtedness

7-21

C, the agency must officially release any judgment relevant 

to the debt); 

 the agency should not report a debt if it has a lien against

the debtor’s property, unless it decides to release that lien.

The agency must notify and obtain the concurrence of DOJ

prior to closing-out a debt with an outstanding lien if the

principal amount of the debt is $100,000 or more;

 the agency must provide the debtor with a copy of the Form

1099-C to be filed or a written statement of the impending

Form 1099-C report by January 31 of the year following the

agency’s decision to stop all collection on the debt; and the

agency must send the Form 1099-C to the IRS by February

28 of the year following the calendar year in which the

identifiable event occurs (March 31 if filed electronically).

Note that IRS regulations provide that reporting is not required 

for the release of one debtor if the remaining debtors are liable 

for the full unpaid amount of the debt. 

For debts referred to Fiscal Service’s Cross-Servicing Program, an 

agency may request Fiscal Service to report the debt to the IRS on 

the agency's behalf. 

Once a debt is reported to the IRS, the agency can take no further 

collection action. It may, however, accept voluntary repayments of 

the debt at any time, without any obligation to notify IRS of a 

change in the debt. For example, voluntary payments may occur 

where a delinquent debtor seeks to satisfy the debt and remove the 

statutory bar from receiving Federal loans or loan guarantees. See 

Chapter 6, Delinquent Debt Collection, page 6-65. The agency 

does, however, have an obligation to notify IRS of debts that were 

reported in error. The agency would handle voluntary payments as 

it would payments received before classification of the debt as 

close-out. 

Revised March 2015
Termination of Collection Action, Write-off 

Chapter 7 and Close-out/Cancellation of Indebtedness

7-22

Compromise of Debts 

When an agency accepts less than full payment—or in other words 

“compromises” the debt—it may have to follow the requirements 

for termination, write-off, and close-out for the portion of the debt 

released/discharged. When compromising, the agency must 

determine whether the proposed compromise meets appropriate 

standards. See Chapter 6, Delinquent Debt Collection, page 6-23. 

In compromising a debt, the agency must: (a) get approval from 

DOJ to compromise the debt when the principal balance of the debt 

before compromise exceeds $100,000, or, if the debt is $500,000 or 

less and the debt is in Fiscal Service’s Cross-Servicing Program, 

get approval from Fiscal Service unless the agency has independent 

statutory authority to compromise the debt; (b) write-off as closeout 

the amount of the debt forgiven by compromise; and (c) report the 

discharged amount to the IRS on Form 1099-C, assuming the 

requirements of IRS regulations are otherwise met. For example, if 

an agency agrees to accept anything less than the full amount owed 

for a $300,000 debt because the debtor claims an inability to pay, 

the agency must seek DOJ approval for such compromise. If DOJ 

decides not to seek enforcement and approves the compromise, then 

the amount discharged should be written-off as close-out and 

reported to the IRS on Form 1099-C. 

If, however, an agency determines that part of the debt is not owed, 

then the agency does not need to seek DOJ approval to terminate 

collection or compromise such amounts, and the filing of a Form 

1099-C is not required. For example, if a debtor argues that the 

amount of the debt should be $150,000, instead of $300,000, based 

on the debtor's records, and the agency accepts the debtor's 

analysis, then the amount may be adjusted without seeking DOJ 

approval or filing a Form 1099-C. In addition, the agency should 

make an adjustment to the total receivables on the “Treasury Report 

on Receivables Due From the Public” to account for the lesser 

amount owed, rather than report the amount of the reduction as a 

write-off. 

Revised March 2015
8-1

Chapter 8 Portfolio Sales

Interim Guidance

An updated Chapter on loan portfolio/asset sales will be forthcoming

from the Office of Management and Budget (OMB) and Treasury’s

Office of Domestic Finance. In the interim, agencies should consult the

most recent versions of OMB Circular No. A-11, “Preparation,

Submission, and Execution of the Budget” and OMB Circular 

No. A-129 - “Policies for Federal Credit Programs and Non-Tax

Receivables.” These documents are available at:

 http://www.whitehouse.gov/omb/circulars
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Appendix 1 Credit Bureau Report Key

A1-1

Account Status Codes

Information on commercial accounts should be obtained by contacting the respective 

commercial credit reporting agency. The account status codes best describe whether the 

account is current or past due. For codes not described here, contact the credit bureau/credit 

reporting agency from which the report was generated. The following information is contained 

in the Metro 2 Format for reporting consumer accounts found at 

http://www.cdiaonline.org/data.cfm.

Code Description

05 Account transferred to another office

11 Current account

13 Paid or closed account/zero balance

61 Account paid in full was a voluntary surrender

62 Account paid in full was a collection account

63 Account paid in full, was a repossession

64 Account paid in full, was a charge-off

65 Account paid in full; A foreclosure was started

71 Account 30-59 days past the due date

78 Account 60-89 days past the due date

80 Account 90-119 days past the due date

82 Account120-149 days past the due date

83 Account 150-179 days past the due date

84 Account 180 or more days past the due date

88 Claim filed with government for insured portion of balance on defaulted loan

89 Deed received in lieu of foreclosure on a defaulted mortgage; there may be a 

balance due

93 Account assigned to internal or external collections

94 Foreclosure Completed; there may be a balance due
A1-2

Credit Bureau Report Key

95 Voluntary surrender; there may be a balance due

96 Merchandise was repossessed; there may be a balance due

97 Unpaid balance reported as a loss(charge-off)

DA Delete entire account (for reasons other than fraud)

DF Delete an entire account due to confirmed fraud (fraud 

___________ investigation completed)

NOTE: In order to maintain the integrity of credit information, it is important 

that credit grantors not ask for a subsequent deletion of account history unless 

an actual error was reported. Paid derogatory accounts, such as collections, 

should be reported as paid; they should not be deleted.

Equal Credit Opportunity Act (ECOA) Codes

The ECOA code defines the relationship of consumer to the accounting compliance with the

Equal Credit Opportunity Act.

Code Description

1 Individual (This consumer has contractual responsibility for this account and is 

primarily responsible for its payment 

2 Joint contractual Liability (This consumer has contractual responsibility for this 

joint account)

3 Authorized User (This consumer is an authorized user of this account; 

another consumer has contractual responsibility.)

5 Co-maker or Guarantor (This consumer is the co-maker or guarantor for this 

account, who becomesliable if the maker defaults.)

7 Maker (This consumer is the maker who is liable for the account, but a comaker or guarantor is liable if the maker defaults.)

T Terminated (The association with the account has been terminated by this 

consumer.)

X Deceased (This consumer is deceased.)

W Business/Commercial (This code is used to identify that the company reported in 

the Name field is contractually liable for this account.)

Z Delete Consumer (This code is used to delete this consumer from the 

account.)

NOTE: Only inaccurately reported consumers should be deleted.
A1-3

Credit Bureau Report Key

Other Reporting Codes Used

The following codes may also be found on a debtor’s credit report:

Code Description

Reporter Name Name of processing company sending the data, i.e, data furnisher

or processor.

Date Opened Date the account was originally opened. 

Retain the original Date Opened 

regardless of future activity, such as 

transfer, refinance, lost or stolen card, 

etc.

Highest Credit or

Original Loan Amount Line of Credit - highest balance ever attained

 Mortgage - original amount of loan (excluding interest payments)

Open - highest balance ever attained 

Revolving - highest balance ever attained

Terms Duration Duration of credit extended (usually stated in months or years) 

Current Balance Current balance owed on the account as of the Date of Account 

Information

Amount Past Due Total amount of payments that are 30 days or more past due in 

whole dollars only. This field should include late charges and fees, 

if applicable.

Original Creditor Name (long descriptor—k1 segment, original creditor name)

Account Type C=Line of Credit, M=Mortgage, R=Revolving,

O=Open, I=Installment
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Appendix 2 Credit Extension /Servicing Checklist

A2-1

Agency:

Program:

Amount Owed:

Date Debt Incurred:

The Application

1. Has the application been completed and does it contain:

a) Identifying Information:

full name of applicant? YES NO

address of applicant? YES NO

telephone number of applicant? YES NO 

taxpayer identification number (TIN)/certification? YES NO 

full name(s) of all co-borrower(s)? YES NO

co-borrower(s)' address? YES NO

co-borrower(s)' telephone number? YES NO

co-borrower(s)' TIN? YES NO

b) Financial Information:

amount of annual income and sources? YES NO

account numbers of bank accounts? YES NO

name(s) and address(es) of employer(s)? YES NO

real and personal assets? YES NO

names and addresses of creditors? YES NO

account numbers of amounts owed? YES NO

schedule of payments including frequency? YES NO

total amount of outstanding debt? YES NO
CreditExtension/Servicing Checklist

A2-2

c) Information on Collateral:

location? YES NO

estimated value? YES NO

d)

description?

Statements/Signatures:

all required certifications signed and dated?

YES

YES

NO

NO

Screening and Analysis

2. Has the application been screened against:

IRS' delinquent tax files?

CAIVRS?

Treasury/Fiscal Service Debt Check Program?

If no, was a reason given as to why it has not been documented

in the files?

YES 

YES

YES

YES

NO 

NO 

NO

NO

3. Has a credit report been purchased?

If no, has a reason been documented in the files?

YES

YES

NO 

NO

4. Has the information on the application been confirmed using:

credit reports? YES NO

verification of employment and benefits?

suppliers?

references?

YES

YES

YES

NO

NO 

NO

5. Has the credit report been used to assist in performing a

credit analysis? YES NO

6. Has a credit analysis been performed?

If not, has a reason been documented in the files?

Have the results of the credit analysis been documented

in the files?

YES 

YES

YES

NO 

NO

NO
CreditExtension/Servicing Checklist

A2-3

7. Has the statement/form certifying that the borrower was informed

of the Government's debt collection policies (i.e., debt collection

certification) been signed and dated by the borrower? YES NO

8. Has the loan been rated?

If not, has a reason been given and documented in the files?

Has the documentation supporting the loan rating been maintained?

YES 

YES 

YES

NO 

NO 

NO

9. Has an independent collateral appraisal been obtained?

Has that appraisal been documented in the files?

YES 

YES

NO 

NO

10. Have audited financial statements or income tax returns been used 

to evaluate the loan? YES NO

11. For a commercial loan, has analysis been conducted on:

balance sheet and income statement? YES NO

market share and marketing strategy?

management ability?

working capital?

the strength of competition?

If not, have reasons been given for specific omissions and have

these reasons been documented in the files?

YES

YES 

YES 

YES

YES

NO

NO 

NO 

NO

NO

12. Are the following documents in the file:

application? YES NO

credit report?

verification documents?

analyses of the application?

appraisal of collateral?

legal documents relating to the loan?

non-delinquency certification (if not contained

on application)?

debt collection certification?

record that applicant has paid all origination/application fees?

loan or services agreement with the debtor containing:

all applicant identifying information?

collateral description, location and worth?

terms of the agreement?

YES

YES

YES 

YES 

YES

YES 

YES 

YES

YES 

YES 

YES

NO

NO 

NO 

NO 

NO

NO 

NO 

NO

NO 

NO 

NO
CreditExtension/Servicing Checklist

A2-4

13. Is the following information in the file:

identifying information for the borrower and co-borrower(s)?

amount and nature of the debt?

status of the account?

summaries of contacts with the debtor(s)?

YES 

YES 

YES 

YES

NO 

NO 

NO 

NO

14. If required, has an escrow account been established? YES NO

15. Is there a record of regular billings and payments? YES NO

16. If a new receivable, has the debtor been informed of

accrual of all late charges?

his/her due process rights?

amount of debt and basis of indebtedness?

deadline for payment?

possible collection actions?

requirement to provide taxpayer identification number?

YES 

YES 

YES 

YES 

YES

YES

NO 

NO 

NO 

NO 

NO 

NO

17. Is the condition of the collateral regularly determined?

Are regular reports on the condition of collateral documented?

Is insurance coverage being maintained on the collateral?

Is adequacy of the insurance coverage being regularly

reassessed and changed as needed?

YES

YES 

YES

YES

NO 

NO 

NO

NO

18. Has the loan been classified annually?

If not, has a reason been given and documented in the file?

Has the basis for the classification been maintained in the file?

YES

YES

YES

NO 

NO 

NO

notification of rights of debtor and Government? YES NO

right to call full amount due and payable upon

delinquency/default? YES NO

requirements for maintenance/insurance of collateral? YES NO

provisions for assessment of late charges? YES NO

copies of checks or receipts for payment of loan? YES NO

application or origination fees? YES NO

Servicing

agency policy on:
CreditExtension/Servicing Checklist

A2-5

19. Is financial information updated annually, where appropriate? YES NO

20. Has the account information been reported to the appropriate

consumer and commercial credit bureaus? YES NO

If the debt has been referred, has the date of initial referral

and the names of the credit bureaus to which the debt

was referred been indicated in the files? YES NO

If no, has the reason been given and documented? YES NO
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Appendix 3 Early Financial Warning Signs

A3-1

Balance Sheet 

 Failure to submit financial statements in a timely fashion

 Slowdown in the collection period for receivables

 Deterioration in customer’s cash position

 Share increases in dollar amounts or percentage of accounts

receivable

 Share increases in dollar amounts or percentage of inventory

 Slowdown in inventory turnover

 Decline in current assets as a percentage of total assets

 Deterioration of the liquidity/working capital position

 Marked changes in mix of trading assets

 Rapidly changing concentrations in fixed assets

 Large increase in reverses

 Concentrations in noncurrent assets, other than fixed assets

 High concentration of assets in intangibles

 Disproportionate increases in current debt

 Substantial increases in long-term debt

 Low equity relative to debt

 Significant changes in the structure of balance sheet

 Presence of debt due to/from officer/shareholders

 Qualified audit

 Change of accountants

Income Statement

 Declining sales/rapidly expanding sales

 Major gap between gross and net sales

 Rising cost percentages/narrowing margins

 Rising sales and falling profits

 Rising levels of bad debt losses

 Disproportionate increases in overhead, relative to sales

 Rising levels of total assets, relative to sales/profits

 Operating losses
A3-2

Early Financial Warning Signs

Receivables Aging 

 Extended average age of receivables

 Changes in credit policies

 Extended terms

 Replacement of accounts receivable with notes receivable

 Concentrations of sales

 Compromise of accounts receivable

 Receivables from affiliated companies

Early Management Warning Signals 

 Change in behavior/personal habits of key people

 Marital problems

 Change in attitude toward bank or banker, especially a seeming lack

of cooperation

 Failure to perform personal obligations

 Changes in management, ownership, or key personnel

 Illness or death of key personnel

 Inability to meet commitments on schedule

 Recurrence of problems presumed to have been solved

 Inability to plan

 Poor financial reporting and controls

 Fragmented functions

 Venturing into acquisitions, new business, new geographic area,

or new product line

 Desire and insistence to take business gambles and undue risk

 Unrealistic pricing of goods and services

 Neglect or discontinuance of profitable standard lines

 Delay in reacting to declining markets or economic conditions

 Lack of visible management succession

 One-person operations showing growth patterns that strain the 

capacity of the owner to manage and control

 Change in business, economy, or industry

 Labor problems

 Change in the nature of the company’s business

 Poor financial records and operating controls

 Inefficient layout of plant and equipment
A3-3

Early Financial Warning Signs

 Poor use of people

 Loss of key product lines, franchises, distribution rights, or sources 

of supply

 Loss of one or more major, financially secure customers

 Substantial jumps in size of single orders or contracts that would strain

existing productive capacity

 Speculative inventory purchases that are out of line with normal 

purchasing practices

 Poor maintenance of plant and equipment

 Deferred replacement of outmoded or inefficient equipment

 Evidence of stale inventory, large levels of inventory, or inappropriate

mix of inventory
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Appendix 4 Debt Collection Statutes and Websites

A4-1

Key Statutes

5 U.S.C. 552a Records Maintained on Individuals (Privacy Act)

5 U.S.C. 5514 Installment Deduction for Indebtedness to the

United States (Federal Salary Offset)

26 U.S.C. 6050P Returns Relating to the Cancellation of 

Indebtedness by Certain Entities

26 U.S.C. 6103 Confidentiality and Disclosure of Returns and

Return Information

26 U.S.C. 6402 Authority to Make Credits or Refunds (Tax Refund

Offset)

31 U.S.C. 3325 Payment Vouchers

31 U.S.C. 3701 Definitions

31 U.S.C. 3711 Collection and Compromise

31 U.S.C. 3716 Administrative Offset

31 U.S.C. 3717 Interest and Penalty on Claims

31 U.S.C. 3718 Contracts for Collection Services

31 U.S.C. 3719 Reports on Debt Collection Activities

31 U.S.C. 3720A Reduction of Tax Refund by Amount of Debt

31 U.S.C. 3720B Barring Delinquent Federal Debtors from Obtaining

Federal Loans or Loan Insurance Guarantees
Debt Collection Statutes and Websites

A4-2

Key Statutes (cont’d.)

31 U.S.C. 3720C Debt Collection Improvement Account

31 U.S.C. 3720D Garnishment

31 U.S.C. 3720E Dissemination of Information Regarding Identity of

Delinquent Debtors

31 U.S.C. 7701 Taxpayer Identifying Number

Public Laws

Chief Financial Officers Act of 1990, Public Law 101-576 (31 U.S.C. 901 

et seq.)

Computer Matching and Privacy Protection Act of 1988, Public Law 100-

503 (5 U.S.C. 552a)

Debt Collection Act of 1982, Public Law 97-365 (5 U.S.C. 5514; 31

U.S.C. 3701 et seq.)

Debt Collection Improvement Act of 1996, Public Law 104-134 (5 U.S.C. 

5514; 31 U.S.C. 3701 et seq.)

Deficit Reduction Act of 1984, Public Law 98-369 (26 U.S.C. 6402 and

31 U.S.C. 3720A)

Federal Claims Collection Act of 1966, Public Law 89-508 (31 U.S.C. 

3701 et seq.)

Federal Credit Reform Act of 1990, Public Law 101-508 (2 U.S.C. 661 et

seq.)

Federal Debt Collection Procedures Act of 1990, Public Law 101-647 (28

U.S.C. 3001 et seq.)

Claims Resolution Act of 2010, Pub.L. 111-291

(Specifically, Title VIII, Subtitle A, Sec. 801/26 U.S.C. 6402(f))

Digital Accountability and Transparency Act of 2013 (DATA Act)
Debt Collection Statutes and Websites

A4-3

Although Generally Not Applicable to Debt Collection by Federal Employees, the 

Following Public Laws Provide Useful Information for Government Debt Collectors:

Fair Credit Reporting Act of 1970, Public Law 91-508 (15 U.S.C. 1681 et

seq.) 

Fair Debt Collection Practices Act of 1977, Public Law 95-109 (15 U.S.C. 

1601 et seq.) 

Websites Provided in Chapter 6 and Information Referenced in Citations

https://fiscal.treasury.gov/debt-management/faqs/about-debt-collections.html

https://fiscal.treasury.gov/debt-management/resources.html

 Debt Collection Statutes, Regulations, and Guidance

 Guide to the Federal Credit Bureau Program

 Administrative Wage Garnishment Form SF-329

 Information on Fiscal Service’s Cross-servicing

 Program Treasury's Current Value of Funds Rate

 List of Payments That Are Exempt from Offset under TOP

 Treasury Financial Manual

www.gpoaccess.gov/fr.index.html Federal Register and CFR Documents 

www.opm.gov CSRS and FERS Handbook, Chapter 4 - Debt Collection

www.uscourts.gov/bankform Bankruptcy Proof of Claim Form 

www.irs.gov Local IRS Office Information

Collection Financial Standards 

www.usdoj.gov/foia/privstat.htm Privacy Act of 1974, as amended (includes requirements 

for computer matching programs.) 
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Appendix 5 Debt Collection Strategies

A5-1

Quick Referral to Cross-Servicing
Debt Collection Strategies

A5-2

Debts Sent to Litigation
Debt Collection Strategies

A5-3

Collateralized Debts
This page is left intentionally blank. 
A6-1

Appendix 6 Documentation of Collection Activities

Debt Collection/Write-off Checklist for Individual Debtor Files

Agency: 

Program: 

Debtor Name: Amount Owed: 

Debtor Taxpayer Identifying Number Date Debt Incurred: 

1. a.

b.

c.

d.

Has the debtor been contacted?

Was the contact by telephone and/or letter?

Number of times debtor has been contacted?

Have any of the calls been documented, with the

Yes No

Yes No 

1 2 3 4 5

following information included?

Date of calls

Name of agency representative who called?

Name of person contacted?

Notes taken on substance of calls?

Notes taken on follow-up action of agency?

Dates recorded of follow-up action taken?

Yes No

Yes No

Yes No

Yes No

Yes No

Yes No

e. Number of letters?

Are copies of replies in file or stored

electronically?

Are copies of agency responses to debtor’s

letters or notes on agency follow-up action

maintained in the file?

1 2 3

Yes No

Yes No

f. Are all documents dated? Yes No
A6-2

Documentation of Collection Activities

g. Was the debtor informed in writing of agency policy on:

accrual of interest? Yes No

penalties? Yes No

administrative costs? Yes No

debtor’srights? Yes No

amount and basis of debt? Yes No

possible collection actions which may

be used to collect the debt? Yes No

h. Was the debt resolved through a:

voluntary repayment agreement? Yes No

compromise? Yes No

i. If such agreement(s) were reached, has the agency

documented:

terms of the repayment agreement?

terms of the compromise?

Yes 

Yes

No 

No

2. a. Is interest being assessed on the delinquency?

If no, is a reason given as to why not?

If yes, is the rate of interested also indicated

in the file?

Yes 

Yes

Yes

No 

No

No

b. Are penalties being assessed on the delinquency?

If no, is a reason given as to why not?

If yes, is the amount of the penalty indicated in

the file?

Yes 

Yes

Yes

No 

No

No

c. Are administrative costs being assessed on the

delinquency? Yes No

If no, is a reason given as to why not?

If yes, are the administrative costs charged also

indicated in the file?

Yes

Yes

No

No
A6-3

Documentation of Collection Activities

3. Has the debt been referred to a credit reporting bureau? Yes No

If a consumer debt, was the debtor notified? Yes No

Is the notification letter in the debtor’s file? Yes No

Is any debtor response also in the file? Yes No

If the debt has been referred, does the file

contain the date of initial referral? Yes No

Are the names of the credit bureaus to whom

the debt was referred recorded in the file? Yes No

If not, does the agency retain that information

elsewhere? Yes No

4. Is the debt secured? Yes No

Has liquidation of the security been attempted? Yes No

Has the agency documented:

its decisions whether or not to liquidate

collateral? Yes No

its attempts at liquidating the collateral? Yes No

the results of any collateral liquidation? Yes No

5. Has the debt been referred to Treasury Offset Program for

offset? Yes No

If not, is a reason given why not? Yes No

6. Has the agency tried to collect the debt using

non-centralized offset? Yes No

If not, is a reason given why not? Yes No

Has the debt been referred for cross-servicing? Yes No

If not, has the reason been documented in the file? Yes No

7. Has the agency authorized the use of administrative wage

garnishment in cross-servicing? Yes No

If not authorized through cross-servicing, has

the agency attempted to collect the debt using

administrative wage garnishment? Yes No

If not, has the reason been documented in the file? Yes No
A6-4

Documentation of Collection Activities

8. If the debt has not been referred for cross-servicing, has the

agency referred the debt to a private collection agency? Yes No

If not, has the reason been documented in the file? Yes No

9. Has the debt been referred for litigation? Yes No

If yes, has the agency properly documented the

referral action in the file? Yes No

If not, has the reason been documented in the file? Yes No
Appendix 7 Sample List of Appropriate Debt Collection Practices

A7-1

While Federal agencies are not subject to the Fair Debt Collection Practices Act

(FDCPA), the FDCPA provides valuable guidance on appropriate practices in

communicating with debtors and can be used as a source in developing an

agency’s guidelines. Most of the items on the following list are based on the

practices and prohibitions described in the FDCPA. Additional information about

the FDCPA may be found at www.ftc.com.

Disclaimer: On the following page is a list of suggested debt collection practices.

Each agency should develop its own practices based on the type of debts being

collected and applicable laws. Nothing in this list creates any right or benefit,

substantive or procedural, enforceable at law by a party against the United States,

its agencies, its officers, or any person. 
A7-2

Sample List of Appropriate Debt Collection Practices

Do’s & Don’ts of Debt Collection

DO . . . X DO NOT . . .

 contact a debtor in person, by mail, telephone,

telegram, or fax in accordance with your agency’s debt

collection practices. It is acceptable to use e-mail in 

limited circumstances with the debtor’s consent. 

Consult with agency legal counsel on the appropriate 

use of e-mail and fax.

X contact the debtor at any unusual time or place,

or a time or place that you should knowis

inconvenient to the debtor. Generally, 8:00 a.m. to

9:00 p.m.(debtor’s time)is deemed to be convenient.

Knowyourtime zones!

 clearly identify who you are and that you are

attempting to collect a debt when contacting a debtor. 

Use of “desk names” is acceptable under certain 

conditions. Check with agency legal counsel before 

using desk names.

X contact the debtor directly if you know the

debtor isrepresented by an attorney. If the attorney

failsto respondtoyourcommunication,consultwith

agency legal counsel on howto proceed.

 keep an objective written record of all

communications with a debtor. Be aware that your 

written record (notes, e-mails, etc.) may be provided to 

the debtor upon request or may be subject to discovery 

in litigation.

X contactthe debtor at his or her place of

employmentif youthink thatthe debtor’s employer

does not allowsuch calls.

 be professional, courteous, firm and direct in

all communications. Talk straight. Avoid getting 

angry or emotionally involved. Be aware that some 

debtors may record your conversation.

Xthreatenoruseviolenceorothercriminalmeans

to harmthedebtororhisorherproperty. Donotuse

obscene or profane language.

 listen carefully to the debtor.

X continue to contact the debtor afterthe debtor

has requestedthat youstopfurther communicationor

the debtor hasstated in writing that he orshe refuses

to pay the debt. You may, however, tell the debtor

there will be no further contact or notify the debtor

about specific collection actionsto be taken.

 follow up telephone conversations with a written

communication, if possible.

Xdiscussthe debtor’s matter with anyone other

than the debtor unless otherwise authorized by the

debtorin writing. When leaving a message ortalking

to an answeringmachine,leaveyour name and

number only.

 respond promptly to a debtor’s inquiries.

Xcontinuouslycontactthedebtor, ringthe

telephone for harassment, orthreaten action that

cannot be legally taken oris not intended to be taken.

 direct debtors to mail checks to a Treasuryapproved lockbox. Debtors should be encouraged to 

use electronic funds transfer mechanisms, such as preauthorized debit.

Xacceptacheckthatispostdatedmorethan5

days orthreaten to deposit a postdated check early.
Appendix 8 Demand Letter Checklist

A8-1

The following information should be included in a Federal agency's written

communication(s) with a debtor at least 60-days prior to referring a delinquent debt to the 

U.S. Department of the Treasury's Financial Management Service for debt collection

(cross-servicing). The information may be included in one letter or a series of letters.

Agencies should consult with agency counsel to determine what, if any, additional

information is required. Letters should be tailored to meet agency-specific and debtspecific statutory and regulatory requirements. 

 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.

 Explain the agency's intent to enforce collection if debtor fails to pay by taking one

or more of the following actions:

o Offset the debtor's Federal payments, including income tax

refunds, salary, certain benefit payments (such as Social Security),

retirement, vendor, and travel reimbursements and advances.

o Refer the debt to a private collection agency.

o Report the debt to a credit bureau.

o Garnish the debtor's wages through administrative wage

garnishment (no court order required).

o Refer the debt to the Department of Justice for litigation (comply

with Executive Order 12988).

o Refer the debt to the U.S. Department of the Treasury for any of

the above-described collection actions (advise debtor that agencies

are required to refer when debt is 120 or 180 days delinquent

depending on circumstances).
A8-2

Demand Letter Checklist

 Explain how debtor exercises the opportunity to:

o Inspect and copy agency's records related to the debt.

o Request a review of agency's determination of the debt.

o If applicable, request a waiver.

o For purposes of salary offset or administrative wage garnishment,

request a hearing.

o Enter into a reasonable written repayment agreement.

 Advise the debtor of the following:

o Notify agency if bankruptcy filed.

o Penalties for knowingly making false or frivolous statements.

o Excess collections will be refunded to the debtor, unless prohibited

by law.

o For Federal salary offset, up to 15% of current net disposable pay

may be deducted every pay period until the debt is paid.

o For joint income tax filers, spouse should file Form 8379 with the

IRS to claim his/her share of tax refund.
Appendix 9 Sample Financial Statement

A9-1 
Sample Financial Statement

A9-2
Sample Financial Statement

A9-3
Sample Financial Statement

A9-4
Sample Financial Statement

A9-5
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Appendix 10 Handling the Department of Justice’s 3% Fee

A10-1 

Authorities

The Department of Justice’s (DOJ) 1994 Appropriation Act (PL. 103-121) 

authorized DOJ to retain up to 3% of all amounts collected as the result of its civil

debt collection litigation activities. The Debt Collection Act of 1982 (P.L. 97-365) 

authorized agencies to assess fees to cover the administrative costs associated with

handling and processing delinquent debts. The agency can assess the litigation

collection fee against the debtor only if it has so notified the debtor in an earlier 

demand letter. 

Agency Options for Handling the Fee

The options described below are based on the following: 

Assumptions $7,000 principal $500 interest accrued at DOJ

$ 800 interest

$ 400 administrative charges 

$ 700 penalties 

$8,900 TOTAL 

Examples 1 and 2 also assume that the agency is not assessing the litigation

collection fee against the debtor, whereas Example 3 assumes that the agency

is.

Example #1

DOJ collects the full referred amount of $8,900 plus the interest that has accrued

since referral of $500; DOJ retains as its fee of $282 (9,400 x .03) before returning

the balance to the agency ($9,188). The agency would: 

 (1) waive all or part of the $282 fee retained by DOJ and apply the balance

to liquidate the remainder of the debt; and

 (2) charge the collection fee against either salaries and expenses or the

appropriate program/revolving fund.

Since the fee was waived, the agency would not report the amount of the fee to 

IRS on Form 1099-C.

Example #2

DOJ collects a partial payment of $7,100, leaving an uncollected balance of $2,300 

($8,900 amount referred + $500 interest accrued - $7,100 collected); DOJ retains as 

its fee $213 before returning the balance of $6,887 to the agency. The agency would
Handling the Department of Justice’s 3% Fee

A10-2 

(1) waive the collection fee of $213 and write-off the debt balance of $2,300;

(2) charge the collection fee against either salaries and expenses or the appropriate

program/revolving fund; and (3) refer $2,300 to IRS on Form 1099-C. The agency

would not report any waived amounts to IRS. The agency would handle the

application of this partial collection as it would for any other.

Example #3

The agency decides to add the amount of the 3% fee to the amount referred and

calculates it in the same way as it would for a collection agency.

$8,900 x (1.03) = $9,175

The agency refers a total of $9,175 for collection, including the litigation collection

fee of $275, recording this amount as administrative fee due DOJ. Full collection:

DOJ collects the full referred amount of $9,175 plus the interest that has accrued

since referral of $500; DOJ retains its fee of $290 ($9,675 x .03) before returning

the balance to the agency ($9,385). Because of the collection of the interest which

had accrued since the agency referred the debt, the agency will not collect the full

amount due DOJ; the agency will need to cover the balance of $15 from the

appropriate account. 

Partial collection: A partial collection of $7,100 results in an uncollected balance

of $2,575 ($9,175 referral + $500 interest accrued - $7,100 collections). DOJ retains 

$213 and returns $6,887 to the agency. The agency would (1) adjust or 'back out' of 

its records $62 since that is the difference between the amount recorded as the

litigation collection fee on the full amount ($275) and the amount actually paid as the

collection fee ($213); (2) write-off the adjusted debt balance of $2,513 (42,575 - 

$62); and (3) refer $2,513 to IRS on Form 1099-C. The agency would handle the

application of this partial collection as it would for any other. 

Returned account/no collection: If DOJ decides not to pursue litigation on an

account referred by an agency and returns the case or does not collect any monies on 

a litigated case, then the agency needs to adjust its records to the original account

balance of $8,900 (i.e., 'back out' the collection fee of $275). The agency would 

write-off and report $8,900 to IRS on Form 1099-C.

For further information, please contact the Debt Accounting Operations 

Group.
Glossary

G-1

ACCELERATION is declaring the full amount of a debt due and payable in

the event that a debtor defaults on the terms of an

installment payment agreement. Acceleration is permitted

in accordance with an acceleration clause included in the

agreement. 

ACCOUNT SERVICING includes monitoring the status of accounts of indebtedness, 

monitoring records of current debts, billing for amounts

due, collecting amounts due, handling debtor

correspondence, performing follow-up functions, and

providing accurate reporting of debt portfolios. 

ACCRUE is the process of increasing account value, usually

associated with interest or other time-dependent increments

of account value. 

ACTIVE COLLECTION means that the debt is being collected through the use of all 

appropriate debt collection remedies, including but not

limited to, demand letters, credit bureau reporting, offset,

garnishment, foreclosure, litigation, and referral to the

Department of the Treasury (Treasury) for collection

(known as cross-servicing). 

ADMINISTRATIVE COSTS/

LATE CHARGES are additional costs incurred in processing and handling a 

debt because it has become delinquent. Costs should be

based on actual costs incurred or cost analyses which

estimate the average of actual additional costs incurred for 

particular types of debt at similar stages of delinquency.

Administrative costs should be accrued and assessed from

the date of delinquency (see “Delinquent”). 

ADMINISTRATIVE OFFSET is to withhold money payable by the Government to or held 

 by the Government for a person or entity in order to satisfy a 

debt that the person or entity owes. 

ADMINISTRATIVE WAGE

GARNISHMENT (AWG) is a process whereby a Federal agency issues a wage 

garnishment order to a delinquent debtor’s non-Federal

employer. No court order is required. The employer

withholds amounts from the employee’s wages in
Glossary

G-2

compliance with the order and pays those amounts to the

Federal creditor agency to which the employee owes a

debt. 

APPRAISAL is a formal valuation of property, made by a competent

authority. 

ASSET is any item of economic value either physical in nature

(such as land) or a right to ownership, expressed in cost or 

some other value, which an individual or entity owns.

AUTOMATIC STAY IN

BANKRUPTCY is the statutory court order that prohibits a creditor from

pursuing further collection action against a debtor while the

debtor’s bankruptcy is pending. 

BANKRUPTCY is a legal procedure for dealing with debt problems of 

individuals and businesses; specifically, a court case filed

under one of the chapters of title 11 of the United States

Code (Bankruptcy Code). 

BARRING DELINQUENT

DEBTORS is a statutory requirement under the Debt Collection

Improvement Act of 1996 that prohibits persons delinquent

on a Federal non-tax debt from receiving Federal financial

assistance in the form of a Federal loan, or a federally

guaranteed or insured loan. 

CENTRALIZED OFFSET or Treasury Offset Program (TOP) is a process that allows 

agencies to submit delinquent debts to one centralized

location, Financial Management Service, for collection

through the offset of all eligible Federal payments. 
Glossary

G-3

CLAIM is interchangeable and synonymous with the term “debt,”

for purposes of this document (see “Debt”).

Alternative meanings of the word “claim” include a request

(1) submitted by a lender for Government payment of a

defaulted guaranteed loan; (2) filed with the Department of 

Justice for the pursuit of litigation and/or enforced

collection of an account; or (3) filed with an agency for the

payment of an amount considered due to the submitting

individual or organization, such as for medical insurance.

CLAIMS COLLECTION

LITIGATION REPORT (CCLR) is a Department of Justice form for use in referring debts to

the Department of Justice for litigation and enforced

collection. The CCLR is also used for the referral of debts

to the Department of Justice for its concurrence on a

proposed compromise, suspension or termination of 

collection action.

CLOSE-OUT is one of two classifications of write-off. An agency closes

out a debt when it determines that further debt collection

actions are prohibited (for example, a debtor is released

from liability in bankruptcy) or the agency does not plan to

take any future actions (either active or passive) to try to

collect the debt. At close out, an agency may be required

to report to the IRS the amount of the debt as potential

income to the debtor on IRS Form 1099.

COLLATERAL is any property pledged as security for a loan.

COLLECTION is the process of receiving amounts owed to the

Government, such as payment on a debt.

COMMERCIAL is an adjective used to signify a business activity,

regardless of whether that activity has been undertaken by 

an individual or business. For example, a loan to a farmer

to purchase additional land for farming would be

considered a commercial loan.
Glossary

G-4

COMPROMISE is to accept less than the full amount of the debt owed from

the debtor in satisfaction of the debt. Also referred to as 

“settlement.”

CONSUMER is an adjective used to signify a personal activity. For 

example, a loan to a farmer to buy a personal residence

would be considered a consumer loan. 

CREDIT is a promise of future payment in kind or in money given in

exchange of present money, goods, or services. 

CREDIT BUREAU

(aka CREDIT REPORTING

AGENCY) is a private sector entity which collects financial

information on debtors and whose reports on debtors reflect

information received from the public and private sectors. 

CREDIT EXTENSION involves the review and approval of requests for short and 

long-term credit. 

CREDIT MANAGEMENT/

DEBT COLLECTION CYCLE is the complete credit process which is composed of four 

phases; credit extension, account servicing, delinquent debt

collection, and termination/write-off/close-out/discharge of 

indebtedness. 

CREDIT REPORT is a document issued by a credit bureau containing data 

about the credit history of a person. 

CREDIT REPORTING

AGENCY See “credit bureau.”

CREDITOR AGENCY refers to a Federal agency that is owed money by a person.

CROSS-SERVICING is the process whereby agencies refer delinquent Federal 

nontax debts to Fiscal Service for collection. Fiscal 

Service applies a variety of collection tools once agencies 

refer their debts. 
Glossary

G-5

CURRENTLY NOT

COLLECTIBLE is one of two classifications of write-off. At the time of 

write-off, an agency should classify the debt as Currently

not collectible (CNC) when it intends to continue cost

effective debt collection action. 

DEBT is interchangeable and synonymous with the term “claim,”

for purposes of this document. It refers to an amount of 

money or property which has been determined by an

appropriate Federal official to be owed to the U.S. from

any person, organization, or entity other than another

Federal agency. 

Included as debts are amounts due the U.S. from loans,

fees, duties, leases, rents, royalties, services, sales for real

or personal property, overpayments, fines, penalties,

damages, taxes, interest, forfeitures, and other sources. 

DEBT COLLECTION describes the efforts to recover amounts due after the 

debtor fails to make the payment. This activity includes the

assessment of the debtor’s ability to pay, the exploration of 

possible alternative arrangements to increase the debtor’s

ability to repay and other efforts to secure payment. 

DEBT 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. 

DEFICIENCY represents that portion of a loan which remains outstanding

after collateral property has been liquidated (converted to

cash) and applied to the outstanding balance. 
Glossary

G-6

DELINQUENT A debt becomes delinquent when (1) payment is not made

by the due date or the end of the "grace period" as 

established in a loan or repayment agreement, in the case of 

debt being paid in installments (the date of delinquency is

the payment due date); or (2) 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 for

administrative debts is the date the agency mailed or 

delivered the billing notice.

DEMAND LETTER is a written notification sent by the agency to the debtor to

notify the debtor of the debt’s delinquent status when the

debt is not resolved after the initial contact with the debtor.

The demand letter may include notice of various debt

collection tools that could be used to collect the debt, as 

well as opportunities to avoid the debt collection actions. 

DISCHARGE is to satisfy a debt as a legal obligation through the

performance of the obligation(s) imposed under the debt

instrument, such as to pay the debt in full, or through

another action such as a compromise. 

DISCHARGE IN

BANKRUPTCY is a release of a debtor from liability for certain debts. A 

discharge in bankruptcy prevents the creditors owed those

debts from taking any action against the debtor or the

debtor’s property to collect the debt. 

DISCHARGE OF

INDEBTEDNESS is an amount of a debt which will not or cannot be collected 

from a debtor and is defined as income to the debtor that

may be taxable under the Internal Revenue Code. There

are eight identifiable events under IRS regulations that

trigger reporting discharge of indebtedness to IRS on 

Form 1099-C.
Glossary

G-7

DISPOSABLE PAY is an amount of a person’s wages based on subtracting from 

gross pay certain statutory or regulatory deductions from

gross pay (such as income taxes). Disposable pay is used to 

determine the amount which can be offset from a Federal

Salary, and is used to determine the amount which may be

collected from a debtor’s non-Federal pay through

administrative wage garnishment. 

DUE PROCESS in the context of Federal debt collection, the constitutional

right of “due process” requires an agency to provide

debtors with notice of, and the opportunity to dispute, a

debt or intended debt collection action. 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. . . .”

FEDERAL CLAIMS

COLLECTION STANDARDS are the Governmentwide debt collection standards 

published jointly by Treasury and the Department of 

Justice in Title 31 of the Code of Federal Regulations

(CFR), Parts 900 through 904 (31 CFR Parts 900 – 904). 

FINANCIAL ADVISOR assists and represents the interests of an agency during a 

portfolio sale. 

FORECLOSURE is a legal proceeding to terminate a mortgagor's interest in

property, instituted by the lender (the mortgagee) either to

gain title or to force a sale in order to satisfy the unpaid

debt secured by the property. 

IRS FORM 1099-C/

CANCELLATION OF DEBT is the form a creditor uses to report to the Internal Revenue 

Service a discharge of indebtedness.

INSURANCE is a type of guarantee in which any agency pledges the use 

of accumulated insurance premiums to secure lenders

against default on the part of borrowers. “Loan insurance”

is considered the equivalent of a “loan guarantee.”
Glossary

G-8

INSTALLMENT LOAN/

AGREEMENT represents an obligation to repay monies borrowed or owed 

in more than one payment at fixed intervals over time.

INTEREST is a sum paid or calculated for the use of capital. Financing

interest is the charge assessed as a cost of extending credit

as distinguished from additional interest which is the charge 

assessed on delinquent debts in order to compensate the 

Government for the time value of money owed and not paid 

when due. Additional interest is accrued and assessed from 

the date of delinquency. 

JOINT AND SEVERAL

LIABILITY is liability shared by two or more parties, where each party

is individually responsible for the entire obligation or debt. 

LATE CHARGES are the amounts accrued and assessed on a delinquent debt; 

the term includes administrative costs, penalties, and

additional interest. 

LEGALLY ENFORCEABLE is a condition precedent for a debt being eligible for referral 

to Fiscal Service for collection action. A debt is considered 

legally enforceable for purposes of referral for crossservicing if there has been a final agency determination 

that the debt is due and there are no legal bars to one or 

more of the collection actions to be taken by Fiscal 

Service. 

A debt is considered legally enforceable for TOP purposes 

if there has been a final agency determination that the debt

is due and there are no legal bars to collection through the

offset of Federal payments. 

LETTER OF AGREEMENT is a document that details the terms of the cross-servicing 

arrangement between Fiscal Service and the agency 

referring debts to Fiscal Service. 
Glossary

G-9

LIABILITY represents an amount owed (i.e., payable) by an individual

or entity, such as for items received, services rendered,

expenses incurred, assets acquired, construction performed, 

and amounts received but not yet earned. 

LITIGATION means any lawsuit or other resort to the courts to determine

a legal question or matter. Litigation may be used, where

appropriate, to enforce collection on a debt.

LIQUIDATION is the process of converting collateral to cash in order to

pay all or a portion of the debt. 

LOAN is an extension of credit in exchange for a promise to repay

the amount of funds available for disbursement after they

have been disbursed. The amount of funds disbursed is to

be repaid (with or without interest and late fees) in

accordance with the terms of a promissory note and/or

repayment schedule. 

Direct Loan is an obligation created when: the Government agrees to

disburse funds and contracts with the debtor for repayment,

with or without interest; the Government acquires a

guaranteed loan in satisfaction of a default or other claim; a

Federal agency purchases non-Federal loans through

secondary market operations; or an agency sells assets on 

credit terms of 90 days or more.

Guaranteed loan is a contingent liability created when the Government 

assures a private lender who has made a commitment to

disburse funds to a borrower that the lender will be repaid

to the extent of the guarantee in the event of default by the

debtor. 

LOAN-TO-VALUE RATIO represents the proportion of the amount of a loan to the 

value being pledged to secure that loan. It is derived as 

follows: total financing costs (i.e., the market value of the

collateral plus the financed portion of any closing costs, 

insurance premiums, or other transaction-related expenses

less the borrower’s cash down payment) divided by the

market value of the collateral. 
Glossary

G-10

LUMP SUM PAYMENT is a single nonrecurring payment on a debt. This term is

used most often when a payment is made to pay a debt in

full. 

NON-CENTRALIZED OFFSET is ad hoc offset on a case-by-case basis. An agency should 

use centralized offset (Treasury Offset Program) to

effectuate offset except in certain limited circumstances as 

explained in Chapter 6. 

OFFSET See “Administrative Offset” above. 

PASSIVE COLLECTION means that the debt is no longer being actively collected; 

that is, the debt remains secured by a judgment lien or other

lien interest, has not been removed from the Treasury

Offset Program (TOP) or is otherwise being collected by 

offset; and/or is scheduled for future sale. 

PENALTY is a charge assessed on delinquent debts to discourage

delinquencies and encourage early payment of the

delinquent debt in full. The rate to be assessed is set by 

law at no more than 6% per year and is assessed on the

portion of a debt remaining delinquent more than 90 days, 

although the charge will accrue and be assessed from the

date of delinquency. 

PERSONAL PROPERTY consists of tangible, movable assets, such as automobiles, 

planes, and boats. 

PRE-AUTHORIZED DEBIT is a form of payment which allows the agency to debit the 

bank account of a borrower/debtor as a result of a prior

agreement between the borrower/debtor and the agency on 

a pre-determined schedule consistent with applicable laws. 

PREPAYMENT is a partial or full repurchase or other advance deposits of 

outstanding loan principal and interest by the

borrower/debtor. The repurchase often may be made at a

discount from the current outstanding principal balance. 

PRINCIPAL is the amount owed to the Government by a borrower or 

other debtor which excludes interest, penalties,

administrative costs, loan fees, and prepaid charges. 
Glossary

G-11

PRIVATE COLLECTION

AGENCY is a private sector entity whose primary business is the

collection of delinquent debts. 

PROOF OF CLAIM FORM is an official form submitted in a bankruptcy proceeding 

describing the reason a debtor owes a creditor money. 

REAL PROPERTY consists of tangible, non-movable assets, such as land and 

buildings. 

RECEIVABLE is an amount owed the Government by an individual,

organization, or other entity to satisfy a debt or claim. 

Examples of receivables generated by Government

activities include amounts due for taxes, loans, the sale of 

goods and services, fines, penalties, forfeitures, interest,

and overpayments of salaries and benefits. 

RECOUPMENT is a special type of offset of a payment made under a

contract to collect a claim arising under the same contract. 

RECURRING PAYMENTS for the purposes of centralized offset, recurring payments 

are those payments made to individuals that are expected to

be paid to the payee at regular intervals, at least four times 

annually. Recurring payments do not include payments

made pursuant to a contract, grant agreement or 

cooperative agreement. 

REPAYMENT AGREEMENT establishes the terms and conditions governing the recovery 

of a debt. Repayment agreements should be written or 

reduced to writing as soon as possible after such an

agreement is reached. 

RESCHEDULING is a change in the existing terms of a loan, specifically 

those that reflect repayment of the debt. 
Glossary

G-12

ROUTINE USE is a use identified in an agency’s Privacy Act system of 

records notice that describes to whom information

pertaining to individuals may be disclosed and for what

purpose. One or more routine uses may be necessary to

authorize the disclosure of information about an individual

debtor for delinquent debt collection purposes. 

SALARY OFFSET is the process of collecting a delinquent Federal nontax 

debt from a Federal employee’s current pay without his or 

her consent. Salary offset should be accomplished through

centralized offset, unless centralized offset is unavailable. 

SECURED DEBT is a debt for which collateral has been pledged. 

SERVICER is an entity under contract to a lender or agency to perform

account servicing functions. 

SUSPENSION OF

COLLECTION ACTION is to place active collection action temporarily in abeyance 

due to the existence of a particular set of circumstances.

Suspension of collection action is most appropriate in those

cases where an agency has reason to believe that the

suspension will enhance the chances of recovery, or, at

minimum, will not endanger the recovery of the debt. 

SYSTEM OF RECORDS is a term under the Privacy Act of 1974 that describes a 

group of records under the control of an agency from which

information about individuals is retrieved by the

individual’s name or other personal identifier. When an

agency has a “system of records,” certain requirements and

restrictions delineated in the Privacy Act of 1974 apply to

the collection, maintenance, use and dissemination of the

records and information. 

TAXPAYER IDENTIFYING

NUMBER (TIN) is the Social Security Number (SSN) for individuals or the

Employee Identification Number (EIN) for business 

organizations or non-profit entities. 
Glossary

G-13

TERMINATE COLLECTION

ACTION is a decision to cease active collection action on a debt, in

accordance with criteria set out in the Federal Claims 

Collection Standards, because such collection action is not

economically worthwhile or is otherwise inappropriate. The 

program decision to terminate collection action and the

accounting decision to write-off a debt often coincide,

however, the determinations to terminate collection action

and to write-off a debt are made for different reasons, and

where appropriate and consistent with the agency's debt

collection strategy for a particular class of debts, may be

made at different times. 

TREASURY REPORT ON 

RECEIVABLES DUE FROM

THE PUBLIC (TROR) is the Department of the Treasury’s only comprehensive 

means for periodically collecting data on the status and

condition of the Federal Government’s non-tax debt

portfolio, in accordance with the requirements of the Debt

Collection Act of 1982 and the Debt Collection

Improvement Act of 1996 (DCIA). The information

contained in the report is obtained from the various federal

agencies and is disseminated to Congress, the Office of 

Management and Budget, agency Chief Financial Officers,

the Federal Credit Policy Working Group, other officials

and representatives of Federal and state organizations,

private sector organizations, and the public. 

WORKOUT GROUP is a group established within an agency, whose sole 

purpose is to resolve or attempt to resolve troubled debts. 

WRITE-DOWN is an action taken rather than write-off where an agency

reduces the value of a debt for accounting purposes to its

collateral’s net realizable value. The agency may not writedown non-collateralized debts. 

WRITE-OFF is an accounting action that results in reporting the

debt/receivable as having no value on the agency’s

financial and management reports. The agency does not

need DOJ approval to write-off a debt since the agency is

only adjusting its accounting records.