May 2023 Part III:1 Bureau of the Fiscal Service

PART III: THE FEDERAL NONTAX DEBT COLLECTION PROCESS

(May 2023) 

TABLE OF CONTENTS

A. CONTACT WITH AND OBTAINING INFORMATION ABOUT THE DEBTOR ......... 8

I. Introduction .......................................................................................................................... 8

II. Demand Letters.................................................................................................................... 9

A. Creditor Agency Must Send Demand Letters ....................................................................... 9

B. Contents of Demand Letters................................................................................................... 9

Explanation of Debt..................................................................................................... 9

Due Date.....................................................................................................................10

Debtor’s Rights..........................................................................................................10

Consequences of Non-Payment................................................................................10

Other Information ......................................................................................................10

C. Handling Responses to Demand Letters..............................................................................10

III. Phone Contact.....................................................................................................................10

IV. Obtaining Debtor Information...........................................................................................11

B. PAYMENT AND RESOLUTION OF DEBT..........................................................................12

I. Methods of Payment ..........................................................................................................12

A. Generally................................................................................................................................12

B. Electronic Funds Transfer.....................................................................................................12

C. Cash, Paper Check, and Credit Card ....................................................................................12

D. Non-Monetary Forms of Payment........................................................................................13

II. Collection in Installments..................................................................................................13

A. Partial Payments....................................................................................................................13

Application of Partial Payments...............................................................................13

a) Interest, Penalties, and Administrative Costs...........................................................13

b) Multiple Debts ...........................................................................................................13

Effect on Statute of Limitations................................................................................14

B. Installment Payment Agreements.........................................................................................14

When Agencies Must Enter Into Installment Payment Agreements......................15

When Agencies May Enter Into Installment Payment Agreements.......................15

Basis for Installment Payment Agreements: Inability to Pay ................................. 15

Installment Payment Agreement Terms...................................................................16

Unauthorized Installment Payment Agreements.....................................................17

C. Acceptance of Partial Payments Without an Agreement....................................................17

III. Compromise .......................................................................................................................18

A. Definition ...............................................................................................................................18

B. When Agencies Must Enter into Compromise Agreements...............................................18

C. When Agencies May Enter into Compromise Agreements................................................18

General Authority ......................................................................................................18

Limitations on Authority...........................................................................................19
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a) Misconduct, Penalties, and Agency-Specific Statutes and Regulations................19

b) Accountable Officials................................................................................................19

c) Claims Based on Fraud, Misrepresentation, Violations of Antitrust Laws............20

d) Limitation on Amount...............................................................................................20

e) Unauthorized Compromise Agreements..................................................................20

i. Ultra Vires; Agency Error; Restrictive Endorsements........................................20

ii. Induced by Fraud...................................................................................................22

iii. Consequences of Unauthorized Compromise Agreements................................. 22

D. General Considerations.........................................................................................................23

Payment Agreement Terms.......................................................................................23

Joint and Several Liability ........................................................................................23

Finality........................................................................................................................23

Compromises Payable in Installments Generally Disfavored ................................23

Reporting Discharged Indebtedness to the IRS as Gross Income ..........................24

E. Bases for Compromise ..........................................................................................................24

Debtor’s Inability to Pay ...........................................................................................24

a) Factors to Consider....................................................................................................24

b) Calculation of Appropriate Compromise Amount ..................................................25

c) Documentary Substantiation.....................................................................................25

Agency’s Inability to Collect ....................................................................................25

a) Factors to Consider....................................................................................................25

b) Calculation of Appropriate Compromise Amount ..................................................26

c) Documentary Substantiation.....................................................................................26

Costs of Collection ....................................................................................................26

a) Factors to Consider....................................................................................................26

b) Calculation of Appropriate Compromise Amount ..................................................27

c) Documentary Substantiation.....................................................................................27

Doubtful Litigation Prospects...................................................................................27

a) Factors to Consider....................................................................................................27

b) Calculation of Appropriate Compromise Amount ..................................................27

c) Documentary Substantiation.....................................................................................27

C. CENTRALIZED COLLECTION.............................................................................................28

I. INTRODUCTION .............................................................................................................28

II. FISCAL SERVICE’S CROSS-SERVICING PROGRAM.............................................29

A. What is Cross-Servicing?......................................................................................................29

B. Requirement to Refer Debts; Consequences of Non-Referral ............................................29

C. Referral Prerequisites and Other Agency Responsibilities.................................................30

Certification Requirements.......................................................................................30

Recall Ineligible Debts..............................................................................................30

Provide Sufficient Information .................................................................................31

D. Exemptions to the Referral Requirement.............................................................................31

Statutory Exceptions..................................................................................................31

a) Less than 120 or 180 Days Delinquent ....................................................................31

b) In Litigation................................................................................................................31

i. Litigation Initiated by the Agency........................................................................32

ii. Debts Subject to the Bankruptcy Automatic Stay ...............................................32
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May 2023 Part III:3 Bureau of the Fiscal Service

iii. Litigation Initiated by the Debtor.........................................................................33

c) In Foreclosure ............................................................................................................33

d) Scheduled for Sale .....................................................................................................33

e) At a Private Collection Contractor ...........................................................................33

f) At a Debt Collection Center......................................................................................34

g) Collectible Through Internal Offset .........................................................................34

h) Agency has Suspended or Terminated Debt Collection..........................................34

Treasury-Granted Exemptions; Eligibility Requirements.......................................34

a) Generally ....................................................................................................................34

b) Serviced by Third Parties..........................................................................................35

c) Debts Less than $25...................................................................................................35

d) Being Collected Through Administrative Wage Garnishment...............................35

e) Out of Business..........................................................................................................35

f) Deceased.....................................................................................................................36

g) Owed by a Foreign Sovereign...................................................................................36

h) Agency-Specific Exemptions....................................................................................36

E. Fees.........................................................................................................................................36

III. REFFERAL TO THE CENTRALIZED RECEIVABLES SERVICE...........................37

A. What is the Centralized Receivables Service? ....................................................................37

B. Discretionary Referral...........................................................................................................37

C. Referral Prerequisites and Other Agency Responsibilities.................................................37

Certification Requirements.......................................................................................37

Cancellation of Ineligible Debts...............................................................................37

Provide Sufficient Information .................................................................................37

D. Fees ........................................................................................................................................38

IV. REFERRAL TO THE DEPARTMENT OF JUSTICE ...................................................38

A. Enforced Collection ..............................................................................................................38

B. Eligible Debts ........................................................................................................................38

C. Required Referral ..................................................................................................................38

D. Discretionary Referral...........................................................................................................39

D. OFFSET ........................................................................................................................................40

I. Introduction ........................................................................................................................40

II. “Offset” Defined ................................................................................................................40

A. “Offset” and “Setoff” ............................................................................................................40

B. Offset Distinguished from Garnishment, Attachment, and Levy.......................................40

C. Offset Distinguished from Withholding ..............................................................................41

D. Offset Distinguished from Recoupment ..............................................................................41

III. Types of Offset...................................................................................................................41

IV. Federal Payments...............................................................................................................42

A. All Federal Payments Generally Subject to Offset .............................................................42

B. Special Rules for Certain Federal Nontax Payments..........................................................44

Secretary-Exempted Payments: Means Tested........................................................44

Secretary-Exempted Payments: Non-Means Tested ...............................................44

Loan Payments...........................................................................................................44

Tariff Payments..........................................................................................................45

Federal Salary Payments...........................................................................................45
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a) Salary Payments Defined ..........................................................................................45

b) Disposable Income Defined......................................................................................46

Benefit payments.......................................................................................................47

Civil Service Retirement Payments..........................................................................48

Settlements and Judgments.......................................................................................48

C. Special Rules for Federal Tax Payments.............................................................................49

Joint Taxpayers..........................................................................................................49

Disclosure Limitations ..............................................................................................50

D. Special Rules for State Payments.........................................................................................50

V. Federal Nontax Debts........................................................................................................50

A. All Federal Nontax Debts Are Subject to Offset.................................................................50

B. Eligible Debts ........................................................................................................................50

Debt Defined..............................................................................................................50

Agency Determination...............................................................................................51

Due Process................................................................................................................51

C. Excluded Debts/Debtors .......................................................................................................51

Federal Agencies........................................................................................................51

Foreign Sovereigns....................................................................................................51

Tax and Tariff Debts..................................................................................................52

Debts arising under certain portions of the Social Security Act.............................52

Hardship .....................................................................................................................52

D. No Statute of Limitations......................................................................................................53

VI. Centralized (Disbursing Official) Offset ..........................................................................54

A. Administrative Offset............................................................................................................54

Creditor Agency Must Use Centralized Administrative Offset..............................54

Creditor Agency Must Satisfy Prerequisites to Centralized Administrative Offset

54

a) Attempt to Collect......................................................................................................54

b) Notice .........................................................................................................................55

c) Opportunity to Review Records...............................................................................56

d) Opportunity for Agency Review...............................................................................56

e) Opportunity to Enter into Repayment Agreement...................................................56

f) Additional Due Process Required for Salary Offset................................................57

i. Notice .....................................................................................................................57

ii. Opportunity to Dispute..........................................................................................57

iii. Exceptions..............................................................................................................58

B. Tax Refund Offset .................................................................................................................58

Creditor Agency Must Use Tax Refund Offset .......................................................58

Creditor Agency Must Satisfy Prerequisites to Tax Refund Offset .......................59

a) Attempt to Collect......................................................................................................59

b) Notice .........................................................................................................................59

c) Opportunity for Agency Review...............................................................................59

Limited Judicial Review............................................................................................60

C. Offset Process........................................................................................................................60

Payment Has Been Made ..........................................................................................60

Person Entitled to Payment.......................................................................................61
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May 2023 Part III:5 Bureau of the Fiscal Service

a) Generally ....................................................................................................................61

b) Joint Payments...........................................................................................................61

c) Assigned Payments....................................................................................................61

d) Payments Made to Representative Payees...............................................................62

Role of Fiscal Service and the Treasury Offset Program (TOP)............................62

Role of the Creditor Agency .....................................................................................63

a) Submit Delinquent Debts to Fiscal Service .............................................................63

b) Creditor Agency Regulations....................................................................................64

c) Certifying Debt ..........................................................................................................64

d) Responsibility for Collection ....................................................................................64

Role of the Payment Agencies and Disbursing Agencies.......................................65

a) Payment Agencies.....................................................................................................65

i. Certifying Payments..............................................................................................65

ii. Determination of Whether Payment is Eligible for Offset ................................. 65

iii. Restriction on Making Payments via Credit Card...............................................65

iv. No Liability for Erroneous Offsets.......................................................................66

b) Disbursing Officials...................................................................................................66

i. Conducting Offsets................................................................................................66

ii. Warning Notice to Debtor.....................................................................................67

iii. Post-Offset Notice to Debtor ................................................................................67

iv. Offset and Warning Notice Distinguished from Due Process Notice................68

v. Disbursing Official: Notice to Payment and Creditor Agencies........................68

Fees.............................................................................................................................68

Order of Priority.........................................................................................................69

Computer Matching and Privacy Protection Act of 1988.......................................70

Salary Offset Match Consortium..............................................................................70

VII. Non-Centralized Offset......................................................................................................70

A. Generally................................................................................................................................70

B. Statutory Authority to Conduct Non-Centralized Offsets ..................................................71

C. Common Law ........................................................................................................................72

Historical Right of Common Law Offset................................................................. 72

Elements of Offset .....................................................................................................72

Due Process Requirements........................................................................................74

a) Constitutionally Sufficient Notice ............................................................................74

i. Contents of Notice................................................................................................. 74

ii. Method of Notification..........................................................................................75

iii. Timing of Notice ...................................................................................................76

iv. Right to Review Records......................................................................................76

b) Constitutionally Sufficient Opportunity to be Heard ..............................................76

i. Agency Review of its Records.............................................................................76

ii. Timely Reviews.....................................................................................................77

iii. Inform Debtor of the Results................................................................................77

iv. Debtor Must Exercise Right to Review ...............................................................78

Common Law Exists Independently of Statutory Authority ..................................78

E. ADMINISTRATIVE WAGE GARNISHMENT....................................................................80

I. Generally.............................................................................................................................80
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II. Effect of State Law ............................................................................................................80

III. Agency-Specific Regulations............................................................................................81

IV. Due Process Requirements................................................................................................81

A. Notice .....................................................................................................................................82

B. Opportunity to Dispute or Repay Debt ................................................................................82

Review records...........................................................................................................82

Opportunity to Repay Debt.......................................................................................82

Disputes......................................................................................................................82

a) Timing of Request for Hearing.................................................................................82

b) Hearing Officers ........................................................................................................83

c) Bases for Dispute and Burden of Proof....................................................................83

i. Existence or Amount.............................................................................................83

ii. Financial Hardship ................................................................................................84

iii. Continuous Employment Standard.......................................................................84

iv. Current on a Repayment Agreement....................................................................84

d) Minimal Requirements for Hearing..........................................................................85

i. Paper v. Oral Hearings..........................................................................................85

ii. Administrative Record and Evidence...................................................................85

iii. Hearing Decisions................................................................................................. 85

e) Timing of Hearing Decision .....................................................................................86

V. Other Procedural Matters...................................................................................................86

A. Employer Documents............................................................................................................86

Withholding Order.....................................................................................................86

Employer Certification ..............................................................................................87

Employer Worksheet................................................................................................. 87

Suspension and Termination Orders.........................................................................87

B. Paperwork Reduction Act of 1995 .......................................................................................88

C. Use All Available Collection Tools .....................................................................................88

VI. What Can be Garnished.....................................................................................................88

A. Non-Federal Wages...............................................................................................................88

B. Disposable Pay.......................................................................................................................88

C. Amount of Garnishment........................................................................................................89

VII. Priority of Garnishments....................................................................................................89

VIII. Use of Private Collection Contractors..............................................................................89

IX. Employer Issues.................................................................................................................90

A. Compliance Required............................................................................................................90

B. Timing of Compliance ..........................................................................................................91

C. Retaliation Prohibited............................................................................................................91

F. USE OF PRIVATE COLLECTION CONTRACTORS .......................................................92

I. Agency Authority to Use Private Collection Contractors...............................................92

II. Limitations on What Authority May Be Delegated to Private Collection Contractors . 92

III. Compensation of Contractors............................................................................................93

IV. Centralized Referral to PCCs............................................................................................93

G. CREDIT BUREAU REPORTING ...........................................................................................94

I. Introduction ........................................................................................................................94

II. Requirements to Report Debts..........................................................................................94
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A. Delinquent Debts Owed by Individuals...............................................................................94

B. Current Debts Owed by Individuals.....................................................................................95

C. Delinquent and Current Debts Owed by Entities................................................................95

III. Exceptions to Required Reporting ....................................................................................95

A. Termination of Debt Collection ...........................................................................................95

B. Bankruptcy.............................................................................................................................95

IV. Prerequisites for Referring Debts to Credit Bureaus.......................................................96

A. Privacy Protections................................................................................................................96

B. Due Process Protections........................................................................................................97

C. Agencies Must Develop Standards.......................................................................................97

V. Application of Fair Credit Reporting Act.........................................................................98

H. BARRING DELINQUENT DEBTORS...................................................................................99

I. Introduction ........................................................................................................................99

II. Barring Delinquent Debtors Under 31 U.S.C. § 3720B................................................100

A. Overview..............................................................................................................................100

General Rule ............................................................................................................100

Definition of “Person” and Applicability of the Bar to Affiliates........................100

B. Debts Subject to the Bar on Federal Financial Assistance ...............................................100

Delinquent Status and the 90-Day Rule ................................................................. 100

Debts Not In Delinquent Status..............................................................................101

a) Obligation to Pay No Longer Exists.......................................................................101

b) Debt Subject to Bankruptcy Protection..................................................................101

c) Debt Subject to a Pending Appeal..........................................................................102

Exemptions by the Secretary of the Treasury........................................................102

C. Resolution of Delinquent Debts .........................................................................................102

Full Satisfaction .......................................................................................................103

Compromise.............................................................................................................103

Written Repayment Agreement ..............................................................................103

Cure of the Delinquency .........................................................................................103

D. Federal Financial Assistance barred by 31 U.S.C. § 3720B.............................................103

Federal Loans, Loan Insurance, and Loan Guarantees.........................................103

Exceptions................................................................................................................103

E. Due Process..........................................................................................................................104

F. Waiver...................................................................................................................................104

Delegation of Waiver Authority .............................................................................104

Factors to Consider When Reviewing a Waiver Request .....................................104

Recordkeeping Requirement...................................................................................105

III. Suspension or Revocation of Eligibility for Loans, Licenses, Permits, and Privileges

105

IV. Other Delinquency-Related Restrictions........................................................................105

A. Judgment Liens for Federal Debts.................................................................................105

B. Delinquent Child Support obligations............................................................................106

C. Delinquent Tax Debts .....................................................................................................106
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May 2023 Part III:8 Bureau of the Fiscal Service

A. CONTACT WITH AND OBTAINING INFORMATION ABOUT THE DEBTOR

I. Introduction

Contacting a debtor for the purpose of collecting a debt is one of the first steps in the debt

collection process. In addition to providing a debtor with due process notification prior to

affecting the debtor’s property rights, agencies must request that the debtor pay the debt. This

request generally comes in the form of a written billing notice, invoice, or demand letter.

Thereafter, if timely payment is not made, the agency may send additional demand letters or may 

attempt to contact the debtor by phone.

To facilitate their collection efforts, agencies may use internal and third-party resources to obtain 

information about the debtor, including the debtor’s mailing address, phone number,

employment information, or ability to pay.

The debt collection industry is highly regulated and is subject to several federal, state, and local

laws. While many of these laws do not apply to federal agencies,

1

agencies should ensure

compliance with applicable law.

2 Finally, agencies should be aware of the laws with which 

many data providers must comply, including the Gramm–Leach–Bliley Act.3 A sample list of

best practices regarding contacting debtors is available in Appendix 7 of Managing Federal 

Receivables, available at https://fiscal.treasury.gov/files/debt-management/appendix-7.pdf.

1

 The Fair Debt Collection Practices Act (FDCPA), 15 U.S.C. §§ 1692-1692p, for example, does not apply to federal 

agencies. 15 U.S.C. § 1692a(6)(C) (excluding from the definition of “debt collector” federal employees who are 

acting in their official capacities collecting a debt). Note, however, that the FDCPA generally does apply to the 

collection of federal debts when those collection efforts are taken by private collection contractors or guarantee 

agencies. 31 CFR § 901.5(a)(3). And, while federal agencies are not bound by the FDCPA, the FDCPA provides 

useful guidance to agencies on appropriate practices when communicating with debtors. Agencies should consider 

its provisions when determining best practices. On the other hand, an agency may appropriately determine that 

deviating from some of the provisions of the FDCPA is warranted. 

2 See, e.g., Right to Financial Privacy Act, 12 U.S.C. § 3401 et seq. (limiting the circumstances in which federal 

agencies may have access to information contained in the financial records of any customer from a financial 

institution). 

3 Gramm–Leach–Bliley Act, Pub. L. No. 106-102, 113 Stat. 1338 (generally precluding financial institutions from 

disclosing any nonpublic personal information about its customers unless an exception applies). 
Part III: The Debt Collection Process Contact with and Obtaining Information 

May 2023 Part III:9 Bureau of the Fiscal Service

II. Demand Letters

A. Creditor Agency Must Send Demand Letters

Federal agencies must try to collect debts owed to them. 31 U.S.C. § 3711(a)(1); 31 CFR 

§ 901.1(a). Collection attempts typically begin with sending the debtor a billing notice, invoice,

or written demand letter. Agencies are required to make written demand for payment promptly 

after discovering that a debt is owed. 31 CFR § 901.2(a). Demand letters must be either mailed 

or hand-delivered to the debtor. Id. § 901.2(b)(3). Most agencies deliver these letters via firstclass mail; in appropriate circumstances, however, agencies may use alternative delivery 

methods, including electronic delivery4 or certified mail. Agencies should consult their own 

counsel to determine circumstances in which such alternatives would be appropriate. Agencies 

should mail or hand-deliver demand letters on the same day that they are dated. Id. § 901.2(c). 

The purpose of a demand letter is to permit the debtor to voluntarily pay or resolve the debt, and 

to avoid the expense of further debt collection action. This differs somewhat from the purpose of 

due process notification, which is to provide the debtor with notification of the debt and an 

opportunity to dispute the debt or the agency’s proposed collection actions. While demand 

letters and due process notices serve somewhat different purposes, an agency may include due 

process notification in its written demand letter. While a single demand letter generally suffices, 

an agency may send additional demand letters if it believes additional demand letters will result 

in payment or resolution of the debt. Id. § 901.2(a). Agencies should use “procedures that will 

lead to the earliest practicable determination of whether the debt can be resolved administratively 

or must be referred for litigation.” Id. § 901.2(c). 

While making written demand for payment should generally be the first step in the collection 

process, agencies may first take other appropriate actions when necessary to protect the 

Government’s interest. Id. § 901.2(a). Immediate referral for litigation, for example, would be 

appropriate if the statute of limitations was about to expire or if the agency believed that the 

debtor may attempt to dissipate its assets. Id. § 901.2(a); see also id. § 904.1. 

B. Contents of Demand Letters

Explanation of Debt

The demand letter must inform the debtor of the amount owed, the basis of the indebtedness, 

and the standards for imposing any interest, penalties, or administrative costs. Id. § 901.2(b).

4

 If using email or text messaging to communicate with a debtor, the agency should consider, among other things, 

privacy concerns (e.g., whether the email might be shared with the debtor’s spouse or accessible by the debtor’s 

employer), security concerns (e.g., whether the email communication is secure), and due process concerns (e.g., is 

email a reasonable way to notify the debtor of their rights). 
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May 2023 Part III:10 Bureau of the Fiscal Service

Due Date

Generally, a debt is due on the date of the demand letter. The letter must inform the debtor

of the date by which payment must be made to avoid late charges and enforced collection.

Id. § 901.2(b)(3). Generally, this date should not be more than 30 days from the date that the

demand letter was mailed or hand-delivered to the debtor. Id.

Debtor’s Rights

The letter must inform the debtor of the rights the debtor may have to seek review within the

agency. Id. § 901.2(b)(1). Agencies should also provide the debtor with information 

regarding its willingness to discuss alternative methods of payment, such as allowing the

debtor to pay the debt over time if the debtor would suffer undue hardship from immediately

paying the entire amount of the debt. Id. § 901.2(d). Demand letters should inform the

debtor of the debtor’s entitlement to consideration of a waiver if the agency has authority to 

waive the debt. Id. 

Consequences of Non-Payment

The letter must inform the debtor of the consequences of failing to cooperate with the agency 

to resolve the debt. Id. § 901.2(a), (d). It must also include information regarding any 

charges that may be added to the debt, including interest, penalties, and administrative costs.

Id. § 901.2(b)(2), (d). Agencies should explain their policies related to using third party 

entities when collecting the debt, including credit bureaus, debt collection centers, and

private collection contractors. Id. § 901.2(d).

Other Information

Agencies may also include other appropriate information in the demand letter. A checklist 

of items that may be included is available in Appendix 8 of Managing Federal Receivables, 

available at https://fiscal.treasury.gov/files/debt-management/appendix-8.pdf. 

C. Handling Responses to Demand Letters

The purpose of the demand letter is to obtain payment in full or to generate discussion with the 

debtor for resolution of the debt. As such, agencies should respond promptly (generally within 

30 days) to communications from debtors. 31 CFR § 901.2(e). When a debtor disputes a debt, 

the agency should encourage the debtor to provide supporting evidence. Id.

III. Phone Contact

Agencies may, but are not required to, contact debtors by phone for the purpose of collecting 

debts. As with any other type of contact, agencies should ensure that their calls are professional 

and courteous. Agencies should keep a record of any outgoing (and incoming) calls and, if 

feasible, should record the calls themselves. 
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May 2023 Part III:11 Bureau of the Fiscal Service

When calling a debtor, agency personnel should clearly identify themselves and their purpose for 

calling. Use of “desk names” (i.e., pseudonyms) is acceptable under certain circumstances, but 

agencies should consult with their legal counsel before using desk names.5

 While the Telephone 

Consumer Protection Act does not apply to federal agencies, agencies should also consult their 

legal counsel before using autodialers or pre-recorded calls. See 47 U.S.C. § 227.

IV. Obtaining Debtor Information

Federal agencies have a variety of resources through which to obtain information needed to pursue 

debtors, including contact information and information regarding a debtor’s ability to pay. In 

addition to the information that an agency has in its own files, for example, an agency may obtain 

address information from the Internal Revenue Service (IRS) for debt collection purposes. 26 

U.S.C. § 6103(m)(2); 31 CFR § 901.11. Agencies may also be able to purchase access to 

commercial databases for the purpose of obtaining information about debtors. Agencies may 

contract for debtor asset and income search reports. 31 CFR § 901.5(e). Additionally, agencies 

may pull credit reports on debtors. 31 U.S.C. § 3711(h). Some agencies may also have authority 

to obtain data from the National Database of New Hires. See, e.g., 42 U.S.C. § 653(j)(6), (7), (9).

 

5 Cf. 26 U.S.C. § 7804 note (authorizing employees of the Internal Revenue Service to use pseudonyms if certain 

conditions are satisfied).
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May 2023 Part III:12 Bureau of the Fiscal Service

B. PAYMENT AND RESOLUTION OF DEBT

I. Methods of Payment

A. Generally

Agencies generally have broad latitude to determine what methods of payment they will accept 

in payment of a debt. When determining the methods of payment to accept, an agency should 

consider, among other things, the processing costs for each method of payment and the ability of 

its debtor population to use each method of payment.

B. Electronic Funds Transfer

When cost-effective, practical, and consistent with statutory authority, agencies must collect

funds through electronic methods, rather than cash, paper check, or other paper instruments. 31 

CFR § 206.4(a); see also 31 CFR § 206.2 (defining electronic funds transfer). Electronic 

payment methods include, but are not limited to, Automated Clearing House (ACH) transfers, 

Fedwire® transfers, transfers made at automatic teller machines (ATM) and Point-of-Sale (POS) 

terminals, and credit card transactions. 31 CFR § 206.2.

C. Cash, Paper Check, and Credit Card

When appropriate, agencies may accept payment by cash6 or check.7

 Agencies may require 

certain forms of payment over others. See I 5-2000 (“Federal entities may decide not to accept 

payments made in cash or by check”).

8 Agencies generally may not accept credit card payments 

for delinquent debts or current loan obligations.9

6

 “United States coins and currency . . . are legal tender for all debts . . . .” 31 U.S.C. § 5103. However, nothing 

requires the Government to accept payments in cash. See Picano v. Emerson, 353 Fed. App’x 733, 735 (3d Cir. 

2009); Tenn. Scrap Recyclers Ass’n v. Bredesen, 556 F.3d 442, 458 (6th Cir. 2009). In addition, collecting payments 

through electronic methods helps save agencies money and benefits the public as a whole. See ELECTRONIC 

COMMERCE (ECOMMERCE), available at https://fiscal.treasury.gov/ecommerce-collections; ECOLLECTIONS, available 

at https://www.fiscal.treasury.gov/ecollections. 7 I TFM § 5-2000, available at https://tfm.fiscal.treasury.gov/v1/p5/c200.html (providing agencies with instructions 

on how to deposit domestic checks and cash). 

8 Id. 9 Id. § 5-7100, available at https://tfm.fiscal.treasury.gov/v1/p5/c700.html (describing the prohibition on using credit 

cards for repayment of debt obligations). 
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May 2023 Part III:13 Bureau of the Fiscal Service

D. Non-Monetary Forms of Payment

In certain circumstances, agencies may accept in-kind payment in satisfaction of a debt.10 

However, given the additional costs of valuing and selling property received in exchange for 

satisfaction of a debt, agencies should consider whether more efficient methods of payment are 

available or appropriate.

11 Agencies should also ensure that accepting property or services in 

satisfaction of a debt does not run afoul federal procurement or other laws. 

II. Collection in Installments

A. Partial Payments

Application of Partial Payments

a) Interest, Penalties, and Administrative Costs

If a debtor makes a partial payment of a debt (or the agency collects only a portion of the 

debt), the partial payment must “be applied first to any contingency fees added to the 

debt, second to outstanding penalties, third to administrative costs other than contingency 

fees, fourth to interest, and last to principal.” 31 CFR § 901.9(f). 

b) Multiple Debts

When a debtor owes multiple debts to an agency, the agency should consider how to 

apply voluntary payments and other collections. If a debtor specifies the debt to which 

the voluntary payment relates, the agency generally should adhere to this designation.12 

10 31 CFR § 900.5 (“Claims may be paid in the form of money or, when a contractual basis exists, the Government 

may demand the return of specific property or the performance of specific services”). 11 See U.S. GOV’T ACCOUNTABILITY OFFICE, B-229068.4 (1998), available at

https://www.gao.gov/products/437514#mt=e-report (permitting acceptance of property as part of compromise but 

cautioning that “care would have to be taken to assure that the property, when reduced to cash, after expenses 

incident to sale, would in fact provide the government an adequate payment”). 

12 St. Paul Fire & Marine Ins. Co. v. United States, 309 F.2d 22, 25 (8th Cir. 1962) (stating that the creditor should 

apply a voluntary payment in the manner that the debtor indicates); Md. Cas. Co. v. S. Norfolk, 54 F.2d 1032, 1038 

(4th Cir. 1932) (“The rules as to application of payments are well settled. The right to direct the application belongs 

in the first instance to the debtor.”); cf. 31 CFR § 901.3(c)(4) (providing that agencies should apply amounts 

recovered by non-centralized administrative offset to debts in accordance with the best interests of the United 

States).
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If the voluntary payment exceeds the amount owed on the designated debt, the agency 

should consider whether it may apply the overpayment to an unrelated debt.13 In making 

this determination, the agency should be aware that, if it decides to refund the 

overpayment rather than apply it to a delinquent debt, the payment representing the 

refund would likely be subject to offset for any debts referred to the Treasury Offset 

Program (TOP).

14

If the debtor fails to specify the debt to which the voluntary payment should be applied, 

the agency generally may apply the payment in its own discretion.15 If one of the debts is 

less collectable than the others (e.g., unsecured, expired statute of limitations for judicial 

enforcement, etc.), the agency should consider applying the payment to the least 

collectable debt.16

Effect on Statute of Limitations

An agency should determine whether any partial payment and/or written acknowledgment of 

a debt by a debtor restarts the tolling of the statute of limitations period for judicial 

enforcement and should update its records accordingly. See 28 U.S.C. § 2415(a) (providing 

that, generally, actions brought by the United States involving a contract are barred six years 

after the right of action accrues and, in the case of a later partial payment or written 

acknowledgment of the debt, the right of action accrues again at the time of each such 

payment or acknowledgment). 

B. Installment Payment Agreements 

“Whenever feasible, agencies shall collect the total amount of a debt in one lump sum.” 31 CFR

§ 901.8(a). Sometimes, however, debtors are financially unable to pay the debt all at once. In 

such circumstances, an agency generally may (and sometimes must) accept installment

payments. Id. 

13 See 31 U.S.C. § 3711(a) (requiring affirmative collection action); 31 CFR § 901.1(a) (requiring collection action); 

L. B. Mfg. Co., B-186852, 1976 U.S. Comp. Gen. LEXIS 1904 (Oct. 21, 1976), available at

https://www.gao.gov/assets/410/402594.pdf (finding that an agency’s duty to take collection action compelled it to 

apply an overpayment made by a debtor to an unrelated debt even though the overpayment had been made as a 

result of agency error). 14 See 31 U.S.C. § 3716(c); 31 CFR § 285.5(e)(1); see also infra Part III.D. 15 St. Paul Fire & Marine Ins. Co., 309 F.2d at 25 (stating that the creditor may determine how to apply a voluntary 

payment if the debtor fails to indicate a preference); Md. Cas. Co., 54 F.2d at 1038 (holding that the creditor may 

determine how to apply a payment, if not specified by the debtor). 16 See 31 CFR § 901.3(c)(4) (“When collecting multiple debts through non-centralized administrative offset, 

agencies should apply recovered amounts to those debts in accordance with the best interests of the United States, as 

determined by the facts and circumstances of the particular case, particularly the applicable statute of limitations”).
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When Agencies Must Enter Into Installment Payment Agreements

Although constitutional due process does not include the right to negotiate a repayment 

agreement, in certain circumstances, debtors have a statutory right to the opportunity to enter 

into a written repayment agreement under terms agreeable to the head of the agency before the 

agency takes certain collection actions. See, e.g., 5 U.S.C. § 5514(a)(2)(C) (federal salary 

offset); 31 U.S.C. § 3711(e)(1)(D)(i) (consumer credit bureau reporting); 31 U.S.C. 

§ 3716(a)(4) (administrative offset); 31 U.S.C. § 3720D(b)(4) (administrative wage 

garnishment). If the debtor wishes to exercise this right, the debtor generally will have to 

demonstrate an inability to immediately pay the entire debt. See 31 CFR §§ 901.8(a) (setting 

forth the circumstances under which a debt can pay in installments), 902.2(a)(1) (setting forth 

compromise standards, which apply to installment payment agreements which compromise the 

time period over which the debt must be paid). If the debtor does so within the time period 

specified in the agency’s notice, then the debtor may be entitled to enter into a written 

repayment agreement, provided that the agreement be on terms acceptable to the head of the 

agency. 5 U.S.C. § 5514(a)(2)(C); 31 U.S.C. §§ 3711(e)(1)(D)(i), 3716(a)(4), 3720D(b)(4). 

If the debtor and agency enter into such an agreement prior to the expiration of the applicable 

due process period specified in the agency’s notice, then the debt generally will not be 

considered delinquent. See 31 CFR § 285.12(a) (definition for “delinquent” indicating that a 

debt is not delinquent for purposes of mandatory referral to Treasury if “other payment 

arrangements satisfactory to the creditor agency have been made”); Id. § 285.13(e)(1)(iii)-

(iv) (stating that repayment agreements resolve delinquency for the purpose of the bar on 

delinquent debtors from receiving federal financial assistance).

When Agencies May Enter Into Installment Payment Agreements

If the agency provides the debtor with notice of the opportunity to enter into a repayment 

agreement, but the debtor fails to exercise the opportunity, the agency may pursue collection. 

Even though the debtor may no longer be entitled to this opportunity as a matter of due 

process after the agency initiates collection, the agency retains discretion to enter into 

installment payment agreements if the debtor can demonstrate an inability to pay to the debt 

in a lump sum. Id. §§ 901.8(a), 902.2(a)(1). The agency should make clear in the repayment 

agreement whether it resolves the delinquency or precludes the use of any delinquent debt 

collection tools. 

Basis for Installment Payment Agreements: Inability to Pay

Generally, an agency should only consider entering into an installment payment agreement 

with a debtor when the debtor is unable to pay the debt in one lump sum. Id. If a debtor 

represents such an inability, the agency should obtain financial statements from the debtor 

and “independently verify such representations whenever possible.” Id. Agencies may also

consider whether debtors who can demonstrate that they receive governmental need-based 

assistance (such as through Supplemental Security Income, Temporary Assistance for Needy 
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May 2023 Part III:16 Bureau of the Fiscal Service

Families, the Supplemental Nutrition Assistance Program, or Medicaid) might be eligible for 

installment payment agreements without having to complete full financial statements. 

Installment Payment Agreement Terms

After determining that an installment payment agreement is warranted, agencies should 

“obtain a legally enforceable written agreement from the debtor that specifies all the terms of 

the arrangement.” 31 CFR § 901.8(a). Agencies should determine whether, in appropriate 

circumstances, the requirement that the payment agreement be “written” can be satisfied by 

entering into a verbal agreement with the debtor on a recorded line.

There is no required format for installment payment agreements, but agencies should 

consider including the following provisions:

• Payment Obligations. Installment agreements should specify the total amount the debtor 

will pay under the agreement, the frequency of payments, the amount of each payment, 

and the payment method. The size and frequency of the installment payments should 

“bear a reasonable relation to the size of the debt and the debtor’s ability to pay.” Id.

§ 901.8(b).

• Method of Payment. Installment agreements should specify how payments may be made

(e.g., instructions on how to make electronic payments or where to mail checks). If 

payments will be made by preauthorized debit (PAD), the agency should ensure it has 

provided the debtor required notifications regarding the PAD, including how the debtor 

can cancel or alter the PAD, when the debits will be initiated, and the size and frequency 

of such debits. See, e.g., 12 CFR § 205.10.

• Continued Collection. Installment agreements should specify whether and to what extent 

the agency may collect the debt through other methods during the term of the agreement, 

including whether the agency may collect through offset and, if so, whether and how such 

collections will impact the debtor’s future payment obligations.

• Amount Owed; Order of Application. Installment agreements should specify the total 

amount owed, including a breakdown between principal, interest, penalties, and 

administrative costs. They should also contain an explanation of how the agency will 

apply payments under the agreement. Id. § 901.9(f) (“[A]mounts received by the 

Government shall be applied first to any contingency fees added to the debt, second to 

outstanding penalties, third to administrative costs other than contingency fees, fourth to 

interest, and last to principal”).

• Acknowledgment; Release of Claims Against United States. Installment agreements 

should contain an acknowledgment by the debtor of the debt and an acknowledgment that 
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there are no defenses, offsets, or counterclaims with respect to the debt.

17 They should 

also contain a provision through which the debtor releases the United States from any and 

all claims arising prior to the execution of the agreement. See 31 CFR § 902.7. 

• Acceleration. Installment agreements should contain a provision that accelerates the debt 

in the event of default. Id. § 901.8(a). 

• Overpayments. Installment agreements should specify that agency will apply excess 

payments to future payments due under the agreement or to other debts owed by the 

debtor to the United States.

• Time is of the Essence. Installment agreements should state that time is of the essence 

with respect to the debtor’s payment obligations and provide the agency with the right to 

terminate the agreement (and, as noted above, accelerate the debt) in the event timely 

payment is not received. 

• Material Representations. If the agency relied on representations from the debtor when 

agreeing to enter into an installment payment agreement (such as financial statements 

made by the debtor), the agency should list those material representations in the 

agreement. 

• Default/Termination. Installment agreements should specify the conditions that 

constitute an event of default and what rights the parties have to terminate the agreement. 

The agreements should also specify that, in the event the agency does not exercise a 

termination right in a particular circumstance (e.g., by accepting a late payment), the 

agency has not waived its right to do so in the future. 

• Collateral. When appropriate, agencies should obtain security for deferred payments. Id. 

§ 901.8(c). 

Unauthorized Installment Payment Agreements

For a discussion of unauthorized agreements, including agreements entered into without 

authority, by mistake, or induced by fraud, see Part III.B.III.C.2.e, below,

C. Acceptance of Partial Payments Without an Agreement

Even if an agency has not entered into a payment agreement with the debtor, an agency may 

nevertheless accept partial payments. See id. § 901.9(f). An agency’s acceptance of a 

voluntary partial payment (or payments), however, does not constitute an agency’s 

acceptance of an installment agreement with the debtor. 

17 Such an acknowledgment may benefit the agency in the event the agency must defend its right to collect the debt 

in court and may also re-toll the statute of limitations. See supra Part III.B.II.A.2.
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III. Compromise

A. Definition 

A compromise is an agreement between two or more parties in which each party surrenders 

something of value.

18 Given that compromises should involve “mutual concessions,” claims 

should not be compromised for $0 or for amounts previously collected (unless the debtor is making

some other valuable concessions); if an agency believes that the debtor should pay nothing on a 

debt, the agency should consider whether it has authority to terminate collection on the debt (see

Part IV.E of this Treatise) or to waive the debt.19

B. When Agencies Must Enter into Compromise Agreements 

In general, agencies are never required to compromise a debt with a debtor. That is, even when 

an agency has authority to compromise a debt, debtors are generally not entitled to a 

compromise.20

C. When Agencies May Enter into Compromise Agreements

General Authority

Absent statutory authority, agencies may not compromise valid debts. See Part I.A.II.A of 

this Treatise. Subject to certain exceptions and limitations, Congress has granted agencies 

the authority to compromise debts, if there is a basis for doing so. 31 U.S.C. § 3711(a)(2)

(providing general compromise authority); 31 CFR § 902.2(a) (outlining the permissible

bases for compromise). 

18 Compromise, Black's Law Dictionary (11th ed. 2019) (defining “compromise” as “an agreement for the settlement 

of a real or supposed claim in which each party surrenders something in concession to the other”). 19 Waiver is similar to compromise in that a debt that has been waived no longer exists. However, an agency’s 

authority to compromise a debt is distinct from its authority to waive a debt. A waiver does not require “mutual 

concessions.” Waiver, Black's Law Dictionary, (11th ed. 2019) (defining “waiver” as "[t]he voluntary 

relinquishment or abandonment . . . of a legal right or advantage”). Agencies must have specific authority to waive 

debts. Waiver standards differ depending on the specific authority, but often require a determination that recovery 

would be against equity and good conscience and/or not in the best interest of the United States. See, e.g., 2 U.S.C. 

§ 4593; 5 U.S.C. § 5584; 10 U.S.C. § 2774; 31 U.S.C. § 3717(h); 32 U.S.C. § 716. 

20 31 U.S.C. § 3711(a)(2) (providing that an agency “may” compromise certain debts); 31 CFR § 900.8 (stating that 

the regulations applicable to compromise do not create any private rights of action); see also In re Zandford, No. 05-

13305, 2006 Bankr. LEXIS 1398, at *3 (Bankr. D. Del. July 18, 2006) (holding that the regulations applicable to 

compromise cannot be used by the debtor “as either a sword or a shield”).
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Limitations on Authority

a) Misconduct, Penalties, and Agency-Specific Statutes and Regulations

Even when a valid basis for compromise exists, agencies may not or, for policy reasons, 

should not compromise certain claims:

• An agency may not compromise a claim “that appears to be fraudulent, false, or 

misrepresented by a party with an interest in the claim, or that is based on conduct in 

violation of the antitrust laws.” 31 U.S.C. § 3711(b)(1); see also 31 CFR § 900.3(a)

(stating that “[o]nly the Department of Justice has the authority to compromise, 

suspend, or terminate collection activity on such claims”).

• An agency should not compromise “statutory penalties, forfeitures, or claims 

established as an aid to enforcement and to compel compliance” unless compromising 

the debt is consistent with “the agency’s enforcement policy in terms of deterrence 

and securing compliance.” 31 CFR § 902.3. 

There are several agency- and debt-specific limitations on compromise authority. See, 

e.g., 31 U.S.C. § 3711(b)(2) (barring the Secretary of Transportation from compromising 

debts arising from certain railroad safety violations for less than $500); 8 U.S.C. 

§ 1253(c)(1)(C) (prohibiting the Attorney General from compromising certain civil 

penalties associated with undocumented individuals).

b) Accountable Officials

If an accountable official (including an agency official that certifies or disburses

payments) improperly certifies or disburses a payment, that official may be personally 

liable for the amount of that payment.21 Therefore, before compromising a debt owed as 

a result of accountable officer liability or relieving the accountable officer of such 

liability, an agency should consult its legal counsel to determine whether it has authority 

to do so and the impacts of doing so.

22

21 See, e.g., 31 U.S.C. §§ 3528, 3325; 10 U.S.C. § 2773a. 22 31 U.S.C. § 3711(a)(2) (purporting to limit an agency’s general compromise authority for debts that arise “out of 

an exception the Comptroller General makes in the account of an accountable official.”); id. § 3711(c) (stating that if 

an agency compromises an overpayment debt with the overpaid debtor, the accountable official is not liable for the 

portion of the debt that the agency fails to recover). Sections 3527 and 3528 of title 31 of the United States Code 

purport to authorize the Comptroller General to relieve accountable officials (including officials that certify or 

disburse payments) from liability arising from improper payments. Id. § 3527-28. However, the Department of

Justice’s Office of Legal Counsel has opined that depriving the Executive Branch of the ability to relieve 

accountable officials of liability is an unconstitutional invasion of the Executive’s responsibility to execute the laws. 

See generally Comptroller General’s Authority to Relieve Disbursing and Certifying Officials From Liability, 15 

Op. O.L.C. 80 (1991), available at https://www.justice.gov/file/23321/download; U.S. GOV’T ACCOUNTABILITY 
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Notwithstanding any possible liability for accountable officials, the agency retains its 

duty to collect the claim from the overpaid debtor.

23

c) Claims Based on Fraud, Misrepresentation, Violations of Antitrust Laws

In general, only Department of Justice (DOJ) has the authority to compromise false claims,

claims that appear to involve fraud or misrepresentation, or claims that appear to be based 

on conduct that violates the antitrust laws. 31 U.S.C. § 3711(b)(1); 31 CFR § 900.3(a).

There may be exceptions for agencies with independent litigating authority, depending on 

the scope of that authority.

d) Limitation on Amount

An agency’s general compromise authority is limited to claims that are no more than 

$100,000 in principal (“or such higher amount as the Attorney General may from time to 

time prescribe”24). 31 U.S.C. § 3711(a)(2); 31 CFR § 902.1.25 In determining whether a 

claim exceeds the $100,000 cap, agencies may not subdivide a debtor’s liability arising 

from a particular transaction to “avoid the monetary ceiling.” 31 CFR § 900.6. 

If an agency believes that the compromise of a claim exceeding $100,000 is appropriate, 

the agency must seek approval from DOJ. Id. §§ 902.1(b); 904.2(c). Once an agency 

refers a claim to DOJ, DOJ has exclusive authority to compromise the claim and the 

referring agency must direct all inquiries concerning the claim to DOJ. Id. § 904.1(b). 

Agencies need not obtain DOJ approval to reject a compromise offer. Id. § 902.1(b).

However, if an agency is contemplating “a firm, written, substantive compromise offer,”

but is uncertain whether to accept, it may refer the offer to DOJ for consideration. Id. 

§ 902.5. DOJ will either “act upon such an offer or return it to the agency with 

instructions or advice.” Id.

e) Unauthorized Compromise Agreements

i. Ultra Vires; Agency Error; Restrictive Endorsements

Compromise agreements made by agents or other third parties (including private 

collection contractors, fiscal or financial agents, and agency employees) without 

OFFICE, TRANSFER OF CLAIMS SETTLEMENTS & RELATED ADVANCE DECISIONS, WAIVERS, & OTHER FUNCTIONS, B275605 (1997), available at https://www.gao.gov/assets/200/198248.pdf (describing the transfer of certain functions 

from the Comptroller General to the Office of Management and Budget and other executive agencies).

23 31 U.S.C. § 3711(a)(1) (requiring agencies to collect their debts); 31 CFR § 901.1(a) (same). 24 With regard to debts that have been transferred to Treasury’s Cross-Servicing program, DOJ has delegated to 

Fiscal Service the authority to compromise claims of up to $500,000. See Letter from Christopher Kohn, Dir., U.S. 

Dep’t of Justice Commercial Litig. Branch, to Richard L. Gregg, Comm’r, U.S. Dep’t of the Treasury Fin. Mgmt.

Serv. (Sep. 3, 2003) (on file with recipient); see also Part III.C.II, below. 25 As stated above, there may be exceptions for agencies with independent litigating authority, depending on the 

scope of that authority.
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authority or by mistake generally will not bind the Government. Unlike private 

parties, who can be bound by the unauthorized actions of their agents, the 

Government generally will not be constrained by the unauthorized actions of its

agents.26 

26 Office of Personnel Mgmt. v. Richmond, 496 U.S. 414, 415-18, 424 (1990) (holding that erroneous advice 

provided by an agency employee did not entitle claimant to a payment not authorized by law); Fed. Crop Ins. Corp. 

v. Merrill, 332 U.S. 380, 383-84 (1947) (finding that an agency lacked the authority to insure the crops so the 

agency official’s prior assurances that the crops were insurable were unenforceable); Hachikian v. FDIC, 96 F.3d 

502, 505 (1st Cir. 1996) (finding no evidence that debtor’s obligations were settled and noting that the official’s 

miscommunication could not bind the agency); City of El Centro v. United States, 922 F.2d 816, 820 (Fed. Cir. 

1990) (finding that no contract existed where the plaintiff failed to show that “any individual with contracting 

authority exercised that authority to bind the United States”); United States v. Vonderau, 837 F.2d 1540, 1541-42

(11th Cir. 1988) (holding that an agency was not estopped from collecting debt when an agency employee without 

authority incorrectly informed debtor, who detrimentally relied on the information, that it would not proceed with 

debt collection action after a period of six months); Square One Armoring Servs. Co. v. United States, 162 Fed. Cl. 

331, 340-41 (2022) (finding that the contracting officer’s representative “lacked actual authority under the terms of 

the New Contract to authorize new payment (or overpayment) for jobs built to Old Contract specifications” and that

“it is well-established that ‘apparent authority will not suffice to hold the government bound by the acts of its 

agents’”); Thomas Creek Lumber & Log Co. v. United States, 36 Fed. Cl. 220, 239-41 (Fed. Cl. 1996) (holding that 

deposit of checks containing restrictive endorsements that payment was for “all amounts owed” did not discharge 

the remaining balance of the outstanding debts because individuals processing check payments received in the 

lockbox did not have delegated authority to accept compromises); McDonald v. United States, 13 Cl. Ct. 255, 263 

(Cl. Ct. 1987) (stating that the agency did not delegate compromise authority to its loan servicer, so the agency 

could not be held to have accepted debtor’s lesser payment as full payment even though the deposited check 

indicated it was for full payment); Kennedy v. United States, 1990 U.S. Dist. LEXIS 17546, at *15-17 (N.D. Ill. Dec. 

27, 1990) (determining that an agency was not bound by an attempted compromise made by a debtor who relied on a 

purported settlement with an employee lacking compromise authority, even though the agency deposited checks 

indicating that the payment was intended as payment in full); United States v. Bloom, 925 F. Supp. 426, 435-36 

(E.D. La. 1996) (finding that an agency was not deemed to have made a compromise offer when its letter misstated 

the amount of the debt as significantly lower than the actual amount owed, because the debtor should have known 

that this was an error and the agency lacked authority to make such an offer), aff’d, 112 F.3d 200 (5th Cir. 1997);

see also U.S. Const. art. I, § 9, cl. 7 (“No Money shall be drawn from the Treasury, but in Consequence of 

Appropriations made by Law”); Part I.A.II.A of this Treatise (discussing appropriations principles applicable to 

agency debt collection activities); but see USA Petroleum Corp. v. United States, 821 F.2d 622, 625-27 (Fed. Cir. 

1987) (invoking estoppel to restrict the Government’s recovery of certain overpayments from a contractor, because

the Government was aware of the overpayments, remained silent while the contractor relied on the contract’s

provisions, and “the contractor was not negligent and dutifully followed the terms of the contract”); Deltona Corp. 

v. Alexander, 682 F.2d 888, 891 (11th Cir. 1982) (suggesting that there may be some circumstances where the 

Government may be estopped due to the “affirmative misconduct” of an agent (internal quotation marks omitted)); 

Strickland v. United States, 382 F. Supp. 2d 1334, 1347-48 (M.D. Fla. 2005) (noting that an agency could be 

determined to have institutionally ratified an unauthorized agreement, but only in rare circumstances).
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ii. Induced by Fraud

Compromises obtained through fraud are voidable, and the agency may rescind 

the compromise agreement.27 The perpetrator of the fraud may also be subject to 

civil and criminal penalties.28

iii. Consequences of Unauthorized Compromise Agreements

If an agency becomes aware of a compromise agreement that was unauthorized, 

procured by fraud, or entered into by mistake, it should consult its counsel on 

whether the agreement is void or voidable,

29 on whether the agency may retain 

any funds received from the debtor pursuant to a rescinded compromise,30 and on 

whether the agency may (or must) continue its collection efforts.

Alternatively, if it is within the agency’s authority to do so, it may ratify the 

compromise agreement.31 For example, if an agency’s private collection

contractor had authority to enter into compromise agreements, but exceeded the 

parameters of its authority, the agency may ratify the contractor’s attempted 

compromise if the agency would have approved the compromise had proper 

procedures been followed.

27 31 U.S.C. § 3711(c) (“A compromise . . . is final and conclusive unless gotten by fraud, misrepresentation, 

presenting a false claim, or mutual mistake of fact.”); see also First Nat’l Bank v. Pepper, 454 F.2d 626, 632-33 (2d 

Cir. 1972) (noting that a compromise agreement is vulnerable to rescission if induced by fraud, mistake or duress); 

United States v. Silliman, 167 F.2d 607, 612 (3d Cir. 1948) (“It seems to us that if Congress had intended to provide 

that the Government should be remediless against the perpetrator of a fraud upon it and hereby create an exception 

to the thoroughly well-established rule that fraud renders transactions which it induces voidable, it would have said 

so in clear and unmistakable terms.” (internal quotation marks omitted) (quoting In re Bowen, 138 F.2d 22, 23 (3d 

Cir. 1943)).

28 See, e.g., 18 U.S.C. §§ 1001, 1621; see also 31 CFR § 902.2(g) (providing that financial statements should be 

executed under penalty of perjury). 

29 See, e.g., Total Med. Mgmt. v. United States, 104 F.3d 1314, 1319 (Fed. Cir. 1997) (“A contract which is ‘plainly 

illegal’ is a nullity and void ab initio.”); Fluor Enters. v. United States, 64 Fed. Cl. 461, 493, 495-96 (2005) (finding 

that, although the contracting officer lacked authority to enter into certain contractual provisions, making those 

provisions void ab initio, the contractor fully performed and was entitled to reasonable compensation for its 

services); Hall v. United States, 19 Cl. Ct. 558, 560 (1990) (finding a sales contract void because it was 

unauthorized and noting that, even if authorized, it would have been voidable due to unilateral mistake), aff’d, 918 

F.2d 187 (Fed. Cir. 1990) (mem.). 30 See, e.g., McDonald, 13 Cl. Ct. at 261 (“Retention or cashing of the debtor’s check can, in some circumstances, 

operate as an acceptance by the creditor or the debtor’s offer [of compromise.]”); Chesapeake & Potomac Tel. Co., 

654 F.2d 711, 716-17 (Ct. Cl. 1981) (finding that where the amount owed was not in genuine dispute, the plaintiff’s 

act of cashing checks tendered did not result in a binding accord and satisfaction). 31 Strickland, 382 F. Supp. 2d at 1346 (“The government may be bound by an unauthorized agreement if a 

government agent with authority subsequently ratifies it”). 
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D. General Considerations

Payment Agreement Terms

For a discussion of some terms that should be contained in compromise agreements, see 

Part III.B.II.B.4, above, which lists certain provisions agencies should consider including in 

installment payment agreements. 

Joint and Several Liability

When two or more debtors are jointly and severally liable for a debt owed to an agency, the 

agency “should ensure that a compromise with one debtor does not release the agency’s 

claim against the remaining debtors.” 31 CFR § 902.4(b). 

The amount of a compromise with one debtor has no binding or precedential effect on the 

amount required from other debtors liable for the debt. Id. Overall, if multiple debtors are 

jointly and severally liable for the same claim, the agency should conduct distinct evaluations 

when deciding whether to compromise the claim against each debtor, especially if the basis 

for the compromise is the debtor’s ability to pay. Id.

Finality

A compromise “is final and conclusive unless gotten by fraud, misrepresentation, presenting 

a false claim, or mutual mistake of fact.” 31 U.S.C. § 3711(c). In addition:

a compromise . . . should be implemented by means of a mutual release, in 

which the debtor is released from further non-tax liability on the compromised 

debt in consideration of payment in full of the compromise amount and the 

Government and its officials, past and present, are released and discharged 

from any and all claims and causes of action arising from the same transaction 

that the debtor may have.

31 CFR § 902.7. Even without an explicit mutual release, “the debtor is still deemed to have 

waived any and all claims and causes of action against the Government and its officials 

related to the transaction giving rise to the compromised debt” unless that result is otherwise 

prohibited by law. Id. 

Compromises Payable in Installments Generally Disfavored 

Generally, agencies should not accept compromises payable in installments. Id. § 902.2(f)

(advising against acceptance of compromises payable in installments because it is “not an 

advantageous form of compromise in terms of time and administrative expense”); see also id.

§ 901.8 (“Whenever feasible, agencies shall collect the total amount of a debt in one lump 

sum”). 
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While disfavored, there is no prohibition on compromises paid in installments, so if accepting 

payment of a compromise in installments is the most effective means of collection or 

necessitated by the debtor’s financial circumstances, agencies generally may do so. Id.

§ 902.2(f).

Reporting Discharged Indebtedness to the IRS as Gross Income

As further discussed in Part IV.F.II of this Treatise, agencies must report any discharge of 

indebtedness of at least $600 on Form 1099-C to the IRS. 26 CFR § 1.6050P-1(a)(1); see

also 26 U.S.C. §§ 108, 6050P; 31 CFR § 903.5(c); OFFICE OF MGMT. & BUDGET, EXEC.

OFFICE OF THE PRESIDENT, OMB CIRCULAR NO. A-129, POLICIES FOR FEDERAL CREDIT

PROGRAMS AND NON-TAX RECEIVABLES (rev. 2013), available at 

https://fiscal.treasury.gov/files/debt-management/circ-a129-upd-0113.pdf.

E. Bases for Compromise

Agencies may only compromise a debt when there is a legal basis for doing so. 31 U.S.C. 

§ 3711(a)(2), (d). The Federal Claims Collection Standards set forth several permissible reasons

to compromise a debt. 31 CFR § 902.2(a); see also Compromise of Claims Under Sections 3469

and 3229 of the Revised Statutes, 38 Op. Att’y Gen. 98, 99 (1934) (noting that an agency cannot

compromise a debt simply because “a hard case is presented, which excites sympathy or is merely

appealing from the standpoint of equity”).

As noted above, with regard to debts owed jointly and severally by more than one debtor, the 

compromise standards generally should be considered separately for each debtor liable on a debt. 

That is, in general, a compromise agreement affects one debtor’s liability on the debt, and not any 

other debtor’s liability on a debt. 31 CFR § 902.4(b). 

Generally, agencies need only rely on a single basis when determining whether to enter into a 

compromise agreement. Sometimes, however, an agency may consider factors in conjunction. 

Debtor’s Inability to Pay

a) Factors to Consider

Agencies may compromise a debt if the Government cannot collect the full amount because 

“[t]he debtor is unable to pay the full amount in a reasonable time.” Id. § 902.2(a)(1).

When evaluating a debtor’s inability to pay the claim, agencies should consider the

following:

• age and health of the debtor;

• present and potential income;

• inheritance prospects;

• possibility that the debtor has concealed or improperly transferred assets; and
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May 2023 Part III:25 Bureau of the Fiscal Service

• availability of assets or income that the Government may realize through enforced 

collection.

Id. § 902.2(b). No single factor is dispositive, and agencies have the discretion to evaluate 

these and other relevant factors in determining whether to accept a compromise offer over 

which they have jurisdiction. Id.

b) Calculation of Appropriate Compromise Amount

A compromise based on a debtor’s inability to pay “should be for an amount that bears a 

reasonable relation to the amount that can be recovered by enforced collection procedures, 

[taking into account] the exemptions available to the debtor and the time that collection 

will take.” Id. § 902.2(c).

c) Documentary Substantiation

Before accepting a compromise offer based in whole or part on a debtor’s inability to 

pay, the agency should verify the debtor’s inability to pay by using a credit report32 or 

other financial information. 31 CFR § 902.2(a)(1), (c), (g). This should include 

“a current financial statement from the debtor, executed under the penalty of perjury, 

showing the debtor’s assets, liabilities, income and expenses.” Id. § 902.2(g). An agency

may use its own form of financial statement for this purpose or may rely on DOJ’s forms. 

Id. The level of substantiation required should depend on, among other things, the 

amount of the debt and the amount of the proposed compromise. For example, an agency 

may require a simple verbal statement from the debtor regarding ability to pay for a $100 

debt for which the debtor will pay $90 under a compromise agreement, whereas an 

agency may require substantial formal documentation regarding a debtor’s finances for a 

$1 million dollar debt, for which the debtor will pay $500,000 under a compromise 

agreement. An agency should record its decision to compromise a debt, the basis on 

which it made the compromise, and the manner in which it calculated the appropriate 

offer amount.

Agency’s Inability to Collect

a) Factors to Consider

An agency may also compromise a debt if it believes that it cannot collect the full amount 

because “[t]he Government is unable to collect the debt in full within a reasonable time 

by enforced collection proceedings.” Id. § 902.2(a)(2). When evaluating compromise 

offers on this basis, agencies “should consider the applicable exemptions available to the 

debtor under state and Federal law in determining the Government’s ability to enforce 

collection,” as certain forms of property may be exempt from forced liquidation 

32 Agencies are authorized to “obtain a consumer report (as that term is defined in section 603 of the Fair Credit 

Reporting Act (15 U.S.C. § 1681(b)) or comparable credit information on any person who is liable for the claim.” 

31 U.S.C. § 3711(h)(1).
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May 2023 Part III:26 Bureau of the Fiscal Service

proceedings. Id. § 902.2(c). In addition, agencies may “consider uncertainty as to the 

price that collateral or other property will bring at a forced sale in determining the 

Government’s ability to enforce collection.” Id. Although administrative debt collection 

tools generally do not have a time limitation, agencies may also consider applicable 

statutes of limitation for judicial enforcement. See id. § 903.3(a)(4) (permitting 

termination of collection action if “enforcement of the debt is barred by any applicable 

statute of limitations”).

b) Calculation of Appropriate Compromise Amount

The compromise amount should be “reasonable [in] relation to the amount that can be 

recovered by enforced collection procedures” and should give due consideration to any 

exemptions available to the debtor and the time and effort involved in collecting the debt 

through enforced collection proceedings. Id. § 902.2(c).

c) Documentary Substantiation

An agency should record its decision to compromise a debt based on its inability to 

collection. In doing so, the agency should record the basis on which that compromise 

was made, and the manner in which it calculated the compromise amount.

Costs of Collection

a) Factors to Consider

An agency may compromise a debt when the “cost of collecting the debt does not justify 

the enforced collection of the full amount.” Id. § 902.2(a)(3). To determine whether this 

standard applies, agencies should consider whether they can use administrative collection 

tools in a cost-effective manner. For debts with a low balance, “[c]ollection costs may be 

a substantial factor.” Id. § 902.2(e). The Federal Claims Collection Standards also instruct 

agencies to conduct periodic comparisons of costs incurred and amounts collected to 

“establish guidelines with respect to points at which costs of further collection efforts are 

likely to exceed recoveries, [and] assist in evaluating offers in compromise.” Id. § 901.10.

However, agencies should always “consider whether continued collection of the debt, 

regardless of cost, is necessary to further an enforcement principle, such as the 

Government’s willingness to pursue aggressively defaulting and uncooperative debtors.” 

Id. § 902.2(e). 
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b) Calculation of Appropriate Compromise Amount

When compromising on this basis, the amount of the compromise should be equivalent to

what the Government could collect in a reasonable amount of time, using a reasonable 

amount of resources. See id. § 902.2(c). The amount, however, “may reflect an appropriate 

discount for the administrative and litigative costs of collection, with consideration given 

to the time it will take to effect collection.” Id. § 902.2(e). 

c) Documentary Substantiation

When compromising a debt on this basis, an agency should record its decision to 

compromise, the basis on which the compromise was made, and its calculation of the 

compromise amount (including any discount it applied to reflect the costs of collection).

Doubtful Litigation Prospects

a) Factors to Consider

Agencies may compromise debts if the Government may not collect the full amount 

because “[t]here is significant doubt concerning the Government’s ability to prove its case 

in court for the full amount claimed, either because of the legal issues involved or because 

of a bona fide dispute as to the facts.” Id. § 902.2(d); see also id. § 902.2(a)(4). 

b) Calculation of Appropriate Compromise Amount

In these circumstances, the compromise amount should take into account the likelihood of

successfully reducing a claim to judgment, and the availability of necessary witnesses and 

other evidentiary support. Id. § 902.2(d). Furthermore, “[i]n determining the litigative 

risks involved, agencies should consider the probable amount of court costs and attorney 

fees . . . that may be imposed against the Government if it is unsuccessful in litigation. Id.

c) Documentary Substantiation

As with all compromise offers, an agency should record its decision to compromise the 

debt, identify the basis on which it agreed to the compromise, and document the way in 

which it calculated the appropriate amount for the compromise.
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C. CENTRALIZED COLLECTION

I. INTRODUCTION

While federal agencies certainly conduct their own important debt collection work, a significant 

portion of the Government’s administrative and judicial collection activities is centralized within 

the Department of the Treasury’s Bureau of the Fiscal Service (Fiscal Service) and the 

Department of Justice (DOJ), respectively. 

Pursuant to the Debt Collection Improvement Act of 1996 (DCIA),33 federal agencies generally 

must refer delinquent nontax debts to the Secretary of the Treasury for administrative debt 

collection action. 31 U.S.C. § 3711(g)(1). Upon referral, the Secretary, acting through Fiscal 

Service, takes appropriate action to collect debts in its Cross-Servicing program. 31 CFR 

§ 285.12(c)(5). Likewise, pursuant to the Department of Justice Act of June 22, 1870, DOJ has

statutory authority to conduct litigation to which the United States (or its subcomponents) is a

party, thereby centralizing most litigation activity within DOJ. 34

While both Fiscal Service and DOJ provide collection services to federal agencies, in general, 

only one agency should service a debt at a time; that is, federal agencies should not 

simultaneously refer a debt to both Fiscal Service and DOJ for collection. And, while federal 

agencies can and should work in partnership with Fiscal Service and DOJ, an agency should not 

continue servicing a debt after it has referred the debt to either Fiscal Service or DOJ, unless 

otherwise agreed. See I TFM § 3-5030.40c; 35 31 CFR § 901.4(b). Allowing one agency to take 

the lead on servicing a debt is important to avoid confusion, duplication of efforts, and 

overcollections. 

33 Prior to the enactment of the DCIA, each federal agency attempted to collect its own debts with little

governmentwide coordination. See Conference Report on H.R. 3019, 142 Cong. Rec. H4046, 4087 (daily ed. 

Apr. 25, 1996) (statement of Rep. Horn), available at https://fiscal.treasury.gov/files/debt-management/

dmhorn.txt. Congress passed the DCIA in pursuit of several purposes, including: 

• 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.

• To minimize the costs of debt collection by consolidating related functions and activities and utilizing

interagency teams.

• To reduce losses arising from debt management activities by requiring proper screening of potential

borrowers, aggressive monitoring of all accounts, and sharing of information within and among federal

agencies.

Pub. L. No. 104-134, § 31001(b), 110 Stat. 1321, 1321-358 (1996). 

34 Department of Justice Act of June 22, 1870, 16 Stat. 162 (1870); see also 28 U.S.C. §§ 516, 519; 5 U.S.C. § 3106; 

U.S. ATTORNEYS’ MANUAL, 4-1.100, available at https://www.justice.gov/jm/jm-4-1000-assignmentresponsibilities. 35 Available at https://tfm.fiscal.treasury.gov/v1/p3/c500.html. 
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II. FISCAL SERVICE’S CROSS-SERVICING PROGRAM

A. What is Cross-Servicing?

Cross-Servicing refers to the program in which Fiscal Service takes debt collection action on 

behalf of federal agencies for debts that have been referred to it under 31 U.S.C. § 3711(g). 31 

U.S.C. § 3711(g)(5); 31 CFR § 285.12(a); I TFM § 3-5035.10. This includes actions to service, 

collect, compromise,36 or suspend or terminate collection action37 on referred nontax debt. 

Fiscal Service uses a variety of tools in its Cross-Servicing program to collect debts, including: 

sending demand letters; placing collection calls; negotiating payment or compromise 

agreements; administratively garnishing wages; reporting debts to credit bureaus; and referring 

debts to the TOP for offset purposes, to private collection contractors for administrative 

collection, and to DOJ for enforced collection through litigation. I TFM § 3-5035.10.

Fiscal Service takes actions in its Cross-Servicing program only as permitted by the federal 

agency that referred the nontax debt. Id. While Fiscal Service generally requires that each 

agency permit it to use all available debt collection tools, the agency can, in appropriate 

circumstances, opt out of certain collection tools. Id. § 3-5030.30. Once a debt is referred to 

Fiscal Service, the agency should cease all collection activity and communication with the debtor 

and refer all inquiries by the debtor to Fiscal Service; however, the debt remains on the books 

and records of the agency, and the agency remains responsible for ensuring the continued 

validity and enforceability of the debt. 31 CFR § 285(c)(1); I TFM § 3-5030.50c. 

 

B. Requirement to Refer Debts; Consequences of Non-Referral

Unless exempted from the requirement, federal agencies must refer any eligible nontax debt to 

Fiscal Service once the debt becomes 180 days delinquent.38 And, agencies that rely on the 

Cross-Servicing program to satisfy the 120-day notice requirement for purposes of 

administrative offset must refer eligible nontax debts to Fiscal Service no later than 120 days 

after the debts become delinquent.39

While federal agencies generally must refer delinquent nontax debts to Fiscal Service’s CrossServicing program, the requirements create no private rights for debtors. An agency’s failure to 

36 Fiscal Service generally has the authority to compromise debts with a principal balance of up to $500,000, and 

may also compromise debts with a principal balance over $500,000 after obtaining approval from DOJ. 31 U.S.C. 

§ 3711(a)(2), (g)(1)(B), (g)(4)-(5); I TFM § 3-5015.30; Letter from Christopher Kohn, Dir., DOJ’s Commercial 

Litig. Branch, to Richard L. Gregg, Comm’r, U.S. Dep’t of Treasury Fin. Mgmt. Serv. (Sept. 3, 2003) (on file with 

Fiscal Service). 37 Fiscal Service is also authorized to suspend or terminate collection action of referred debts with a principal 

balance of up to $500,000, and may also suspend or terminate collection action of larger debts after obtaining 

approval from DOJ. 31 U.S.C. § 3711(a)(3), (g)(1)(B), (g)(4)-(5); I TFM § 3-5015.40. 38 Compare 31 U.S.C. § 3711(g)(1) and 31 CFR § 285.12(c)(2) (mandating referral of all nontax debts that are 

180 days delinquent) with 31 U.S.C. § 3711(g)(2) (enumerating limited circumstances under which 31 U.S.C. 

§ 3711(g)(1) “shall not apply” to otherwise eligible debts). 39 31 CFR § 285.12(c)(2), (g); I TFM § 3-5030.40a. 
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comply with the mandatory referral requirement does not impact the validity or enforceability of 

the debt.40

However, failure to timely refer debts may negatively impact the collectability of a debt. 

Moreover, any agency’s failure to comply with the statutory and regulatory requirements may 

result in audit risk or a negative report to Congress. See 31 U.S.C. § 3716(c)(6)(B) (requiring 

Fiscal Service to report to Congress an agency’s failure to refer debts for administrative offset

purposes). 

C. Referral Prerequisites and Other Agency Responsibilities 

Certification Requirements

The mere referral of a debt to Fiscal Service’s Cross-Servicing program does not implicate 

any constitutional procedural due process protections for the debtor.41 However, Fiscal 

Service requires that the agency complete certain due process requirements before referring 

a debt to the Cross-Servicing program so that Fiscal Service can begin collection 

immediately upon referral.

42 

Upon referring a debt to the Cross-Servicing program, the agency must certify that the debt 

is “valid, legally enforceable, and that there are no legal bars to collection” and that the 

agency has “complied with all prerequisites to a particular collection action under the laws, 

regulations or policies applicable to the debt.” 31 CFR § 285.12(i); see also I TFM § 3-

5030.20. An agency’s failure to complete the referral prerequisites does not excuse the 

agency from the mandatory referral requirement described above. 

Recall Ineligible Debts

An agency must recall a debt it referred to Fiscal Service if the debt becomes ineligible after

referral or if the agency determines that the debt was improperly referred. 31 CFR 

§ 285.12(i); I TFM § 3-5030.50d. For example, the agency must recall a debt when the 

debtor files for bankruptcy and an automatic stay is in effect or if the agency discovers that 

it incorrectly certified the debt. 31 CFR § 285.12(i); I TFM § 3-5030.50d. If an agency 

requests that Fiscal Service return a referred debt, Fiscal Service may deny the request if it 

40 Zandford v. SEC, 2012 U.S. Dist. LEXIS 24201, at *10-11 (D. Del. 2012) (“The regulations [promulgated 

pursuant to the DCIA] do not provide for a private right of action . . . .” (citing 31 CFR § 900.8)); see also In re 

Zandford, 2006 Bankr. LEXIS 1398, at *3 (Bankr. D. Del. 2006) (“[T]he regulations prohibit the Debtor from using 

these agency operating procedures as either a sword or a shield” and an agency’s failure to refer a debt to Treasury 

does not affect the agency’s standing to assert a claim in a bankruptcy case).

41 Mere referral of a debt does not result in deprivation of property and thus does not require due process. See supra 

Part I.B. 42 31 CFR § 285.12(i); I TFM §§ 3-5030.40b; Johnson v. U.S. Dep’t of Treasury, 300 F. App’x 860, 862-63 (11th 

Cir. 2008) (holding that Treasury was legally obligated to collect the debt an agency referred after certifying it had 

provided due process, notwithstanding receiving notice that the debtor may be experiencing financial hardship or 

that the debt may not be valid).
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May 2023 Part III:31 Bureau of the Fiscal Service

determines that return is inappropriate. Allowance of a return, however, does not constitute 

a determination by Fiscal Service that the return is appropriate. I TFM § 3-5035.50. 

After the agency recalls a debt (or after Fiscal Service returns a debt to the agency), the 

agency resumes responsibility for servicing and collecting the debt in accordance with 

established laws and procedures, or for determining whether termination of collection action 

is appropriate. Id. §§ 3-5030.50d, 3-5035.50. If the recalled (or returned) debt later 

becomes eligible for referral and is not exempt from the referral requirement, the agency 

must re-refer the debt to Fiscal Service. See id. § 3-5030.40a, 3-5030.50d. 

Provide Sufficient Information

Upon referral, agencies must provide Fiscal Service with certain basic information about the 

referred debt and the associated debtor(s). Id. § 3-5030.40b, 3-5030.50b. Moreover, if 

Fiscal Service requests additional information on a referred debt or debtor, the agency must

reply within 30 business days. Id. 

D. Exemptions to the Referral Requirement

Several classes of debt are exempt from the Cross-Servicing referral requirement. Agencies 

must refer all debts that are not exempt (as well as debts that once were exempt from referral but, 

due to changed circumstances, no longer are) to the Cross-Servicing program. If a debt is 

exempt from the Cross-Servicing referral requirement and the agency chooses not to refer the 

debt to the Cross-Servicing program, it must still refer the debt to the TOP unless the debt is also 

exempt from TOP.

Statutory Exceptions

a) Less than 120 or 180 Days Delinquent

Federal agencies must refer debts that are 180 days delinquent to the Cross-Servicing 

program. 31 U.S.C. § 3711(g)(1); 31 CFR § 285.12(c)(2). Moreover, agencies that rely 

on the Cross-Servicing program to submit referred debts for centralized offset (i.e., TOP) 

on its behalf must refer the debts by no later than 120 days after the debts become 

delinquent. 31 CFR § 285.12(c)(2), (g); I TFM § 3-5030.40a. 

Agencies may (but are not required to) refer eligible debts that are less than 120 (or 180) 

days delinquent to the Cross-Servicing program, and Fiscal Service strongly encourages 

agencies to refer as early as possible. I TFM § 3-5030.40a; see also 31 CFR § 285.12(i).

b) In Litigation

If a debt is in litigation, it is exempt from the Cross-Servicing referral requirement. Once 

the litigation concludes, agencies must refer debts more than 120 (or 180) days 

delinquent to the Cross-Servicing program within 30 days after the date of the final 

decision. 31 CFR § 285.12(c)(3); see also 64 Fed. Reg. 22,906, 22,907 (Apr. 28, 1999)
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May 2023 Part III:32 Bureau of the Fiscal Service

(explaining that the purpose of the additional 30 days is to allow the debtor to pay or 

enter into a repayment agreement). However, if an agency determines that a debtor is 

unlikely to pay the debt or enter into a repayment plan within 30 days of the final 

decision, it should refer the debt to Fiscal Service immediately. 64 Fed. Reg. at 22,907.

i. Litigation Initiated by the Agency

If an agency determines that a debt is more collectible through judicial rather than 

through administrative remedies, it should consider referring the debt to DOJ for 

enforced collection (or, if it has independent litigation authority, initiating litigation 

itself) rather than referring the debt to the Cross-Servicing program.

43 “[A]ny debt or 

claim that is in litigation” is not subject to the mandatory referral requirements. 31 

U.S.C. § 3711(g)(2)(A)(i); 31 CFR § 285.12(d)(1)(i). A debt is “in litigation” if it 

“has been referred to the Attorney General for litigation by the creditor agency” or if 

the agency has initiated litigation. 31 CFR § 285.12(d)(2)(i).

If the agency refers the debt to DOJ or initiates litigation itself, the debt would not 

only be exempt from the Cross-Servicing referral requirement, but would also be 

ineligible for referral, because it is impractical for more than one agency to be 

servicing the same debt simultaneously.

Referring a debt to the Cross-Servicing program does not foreclose the Government’s 

ability to judicially enforcing the debt. Cross-Servicing will refer some debts to DOJ 

for enforced collection on behalf of the agency.

ii. Debts Subject to the Bankruptcy Automatic Stay

“[A]ny debt or claim that is in litigation” is not subject to the mandatory referral 

requirements. 31 U.S.C. § 3711(g)(2)(A)(i); 31 CFR § 285.12(d)(1)(i). A debt is “in 

litigation” if it is subject to “bankruptcy proceedings.” 31 CFR § 285.12(d)(2)(i)(B).

If a debt is subject to the protection of the automatic stay or has been discharged in 

bankruptcy, the debt is not eligible for referral to the Cross-Servicing program. Id.

§ 285.12(i) (requiring creditor agency receiving notice that debtor has filed for 

bankruptcy protection to notify the Fiscal Service of this change in status of the debt’s 

legal enforceability); I TFM § 3-5030.50d (requiring agencies to recall referred debts 

subject to the protection of the automatic stay); I TFM § 3-5035.50 (permitting Fiscal 

Service to return a debt to a creditor agency if the debtor has filed for bankruptcy).

43 While the Cross-Servicing program can refer a debt to DOJ on the agency’s behalf, see I TFM § 3-5035.10, an 

agency should consider whether a direct referral to DOJ would be most pragmatic if it has already determined that 

litigation is appropriate. 
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iii. Litigation Initiated by the Debtor

If the debtor initiates litigation regarding a debt before the agency refers the debt to 

the Cross-Servicing program, the debt is exempt from the mandatory referral 

requirement. 31 U.S.C. § 3711(g)(2)(A)(i); 31 CFR § 285.12(d)(1)(i), (2)(B). The 

mere fact that a debtor initiates litigation after the agency referred the debt, however, 

does not render the debt exempt. However, the agency may recall a debt subject to 

litigation from the Cross-Servicing program if the agency believes its certification 

may have been erroneous or as otherwise agreed to by Fiscal Service. See I TFM 

§§ 3-5030.50d, 5035.50.

c) In Foreclosure

“[A]ny debt or claim that is in . . . foreclosure” is not subject to the mandatory referral 

requirements. 31 U.S.C. § 3711(g)(2)(A)(i); 31 CFR § 285.12(d)(1)(i). A debt is “in 

foreclosure” if the collateral securing the debt is subject to either judicial foreclosure 

proceedings or nonjudicial liquidation, and the agency anticipates the proceedings or 

liquidation will generate proceeds that could be applied to the debt. 31 CFR 

§ 285.12(d)(2)(ii). 

Agencies may refer debt secured by collateral to the Cross-Servicing program. However, 

if the agency believes the collateral is valuable, the agency should consider foreclosing 

on the collateral prior to referral, as the Cross-Servicing program does not initiate 

foreclosure proceedings. Agencies should also consult with their legal counsel to 

determine whether and how collection actions may affect their rights with regard to the 

collateral.

d) Scheduled for Sale

In certain circumstances, a debt is exempt from the mandatory referral requirement if it 

will be disposed of under an asset sales program. 31 U.S.C. § 3711(i), (g)(2)(A)(ii); 31 

CFR § 285.12(d)(3).

e) At a Private Collection Contractor

A debt may not be referred to the Cross-Servicing program if it has been referred to a 

private collection contractor for a period of time determined by Treasury. 31 U.S.C. 

§ 3711(g)(2)(A)(iii); 31 CFR § 285.12(d)(1)(iii). 

As with most other exemption categories, this exception only applies while the contractor 

remains responsible for attempting to collect the debt. The debt must be referred to the 

Cross-Servicing program once the contractor has concluded its collection efforts. See id.
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May 2023 Part III:34 Bureau of the Fiscal Service

f) At a Debt Collection Center

Treasury, acting through Fiscal Service, is authorized to designate agencies or units

within agencies as debt collection center (DCCs) to collect federal nontax debts, as well 

as to withdraw such designations. 31 U.S.C. § 3711(g)(3), (g)(10); 31 CFR § 285.12(a), 

(f); I TFM 3-5400, available at https://tfm.fiscal.treasury.gov/v1/p3/c540.html. DCCs 

must operate in accordance with Treasury standards. I TFM 3-5400.

A debt is exempt from the Cross-Servicing referral requirement if it has been referred to a 

DCC for collection in accordance with established procedures and for a Treasuryapproved period of time. 31 U.S.C. § 3711(g)(2)(A)(iv); 31 CFR § 285.12(d)(1)(iv), (f). 

A debt is not eligible for referral to Cross-Servicing while being serviced by a DCC but 

may be referred to Cross-Servicing after having been serviced by a DCC.

g) Collectible Through Internal Offset

Debts that an agency expects to collect in full through internal offset within three years of 

the initial date of delinquency are exempt from the Cross-Servicing referral requirement.

31 U.S.C. § 3711(g)(2)(A)(v); 31 CFR § 285.12(d)(1)(v), (4). 

While such debts may be exempt, an agency may nevertheless refer them to the CrossServicing program. If an agency does so, however, it should ensure that it promptly 

notifies the Cross-Servicing program of any changes to the debt balance resulting from 

internal agency offsets.

h) Agency has Suspended or Terminated Debt Collection

If an agency suspends collection action on a debt pursuant to 31 U.S.C. § 3711(a)(3) and 

31 CFR § 903.2, the debt is exempt from the requirement to refer the debt to the CrossServicing program until the agency lifts the suspension.

Similarly, if an agency terminates collection action on a debt pursuant to 31 U.S.C. 

§ 3711(a)(3) and 31 CFR § 903.3, the debt is exempt from the Cross-Servicing referral 

requirement.

Treasury-Granted Exemptions; Eligibility Requirements

a) Generally

In additional to the exemptions set forth by statute, Treasury may grant additional 

exceptions and establish eligibility requirements. For example, Treasury can grant 

exemptions for classes of debt at the request of an agency.44 Treasury can also create 

44 31 U.S.C. § 3711(g)(2)(B) (authorizing the Secretary to exempt “any class of debts” at the request of another 

agency, or on his or her own initiative). A request for exemption by an agency may be made in writing only by the 
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May 2023 Part III:35 Bureau of the Fiscal Service

exemptions to ensure that its collection efforts remain consistent with the purposes of the 

DCIA, including cost-effective collection.

45

b) Serviced by Third Parties

By regulation, Treasury exempted from the Cross-Servicing referral requirement debts 

being collected by third parties, such as private lenders or guarantee agencies because 

such debts are already in efficient collection systems and referral to Fiscal Service could 

interfere with those collection efforts. 31 CFR § 285.12(d)(1)(vi); 64 Fed. Reg. at 

22,907.

c) Debts Less than $25

Because referring low-dollar debts may not be cost-effective, Treasury exempted from 

the Cross-Servicing referral requirement debts totaling “less than $25 (including interest, 

penalties, and administrative costs), or such other amount as Fiscal Service may 

determine.” 31 CFR § 285.12(c)(4). Treasury is authorized to change this minimum 

threshold at any time. Id. § 285.12(c)(2). 

d) Being Collected Through Administrative Wage Garnishment

Treasury also exempted from the Cross-Servicing referral requirement debts being 

collected through administrative wage garnishment (AWG) if the agency: (1) had 

received actual collections through its use of AWG; and (2) expects the debt to be 

collected through AWG within three years.46

e) Out of Business

Because debts owed by entities that are no longer in business and have dissolved in 

accordance with law are generally not collectible, the Cross-Servicing program does not 

service such debts. I TFM § 3-5035.50 (listing reasons that the Cross-Servicing program

head of the agency, its Chief Financial Officer, or its Deputy Chief Financial Officer. This does not include the head 

of a subordinate organization within a department or agency; the heads of such organizations must submit requests 

through the head of their parent agency. 31 CFR § 285.12(d)(5). The written request must clearly identify the class 

of debts for which the exemption is sought, and it must explain how exemption is in the best interest of the 

Government. Id. Treasury exercises its discretion to grant exemptions pursuant to established standards which 

require the consideration of: (1) whether the exemption is the best means to protect the Government’s financial 

interests; (2) whether the referral of the debts would interfere with the goals of the program under which the debts 

arose; and (3) whether the exemption would be consistent with the purposes of the DCIA. Id.; see also I TFM 3-

5200 available at https://tfm.fiscal.treasury.gov/v1/p3/c520.html. 45 See 31 U.S.C. § 3711(g)(10) (authorizing the Secretary to prescribe rules, regulations, and procedures for the 

Cross-Servicing program). 46 See MEMORANDUM FOR CFOS FROM RICHARD L. GREGG, COMM’R, FIN. MGMT. SERV. (Aug. 18, 2005). The 

rationale for this exemption is twofold: (1) the exemption is consistent with the DCIA’s purposes of maximizing the 

collection of delinquent debts and minimizing the cost of collection by encouraging early use of AWG; and (2) the 

exemption parallels the statutory exemption for debts being collected through internal offset. Id.
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May 2023 Part III:36 Bureau of the Fiscal Service

will return a debt to an agency, including when an entity debtor is no longer in business 

and has dissolved in accordance with applicable law). 

f) Deceased

While agencies generally may collect debts owed by deceased debtors, the CrossServicing program currently does not service such debts. Id. § 3-5035.50 (listing reasons 

that the Cross-Servicing program will return a debt to an agency, including when an 

individual debtor is deceased).

g) Owed by a Foreign Sovereign

While not explicit in the relevant statutes or regulations, debts owed by foreign 

sovereigns are exempt from the Cross-Servicing referral requirement. See Part II.A of 

this Treatise; cf. 31 CFR §285.5(d)(3)(iii) (excluding debts owed by foreign sovereigns 

from the TOP’s mandatory referral requirement). 

h) Agency-Specific Exemptions

Treasury has also granted several exemptions that are specific to a class of debts owed to 

certain agencies, including for: (1) Social Security Administration’s Supplementary 

Security Income debt and debt of former child support beneficiaries in the Old-Age, 

Survivors, and Disability Insurance Program; (2) Small Business Administration’s 

disaster loans and collateralized business loans in active workout; (3) Department of 

Education’s delinquent and defaulted student loans; and (4) Health and Human Services’ 

health professions debt and debt stemming from unfiled cost reports.

E. Fees

Fiscal Service is authorized to charge agencies a fee sufficient to cover the costs of the services 

provided in its Cross-Servicing program. 31 U.S.C. § 3711(g)(6); 31 CFR §§ 285.12(j), 901.1(f); 

I TFM § 3-5040.10. Fiscal Service and other debt collection centers may calculate fees in any 

manner designed to cover up to the full cost of providing these services, including based on a 

percentage of collections received on account of a debt while it was being serviced under this 

section or a flat fee based on actions taken under this section by Fiscal Service or another debt 

collection center with regard to a debt or group of debts. Id. Such fees may be determined based 

on overall program costs and need not be based on costs related to the collection of a specific 

debt. Id. Federal agencies are responsible for paying these fees, which can be collected by 

withholding a portion of the amounts collected through the Cross-Servicing program. 31 U.S.C. 

§ 3711(g)(7); I TFM § 3-5040.10a. Generally, agencies must charge debtors for the costs of 

collection, including fees charged by Fiscal Service. 31 U.S.C. § 3717(e)(1); 31 CFR § 901.9(a); 

I TFM § 3-5040.20. 
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May 2023 Part III:37 Bureau of the Fiscal Service

III. REFFERAL TO THE CENTRALIZED RECEIVABLES SERVICE

A. What is the Centralized Receivables Service? 

CRS is a service Fiscal Service provides to federal agencies to assist in the management of 

nontax receivables from the time the receivables are established until they are paid, resolved, or 

referred to Fiscal Service’s delinquent debt collection programs (i.e., the Cross-Servicing 

program and TOP). 31 CFR 285.12(a), (b). Fiscal Service is authorized to provide CRS services 

to federal agencies under 31 U.S.C. § 3711(g) and 31 CFR 285.12(b). 

On behalf of participating agencies, CRS will send invoices to debtors, provide due process 

notices and opportunities, work with the participating agencies on any disputes regarding the 

debt, conduct early delinquent debt collection activities (e.g., collection calls and reminder 

letters), and refer debts that are unpaid and/or unresolved to the Cross-Servicing program.

B. Discretionary Referral 

Agencies have the option to refer their debts to CRS but are not required to do so. 

C. Referral Prerequisites and Other Agency Responsibilities

Certification Requirements

Upon referring a debt to CRS, the agency must certify that, among other things, the debt is “valid

and legally enforceable.” I TFM § 3-3030.20. 

Cancellation of Ineligible Debts

An agency must cancel (i.e., remove from CRS) a debt that was referred to CRS if the debtor has 

filed for bankruptcy and the automatic stay is in effect, the debt is not enforceable, the debt is not 

valid or has been paid in full, or the creditor agency discovers any other reason that would render 

its certification invalid. Id. § 3-3030.60. An agency may, in its discretion, cancel a debt for 

other reasons. However, once a debt is referred by CRS to the Cross-Servicing program, the 

agency may no longer cancel the debt. As described in section C.II above, however, the agency 

can recall the debt from the Cross-Servicing program, as permitted by I TFM 3-5000.

Once a debt is cancelled, the agency resumes responsibility for servicing the debt (including 

referring it to the Cross-Servicing program and/or TOP) or suspending or terminating collection 

action. If, prior to the cancellation, Fiscal Service and the debtor entered into a payment 

agreement and that payment agreement remains un-breached, the creditor agency generally must 

abide by the terms of the payment agreement after cancellation.

Provide Sufficient Information

Agencies must provide Fiscal Service with certain basic information about the referred debt and 

the associated debtor(s). Id. § 3-3030.10, 3030.50.
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May 2023 Part III:38 Bureau of the Fiscal Service

D. Fees

Currently, Fiscal Service provides CRS at no cost to participating federal agencies. However, 

Fiscal Service is authorized to charge a fee sufficient to cover the costs of its CRS services

pursuant to 31 U.S.C. § 3711(g)(6). 

IV. REFERRAL TO THE DEPARTMENT OF JUSTICE

A. Enforced Collection

The conduct and supervision of litigation on behalf of federal agencies is generally centralized 

within DOJ.47 As such, DOJ assists agencies with the collection of debt as the United States’ 

primary litigator.48 DOJ may decline to accept a debt that the agency refers for litigation if the 

referral does not meet DOJ’s requirements, or if DOJ otherwise determines that the case is not 

appropriate for litigation.49

Once a debt is referred to DOJ, DOJ has exclusive jurisdiction over the debt and, unless 

otherwise agreed, the referring agency must discontinue its own efforts to collect the debt and 

must refrain from having any contact with the debtor. 31 CFR § 904.1(b). 

B. Eligible Debts

Generally, a debt must be at least $2,500 to be eligible for enforced collection by DOJ, though as 

a practical matter given the costs of litigation, DOJ typically initiates litigation only on debts 

with a higher dollar value. Id. § 904.4(a). DOJ will accept referrals of lower dollar debts in 

appropriate circumstances, including when an enforcement issue is at stake. Id. § 904.4(b).

Moreover, the debt should be well within the statute of limitations for judicial enforcement and, 

ideally, the debt should be no more than one year delinquent. Id. § 904.1(a). 

C. Required Referral

Agencies must promptly refer to DOJ for litigation any eligible debts where the agency: (1) has 

taken affirmative collection action, and (2) cannot compromise the debt, or suspend or terminate

collection activity. Id. § 904.1(a).

47 See U.S. DEP’T OF JUSTICE, U.S. ATTORNEYS’ MANUAL § 4-1.100, available at https://www.justice.gov/jm/jm-4-

1000-assignment-responsibilities. 48 See U.S. DEP’T OF JUSTICE, FISCAL YEAR 2016 ANNUAL REPORT ON DEBT COLLECTION RECOVERY ACTIVITIES OF 

THE DEP’T OF JUSTICE FOR CIVIL DEBTS REFERRED FOR COLLECTION, available at

https://www.justice.gov/jmd/page/file/1214971/download. 

49 See U.S. DEP’T OF JUSTICE, NATIONWIDE CENT. INTAKE FACILITY BRIEFING MATERIAL FOR FED. AGENCIES (Aug. 

2017), available at https://www.justice.gov/file/996091/download. 
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May 2023 Part III:39 Bureau of the Fiscal Service

D. Discretionary Referral

If an agency has not yet exhausted its efforts to collect a debt through administrative means and 

determines that it may not or should not terminate debt collection action, the agency may 

consider referring the debt to DOJ for enforced collection through litigation. 

The agency may refer eligible debts to DOJ instead of referring them to Fiscal Service’s CrossServicing program in appropriate circumstances.50 In determining whether direct referral to DOJ 

(instead of Cross-Servicing) is appropriate, agencies should consider a variety of factors, 

including: dollar amount of debt; complexity of legal issues (e.g., whether a precedential issue is 

at state); whether the debtor disputes the validity of the debt; whether an enforcement issue is at 

stake; whether the debtor has the financial ability to pay; whether the debtor has assets that can 

only be reached through judicial means; and whether the debt can be collected more efficiently 

through administrative means.

50 31 U.S.C. § 3711(g)(2)(A)(i) (identifying debts “in litigation” as an exception to the requirement that agencies

refer all debts more than 180 day delinquent to the Cross-Servicing program). 
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May 2023 Part III:40 Bureau of the Fiscal Service

D. OFFSET

I. Introduction

Offset (also called “setoff”) is a complex area of federal debt collection law and operations. It is 

often confused with other legal debt collection remedies such as garnishment, levy, and 

recoupment. An agency may employ offset on its own, directly with another agency, or centrally 

through Treasury. There are many authorities for offset, including the common law, statutes that 

apply governmentwide, and statutes specific to a particular agency or program. Each legal basis 

for offset has distinct permissions and restrictions on when, how, and what an agency may offset 

to collect its debts. This chapter will define offset, distinguish it from other, similar remedies, 

and explain the law governing each type of governmentwide offset. This chapter does not 

address authorities specific to an agency or program or the law of setoff in bankruptcy. This 

chapter also does not discuss the offset of federal payments to collect debts owed to states. See, 

e.g., 26 U.S.C. § 6402(c), (e), (f); 31 U.S.C. § 3716(h); 31 CFR §§ 285.1, 285.3. 285.6, and 

285.8.

II. “Offset” Defined

 

A. “Offset” and “Setoff” 

The terms “offset” and “setoff” are generally interchangeable. The right of setoff has long been 

available to parties under the common law. See, e.g., Pearlman v. Reliance Ins. Co., 371 U.S. 

132, 140 (1962); United States v. Munsey Trust Co., 332 U.S. 234, 239 (1947); Gratiot v. United 

States, 40 U.S. (15 Pet.) 336, 370 (1841). “The right of setoff (also called ‘offset’) allows 

entities that owe each other money to apply their mutual debts against each other.” Citizens 

Bank v. Strumpf, 516 U.S. 16, 18 (1995). In other words, if Debtor A owes Creditor B $25, but 

Creditor B owes Debtor A $35, Creditor A may withhold its $25 payment and apply this amount 

to Debtor B’s debt, leaving Debtor B with a debt of only $10 owed to Creditor A. The right of 

setoff circumvents “the absurdity of making A pay B when B owes A.” Studley v. Boylston Nat’l 

Bank, 229 U.S. 523, 528 (1913). The term “offset” has also been defined in various federal laws. 

Each definition varies in the details of what competing claims may be included; however, the 

underlying concept remains that an amount payable by the United States to a person may be 

reduced by an amount that person owes to the United States and applied to the debt. See, e.g., 31 

U.S.C. § 3701(a)(1) (“‘administrative offset’ means withholding funds payable by the United 

States (including funds payable by the United States on behalf of a State government) to, or held 

by the United States for, a person to satisfy a claim”). 

B. Offset Distinguished from Garnishment, Attachment, and Levy

Offset involves only two parties—the creditor and debtor—and the funds that are offset 

generally do not change hands. Garnishment, attachments, and levies, on the other hand, involve 

the seizure of property held by a third party and result in that property being transferred from the 

third party to the creditor. See generally 66 Comp. Gen. 260 (1987). Creditors may seize any 

type of property through garnishment, attachment, or levy. Offset, on the other hand, is the 
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May 2023 Part III:41 Bureau of the Fiscal Service

crediting of monetary amounts against competing claims. 

C. Offset Distinguished from Withholding 

Simply withholding funds without applying them to the indebtedness is legally distinct from 

offset. Strumpf, 516 U.S. at 18-19 (bank’s freeze of a depositor’s account did not constitute a 

setoff under the Bankruptcy Code); Amoco Prod. Co. v. Fry, 118 F.3d 812, 817 (D.C. Cir. 1997) 

(temporary withholding is not offset in the context of the Debt Collection Act). 

D. Offset Distinguished from Recoupment

Recoupment is an equitable doctrine, defensive in nature, used to determine amounts owed on a 

given transaction. Bull v. United States, 295 U.S. 247, 261-262 (1935); Coplay Cement Co. v. 

Willis & Paul Group, 983 F.2d 1435, 1440-41 (7th Cir. 1993). Unlike setoff, recoupment is only 

available where the mutual debts arise out of the same transaction or occurrence. Bull, 295 U.S. 

at 261-262; Coplay Cement, 983 F.2d at 1440. Whether two claims arise out of the same 

transaction or occurrence is often fact based, and the test for determining whether claims arise 

out of the same transaction varies depending on jurisdiction. Sims v. U.S. Dep’t. of Health & 

Human Serv. (In re TLC Hospitals, Inc.), 224 F.3d 1008, 1012 (9th Cir. 2000) (finding that the 

agency’s overpayments to a corporation in one year arose from the same transaction as 

overpayments in another year because there was a “logical relationship” between the 

overpayments and the underpayments); Lee v. Schweiker, 739 F.2d 870, 875-76 (3d Cir. 1984) 

(in the bankruptcy context, the recoupment of prepetition social security overpayments from 

postpetition social security payments was impermissible); Tavenner v. United States (In re 

Vance), 298 B.R. 262, 267-68 (Bankr. E.D. Va. 2003) (in the bankruptcy context, United States 

could recoup housing allowance overpayments from future salary payments because both the 

salary and housing allowance payments arose from the same contract, rather than an entitlement 

program). 

III. Types of Offset 

Federal law authorizes several types of offsets to collect various debts. These authorities can be 

carried out through different operational mechanisms. Offset terms discussed in this chapter

include: 

• “Administrative offset” means offset conducted pursuant to 31 U.S.C. § 3716(a) and 

(c).51 It includes the offset of federal nontax payments to collect three types of debts—

federal nontax, child support, and other debts owed to states. It also includes the offset of 

state payments to collect federal nontax debts. Payments offset under the administrative 

offset authority include contractor payments, certain benefit payments, current pay, 

51 While 31 U.S.C. § 3701(a)(1) defines administrative offset broadly as “withholding funds payable by the United 

States . . . to, or held by the United States for, a person to satisfy a claim,” for the purposes of this Treatise, the term 

is defined more narrowly and generally includes only offsets taken pursuant to 31 U.S.C. § 3716 (and other 

overlapping authorities). This is because there are more specific statutes that apply to the offset of federal tax refund 

payments (26 U.S.C. § 6402 and 31 U.S.C. § 3720A). 
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May 2023 Part III:42 Bureau of the Fiscal Service

retired military pay, final lump sum payments of federal salary, and federal retirement 

annuity payments. Administrative offset can be accomplished through various means, 

including internal offset, centralized offset through TOP, or inter-agency offset. 

• “Centralized offset” means the collection of debts through the TOP pursuant to 31 U.S.C. 

§§ 3716 and 3720A, and regulations promulgated at 31 CFR part 285, subpart A. The 

offset occurs after the payment agency has certified the amount of the payment. 

Centralized offsets are conducted by disbursing officials.

• “Common law offset” means any offset authorized under the common law. It generally 

means an internal or interagency offset, rather centralized offset through a disbursing 

official.

• “Interagency offset” means an offset conducted through the cooperation of two or more 

agencies under any legal authority.

• “Internal offset” means an intra-agency offset under any legal authority. 

• “Non-centralized offset” means any offset not conducted through TOP, regardless of the 

legal authority. It includes internal and interagency offsets. 

• “Salary offset” means the offset of current federal pay, including military retiree pay, 

through various means (i.e., TOP, internal offset, and direct agency-to-agency offsets), 

pursuant to 5 U.S.C. § 5514 and 5 CFR §§ 550.1101-550.1110. The term does not 

include offset of final lump sum payments of federal salaries. 

• “State payment offset” means the offset of state payments to collect federal nontax debts 

pursuant to a reciprocal agreement entered into between Treasury and a state as 

authorized by 31 U.S.C. § 3716(h), 31 CFR § 285.6, and applicable state law. 

• “Tax refund offset” means the offset of federal tax refund payments to collect federal 

debts pursuant to 26 U.S.C. § 6402 and 31 U.S.C. § 3720A and implementing regulations 

at 31 CFR §§ 285.2, 285.3, 285.5, and 285.8. 

IV. Federal Payments

A. All Federal Payments Generally Subject to Offset

Generally, any federal payment may be offset to satisfy a delinquent federal nontax debt up to 

the amount of the debt or the amount of the payment. 26 U.S.C. § 6402(d); 31 U.S.C. 

§§ 3716(a), (c)(1)(A), 3720A(c); 31 CFR § 285.5(e)(1), (f)(2). A federal payment is any 

payment certified on a payment voucher to a federal disbursing official. Unless explicitly 

exempted by Congress or by the Secretary of the Treasury under statutory authority, all federal 

payments are subject to offset. 26 U.S.C. § 6402(d); 31 U.S.C. §§ 3701(a), 3716(a), (c), 

3720A(c); 31 CFR § 285.5(e). This means that no other person, including judges, payment 

agencies, creditor agencies, and contracting officers, may exempt a payment from offset. See 
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May 2023 Part III:43 Bureau of the Fiscal Service

Bosarge v. United States Dep't of Educ., 5 F.3d 1414, 1420 (11th Cir. 1993) (permitting offset of 

tax refund payment, including an earned income tax credit, notwithstanding a state’s personal 

property exemption); Executive Bus. Media Inc. v. U.S. Dep’t of Def., 3 F.3d 759, 762 (4th Cir. 

1993) (Attorney General is bound by the same laws that govern the agency he is representing); 

United States v. $3,174.00, 928 F.Supp.2d 1040, 1043-44 (E.D. Wis. 2013) (finding that the 

return of funds seized but not forfeited is subject to offset); 67 Fed. Reg. 78936, 78940 (2002) 

(“contracting officials . . . do not have the authority to exempt contract payments from 

centralized offset . . . Therefore, contract clauses prohibiting a federal agency from offsetting a 

payment generally do not apply to centralized offset”).

52

Some of the statutes protecting certain payments from creditors explicitly exempt the payment 

from offset. Other statutes exempt the payment from levies, garnishments, and “other legal 

process.” Because “other legal process” generally refers to a writ of process for the enforcement 

of a judgment, such statutes do not, on their face, exempt the payments from offset. Wash. State 

Dep’t of Soc. & Health Servs. v. Guardianship Estate of Keffeler, 537 U.S. 371, 385 (2003) 

(discussing the term “other legal process” in the context of 42 U.S.C. § 407, and stating that the 

term “should be understood to be process much like the processes of execution, levy, attachment, 

and garnishment, and at a minimum, would seem to require utilization of some judicial or quasijudicial mechanism . . . .”); Lockhart v. United States, 376 F.3d 1027, 1029 (9th Cir. 2004) 

(stating, without deciding, that offset “is a form of self-help that may not fall within the term 

[‘other legal process’].”), aff’d by Lockhart v. United States, 546 U.S. 142 (2005); Boughton v. 

U.S. Bank N.A., No. 1:20-cv-00542-KWR-SCY, 2021 U.S. Dist. LEXIS 64553, at *8 (D.N.M. 

Apr. 2, 2021) (finding that the overdraft fees applied to a checking account containing Social 

Security disability income pursuant to a voluntary contract with bank was not a “judicial or 

quasi-judicial mechanism” similar to execution, levy, attachment, and garnishment); 66 Comp. 

Gen. 260, *6-8 (1987) (while annuity payments were not subject to “other legal process” under 

10 U.S.C. § 1450(i), offset was not “other legal process”).

52 Similarly, courts do not have the authority to override the clear will of Congress, absent a constitutional 

deficiency. See Connecticut Nat’l Bank v. Germain, 503 U.S. 249, 253-54 (1992) (stating that “courts must presume 

that a legislature says in a statute what it means and means in a statute what it says there.”); Harris v. Garner, 216 

F.3d 970, 972 (11th Cir. 2000) (“[w]hen the import of words Congress has used is clear . . . we need not resort to 

legislative history, and we certainly should not do so to undermine the plain meaning of the statutory language”). 

This is true even if the court disagrees with the result. Astrue v. Ratliff, 560 U.S. 586, 598-604 (2010) (9-0 decision) 

(Sotomayor, J., concurring) (agreeing with the majority that offset was required by the plain meaning of the relevant 

statutes, but expressing dislike for the result); United States v. Sotelo, 436 U.S. 268, 279 (1978) (“However 

persuasive these considerations might be in a legislative forum, we as judges cannot override the specific policy 

judgments made by Congress in enacting the statutory provisions with which we are here concerned”). That is, 

courts do not have the authority to deny federal agencies the right of setoff, especially where Congress has explicitly 

provided for that right.
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May 2023 Part III:44 Bureau of the Fiscal Service

B. Special Rules for Certain Federal Nontax Payments

As described above, all federal payments are generally subject to offset to collect delinquent 

federal nontax debt. And, generally, the entire federal payment is subject to offset. There are 

several exceptions to these general rules. Some payments are entirely exempted from offset, 

while other payments are partially exempted from offset. This section will explore the rules 

applicable to certain federal nontax payments. 

Secretary-Exempted Payments: Means Tested

When requested by the head of the payment agency, the Secretary of the Treasury must 

exempt from centralized offset payments under means-tested programs. 31 U.S.C. 

§ 3716(c)(3)(B); 31 CFR § 285.5(e)(7)(i). Means-tested programs are defined as those

programs “which base eligibility on a determination that the income and/or assets of the

beneficiary are inadequate to provide the beneficiary with an adequate standard of living

without program assistance.” 31 CFR § 285.5(e)(7)(i). Fiscal Service has published

standards (TOP Exemption Standards) that prescribe the criteria that the Secretary will use to

evaluate and respond to such requests.53

Secretary-Exempted Payments: Non-Means Tested

When requested by the head of the payment agency, the Secretary may exempt non-means 

tested payments from administrative offset. 31 U.S.C. § 3716(c)(3)(B); 31 CFR

§ 285.5(e)(7)(ii). The payment agency may request that the Secretary exempt the entire

payment or a percent of the payment. 31 CFR § 285.5(e)(7)(ii). If granted, the exemption

applies to a class of payments, rather than to an individual payment. Id. Treasury uses the

TOP Exemption Standards to evaluate such requests. As required by statute, these standards

“give due consideration to whether administrative offset would tend to interfere substantially

with or defeat the purposes of the payment certifying agency’s program.” 31 U.S.C.

§ 3716(c)(3)(B); I TFM-3-6200. Among other things, the TOP Exemption Standards require

Treasury to consider whether offset would tend to interfere substantially or defeat the

purpose of the program under which the payments are made, whether the payments are

earmarked for a specific purpose, whether administrative offset is cost-effective and

administratively feasible, and whether administrative offset would tend to interfere

substantially or defeat an important national interest. I TFM-3-6200.

A listing of all means-tested and non-means tested payments that the Secretary has 

exempted from offset is available at https://www.fiscal.treasury.gov/files/debtmanagement/dmexmpt.pdf.

Loan Payments 

The Secretary exempted federal loan payments (other than travel advances) from 

centralized offset. 31 CFR § 285.5(e)(2)(vii) (exempting loan payments other than travel 

advances from 

53 The TOP Exemption Standards are published in the Treasury Financial Manual. See I TFM-3-6200, available at

https://tfm.fiscal.treasury.gov/v1/p3/c620.html. 
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May 2023 Part III:45 Bureau of the Fiscal Service

administrative offset).

54 The reason for the exemption of federal loan payments was 

explained as follows:

If a loan payment is offset, the debtor/payee pays off one agency by creating a debt owed 

to another agency. The Government’s interests in debt collection through offset are not 

advanced by paying off a debt owed to one agency by creating a debt owed to another.

67 Fed. Reg. at 78939. Generally speaking, however, delinquent debtors should not be 

receiving federal loan payments. See 31 U.S.C. § 3720B (barring delinquent nontax debtors 

from most types of federal financial assistance).

Loan payments in the form of travel advances, however, are not exempted from centralized 

offset. 31 CFR § 285.5(e)(2)(vii). While exemption was warranted for other types of loan 

payments, it was not necessary for travel advances for a few reasons. 67 Fed. Reg. at 78939. 

First, federal employees have an ethical duty to pay their debts. Id. (citing 5 CFR

§ 2635.101(b)(12)). Second, unlike other types of loans, travel advances are short-term loans 

that are repaid as soon as an employee travels. Id. Third, while delinquent nontax debtors 

are generally barred from receiving federal financial assistance, agencies generally do not 

have access to an employee’s credit report or other information to determine whether the 

employee owes a delinquent nontax debt prior to issuing a travel advance. Id.; see also 31 

U.S.C. § 3720B. 

Tariff Payments

Amounts payable under the tariff laws of the United States are excluded from offset under 31 

U.S.C. § 3716. 31 U.S.C. § 3701(d)(3). Tariff laws generally refer to laws related to the 

imposition and collection of customs duties on imported goods and are generally codified in 

Title 19 of the United States Code. 

Federal Salary Payments

Like other federal payments, federal salary payments may (and generally must) be offset for 

the collection of delinquent federal nontax debts. 5 U.S.C. § 5514(a)(1); 31 U.S.C. 

§ 3716(a), (c); 5 CFR part 550, subpart K; 31 CFR § 285.7(d). Unlike most other federal 

payments, however, the amount which can be offset is limited. Only 15% of a debtor’s 

disposable pay can be offset unless the debtor agrees to a higher deduction. 5 U.S.C. 

§ 5514(a)(1); 31 CFR § 285.7(g). Prior to offsetting a salary payment, the agency must have 

promulgated salary offset regulations. 5 U.S.C. § 5514(b); 5 CFR § 550.1104.

a) Salary Payments Defined

For the purposes of salary offset, federal salary payments include “basic pay, special pay, 

incentive pay, retired pay, retainer pay, or, in the case of an individual not entitled to 

54 Congress also exempted certain loan payments by statute. 31 U.S.C. § 3716(c)(1)(C) (exempting payments under 

title IV of the Higher Education Act of 1965 from offset).
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May 2023 Part III:46 Bureau of the Fiscal Service

basic pay, other authorized pay.” 5 U.S.C. § 5514(a)(1). As used here, “retired pay”

does not include retirement payments to former civilian employees certified by the Office 

of Personnel Management. In re Collection, 64 Comp. Gen. 907 (1985) (payments from 

the Retirement Fund are governed by 31 U.S.C. § 3716, not 5 U.S.C. § 5514). Rather, it 

includes retirement pay certified by the former employee’s agency (i.e., military retiree 

pay). Id. (citing 5 U.S.C. § 8311(3) (defining “retired pay”)); see also 5 CFR § 550.1103 

(defining “disposable pay”).

For the purpose of salary offset, salary payments also do not include final salary 

payments, lump sum payments, or travel advances or reimbursements. 5 U.S.C. 

§ 5514(a)(1) (if an employee ceases active duty with an agency while the debt is still 

outstanding, “deduction shall be made from subsequent payments of any nature due the 

individual from the agency concerned”); see also 31 CFR § 285.7(a)(6); 70 Fed. Reg. 

22797, 22798 (2005). These non-salary payments have historically been distinguished 

from current pay. See 64 Comp. Gen. 907 (noting that final pay has been historically 

distinguished from current pay). Non-salary payments generally can be offset up to 

100%. 31 U.S.C. § 3716 (generally requiring 100% offset of federal nontax payments); 

31 CFR § 285.7(a)(6) (the salary offset regulations do “not govern the centralized offset 

of final salary payments”); 70 Fed. Reg. at 22797 (a disbursing official may offset up to 

100% of a former employee’s final payment); see also Crenshaw v. Ala. Dep’t of Human 

Res., Civ. No. 07-2832, 2008 U.S. Dist. LEXIS 74121, *8-9 (D. Md. Sept. 23, 2008) 

(finding explicit authority for offset under 31 U.S.C. § 3716, including for travel 

reimbursement payments).

b) Disposable Income Defined

For the purpose of salary offset, disposable pay is defined as the “part of current basic 

pay, special pay, incentive pay, retired pay, retainer pay, or in the case of an employee 

not entitled to basic pay, other authorized pay remaining after the deduction of any

amount required by law to be withheld.” 5 CFR § 550.1103; see also 5 U.S.C. 

§ 5514(a)(5); 31 CFR § 285.7(b). For the purposes of this definition, “amounts required 

by law to be withheld” do not include garnishments for child support or alimony. 5 CFR

§ 550.1103. Nor do they include commercial garnishments. Id. Such amounts do, 

however, include amounts withheld for levies pursuant to the Internal Revenue Code or 

amounts withheld for federal employment taxes, Medicare, health care premiums, 

retirement contributions, and life insurance premiums. Id. (citing 5 CFR § 581.105(b)-

(f)). 
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Benefit payments

Like other federal payments, most federal benefit payments55 may (and generally must) be 

offset for the collection of delinquent federal nontax debt. 31 U.S.C. § 3716(a), (c); 31 CFR

§ 285.4. For example, given the explicit provisions of 31 U.S.C. § 3716, the following 

federal benefit payments are generally subject to mandatory offset:

• Payments under the Social Security Act56

• Payments under part B of the Black Lung Benefits Act57

• Payments administered by the Railroad Retirement Board (other than tier 2 

benefit payments)58

However, payments under the Black Lung Benefits Act (other than payments made under 

Part B), and payments under Longshore and Worker’s Compensation Act are generally not 

subject to offset. See 31 U.S.C. § 3701(d); 31 U.S.C. § 3716(c)(3); 30 U.S.C. § 932(b); 33 

U.S.C. § 916; 42 U.S.C. § 407. Regarding the offset of payments under the Social Security 

Act, the provisions of sections 205(b)(1), 809(a)(1), and 1631(c)(1) of the Social Security 

Act (regarding hearings)59 do not apply to any administrative offset executed 31 U.S.C. 

§ 3716 against benefits authorized by title II,

60 VIII,61 or title XVI62 of the Social Security 

Act, respectively.

Unlike most other federal payments, the amount which can be offset from payments to an 

individual under the Social Security Act, part B of the Black Lung Benefits Act, or any law 

administered by the Railroad Retirement Board (other than payments that such Board 

determines to be tier 2 benefits), is limited. By statute, a debtor’s benefit payments of up to 

$9,000 per year—or $750 per month—are exempt from offset. 31 U.S.C. 

§ 3716(c)(3)(A)(ii); 31 CFR § 285.4(e)(1)(iii). That is, the aggregate amount of a debtor’s 

monthly benefit payments must exceed $750 to qualify for offset. Id.63 In addition, each 

55 The statute defines federal benefit payments as amounts received by the debtor under “programs cited under 

clause (i)” of 31 U.S.C. § 3716(c)(3)(A). See 31 U.S.C. § 3716(c)(3)(A)(ii). 56 31 U.S.C. § 3716(c)(3)(A)(i)(I); see also Lockhart v. United States, 546 U.S. 142, 145 (2005) (holding that 

“[b]ecause the Debt Collection Improvement Act clearly makes Social Security benefits subject to offset, it provides 

exactly the sort of express reference that the Social Security Act says is necessary to supersede the anti-attachment 

provision”); Omegbu v. U.S. Dep’t of Treasury, 118 Fed. Appx. 989, 991 (7th Cir. 2004) (holding that offset of 

social security benefit payments was permissible, notwithstanding, 42 U.S.C. § 407, due to the express language of 

31 U.S.C. § 3716); Jones v. U.S. Dep’t of Educ., 2010 U.S. Dist. LEXIS 67609, 7-8 (E.D.N.Y. July 6, 2010)

(permitting offset of social security benefits for collection of federal student loan).

57 31 U.S.C. § 3716(c)(3)(A)(i)(II). 58 Id. § 3716(c)(3)(A)(i)(III). 59 42 U.S.C. §§ 405(b)(1), 1009(a)(1), and 1383(c)(1). 60 Federal Old-Age, Survivors, and Disability Insurance Benefits 61 Special Benefits for Certain World War II Veterans 62 Supplemental Security Income for the Aged, Blind, and Disabled 63 While 31 U.S.C. § 3716 permits aggregating all benefit payments received by a debtor in calculating the $750 

threshold, Fiscal Service currently calculates the floor separately for all covered benefit payments due to the 

operational complexity of aggregation. 63 Fed. Reg. 44986, 44986-7 (1998) (describing the phased implementation 

of benefit offset). 
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May 2023 Part III:48 Bureau of the Fiscal Service

such benefit payment can only be offset up to 15%. 31 CFR § 285.4(e)(ii).64 In other 

words, the amount of a benefit payment eligible for offset is the lesser of: 

(i) the amount of the debt; 

(ii) an amount equal to 15% of the monthly covered benefit payment; or, 

(iii) the amount, if any, by which the monthly covered benefit payment exceeds 

$750. 

31 CFR § 285.4(e); see also Yagman v. Whittlesey, 641 F. App’x 683, 683 (9th Cir. 2016)

(discussing the 15% offset limitation and the $750 floor). For example, if a debtor receives 

monthly benefits payments of $850, the amount which can be offset is the lesser of $127.50 

(15% of $850) or $100 (the amount by which $850 exceeds $750). In this example, 

assuming the debt is at least $100, the amount which can be offset is $100. 63 Fed. Reg. at 

44988.

Civil Service Retirement Payments

Federal civil service retirement annuity payments may (and generally must) be offset for the 

collection of federal nontax debt. 31 U.S.C. § 3716; 31 CFR § 285.5(e)(1). By regulation, 

Treasury exempted 75% of each retirement annuity payment from centralized offset. 31 CFR

§ 285.5(f)(2)(i)(C). 

By limiting the offset amount for federal retirement payments, these payments are treated 

similarly to other income payments protected by law, including private sector wages. See, 

e.g., 15 U.S.C. § 1673(a)(1) (limiting garnishments of disposable pay to 25%); 67 Fed. Reg. 

at 78940-41 (explaining Treasury’s reasons for exempting 75% of federal retirement 

payments). Although not statutorily required, Fiscal Service determined that this limit was 

warranted after balancing the Government’s interest in collecting debts within a reasonable 

time with the debtor’s interest in receiving some retirement income. Id. at 78940-41.

Settlements and Judgments 

Judgments and settlements that are paid by the United States are subject to centralized offset 

for the collection of federal nontax debt. 31 U.S.C. § 3716(a), (c); 31 CFR § 285.5(e)(1) 

(listing types of federal payments eligible for offset, including judgment payments); see also

31 U.S.C. § 3728(a) (requiring Treasury to withhold paying from the Judgment Fund a 

judgment against the United States for a debt owed by the plaintiff); Ikelionwu v. United 

States, 150 F.3d 233, 239 (2d Cir. 1998) (recognizing the right of the United States to setoff 

64 The 15% limitation was imposed by regulation in response to the concerns some members of Congress expressed 

when enacting the Debt Collection Improvement Act. 63 Fed. Reg. at 444987-8. The members were concerned that 

federal benefit recipients may depend on the benefit payments for a substantial part of their income. Id. (citing 

House Conference Report No. 104–537 on H.R. 3019, Balanced Budget Down Payment Act, II (April 25, 1996); 

Senate Report No. 104–330 on H.R. 3756, Treasury, Postal Service, and General Government Appropriation Bill 

1997 (July 23, 1996); Conference Report accompanying the 1997 Appropriations Act, Congressional Record, 

September 28, 1996, H12005). With these concerns in mind, Fiscal Service imposed a 15% limit on the offset of 

federal benefit payments. 31 CFR § 285.4(e)(ii).
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judgment payments to collect debts); United States v. Cohen, 389 F.2d 689, 690 (5th Cir. 

1967) (“it is the duty of the Comptroller General to withhold payment to a judgment creditor 

as an off-set against the indebtedness of that creditor to the United States”). The full amount 

of these payments may be offset. 31 U.S.C. § 3716(c)(1)(A); 31 CFR § 285.5(e)(9). 

When entering into a settlement agreement, agencies—or the Attorney General on their 

behalf—are not authorized to exempt the settlement payment from offset (which is 

mandatory), as the authority to exempt payments lies with Congress. See Applegate v. 

United States, 52 Fed. Cl. 751, 758 (Fed. Cl. 2002) (stating in dicta that “[t]he only exception 

to the Attorney General’s otherwise plenary settlement authority arises where there is some 

‘clear and unambiguous directive from Congress’ that limits that authority”) (citing United 

States v. Hercules, Inc., 961 F.2d 796, 798 (8th Cir. 1992)); Executive Bus. Media, Inc., 3 

F.3d at 762; see also Johnston v. Dep’t of the Treasury, 2004 M.S.P.B. LEXIS 2591 

(M.S.P.B. Sept. 30, 2004) (holding that a court would not enforce the terms of a settlement 

agreement between the IRS and a former employee against the Department of Education, and 

so the offset of the IRS settlement payments to satisfy an student loan debt did not violate the 

settlement agreement). That is, while the Attorney General has broad discretion and plenary 

authority to settle disputes, the Attorney General, in representing a federal agency, is bound 

by the same laws that govern the agency. Executive Bus. Media Inc., 3 F.3d at 762.

Additionally, neither the agency entering into the settlement agreement nor the Attorney 

General are legally obligated to inform a plaintiff that settlement funds may be subject to 

offset. See Washington v. United States, No. 2:18-cv-00748 (D. Ariz. Jan. 3, 2020); Fobke v. 

United States, 2:15-cv-00781 (D. Ariz. Oct. 20, 2017); Walker v. United States, No. 3:13-cv0205, 2014 U.S. Dist. LEXIS 76780, at *14 (M.D. Pa. June 3, 2014)). 

C. Special Rules for Federal Tax Payments

As described above, all federal payments—including tax refund payments—are generally subject 

to offset to collect delinquent federal nontax debt. 31 U.S.C. § 3720A (requiring tax refund 

offset); 26 U.S.C. § 6402(d) (same); see also 31 CFR § 285.2. Congress has, at times, expressly 

exempted certain tax payments from offset, such as advanced child tax credit payments 

authorized by the American Rescue Plan Act. See, e.g., Pub. L. No., § 9601(c), 135 Stat. 142

117-2 (2021). 

Joint Taxpayers

Tax refund payments are often made jointly to two persons (e.g., husband and wife). As with 

other joint payments, a joint tax refund payment is subject to offset for a debt of either person. 

31 CFR § 285.5(e)(4); see also 31 CFR § 285.2(f). If an offset occurs for a debt owed by only 

one spouse, the non-debtor spouse (i.e., the “injured spouse”) can contact the IRS to claim the 

portion of the tax refund to which the non-debtor spouse is entitled. 31 CFR § 285.2(f); 67 

Fed. Reg. at 78939-40; Form 8379, Injured Spouse Allocation. 
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Disclosure Limitations

Information about tax refund payments generally constitutes “return information.” See 31 

U.S.C. § 6103(b)(2). To the extent an agency has received federal tax information, the 

agency may be limited in whether and under what circumstances it may disclose that 

information. See generally 26 U.S.C. § 6103; 31 CFR § 285.2(j); see also 62 Fed. Reg. 

34175, 34176 (1997) (Fiscal Service “will provide creditor agencies with sufficient 

information to identify the debt for which amounts have been collected, but will not disclose 

the payment source for the amounts collected”). 

D. Special Rules for State Payments

Certain payments made by states may be offset to collect federal nontax debt. 31 U.S.C. 

§ 3716(h); 31 CFR § 285.6. This is done through Fiscal Service’s State Reciprocal Offset 

Program, which allows states to collect certain debts through the offset of federal nontax 

payments in return for allowing the United States to collect federal nontax debts through the 

offset of certain state payments. States participating in this reciprocal offset program must enter 

into an agreement with Fiscal Service. This agreement, among other things, sets forth which 

state payments will be eligible for offset to collect federal nontax debts. 

V. Federal Nontax Debts

A. All Federal Nontax Debts Are Subject to Offset

When thinking about offset, it is necessary to distinguish between the general rules that apply to 

payments and the general rules that apply to debts. This section will discuss the federal nontax 

debts that may be collected through the offset of certain federal and state payments. 

While there are certain payments that are exempt from centralized offset, all delinquent, legally 

enforceable federal nontax debts are required to be collected through offset. 31 U.S.C. § 3716; 

31 U.S.C. § 3720A. And, as described in Section VI below, federal agencies are required to 

submit debts delinquent for more than 120 days to TOP (and generally may submit them earlier). 

B. Eligible Debts

Debt Defined

A debt is defined as “any amount of funds or property that has been determined by an 

appropriate official of the Federal Government to be owed to the United States by a person, 

organization, or entity other than another Federal agency.” 31 U.S.C. § 3701 (definition of 

debt for purposes of Subchapter II, Chapter 37 of Title 31 of the United States Code); see 

also 31 CFR §§ 285.2(a) (definition of debt for centralized offset of tax refund payments); 

285.5(b) (definition of debt for centralized offset of federal nontax payments). For purposes 

of centralized offset, an eligible debt must be past-due and legally enforceable. 31 CFR 

§ 285.2(b)(1), (d)(1), 285.5(d)(3)(i). The debt must also be for more than $25 and not 

secured by collateral subject to a pending foreclosure action unless the offset will not affect 
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the Government’s rights to the secured collateral. 31 CFR §§ 285.2(b)(1), 

(d)(1), 285.5(d)(3)(i). Debts subject to the automatic stay or discharge injunction due to 

bankruptcy are not legally enforceable for offset purposes. Id. § 285.5(b).

Agency Determination

To be eligible for offset, a debt generally must be determined to be due by an agency official. 

31 U.S.C. § 3701(b); 31 CFR § 285.5(a), (b). An appeal of a final agency decision does not 

necessarily render the debt unenforceable. 70 Fed. Reg. 3142, 3143 (2005) (“Statutes, 

regulations and agency guidance applicable to particular debts may provide for appeals after 

a final agency decision on any matter related to the debt”); 31 CFR § 285.5(b) (definition of 

“legally enforceable”). 

Due Process

As described in Part I.B of this Treatise, the United States may not deprive a person of 

property without first providing due process. U.S. CONST. amend. V. Prior to collecting a 

debt through offset, agencies generally must provide the debtor with due process.

Offsets conducted pursuant to statute or common law must meet the requirements of the 

Constitution, which are generally defined by statute and regulation. Most statutory offset 

authorities provide for due process requirements that are specific to the type of offset being 

conducted. As such, the specific due process requirements will be discussed separately for 

administrative and tax refund offset in Section VI below.

C. Excluded Debts/Debtors

Generally, all debts can be collected through offset. However, there are some debts (or 

debtors) that are excluded from the statutory administrative and tax refund offset regimes.

Federal Agencies

Federal agencies are not debtors for the purposes of federal nontax debt collection. A debtor 

is any person, other than a federal agency, that owes a debt to the United States, including 

individuals, companies, states and localities, and other entities. 31 U.S.C. § 3701(c) (“In 

section 3716 . . . of this title, the term ‘person’ does not include an agency of the United 

States Government”); see also Gov’t Printing Office—Interest on Late Payments, B-260532, 

1995 U.S. Comp. Gen. LEXIS 317, at *3 (Comp. Gen. May 9, 1995) (stating that 

“interagency claims are not subject to remedies otherwise available for the collection of such 

debts”). 

Foreign Sovereigns

Foreign sovereigns are debtors for the purposes of federal nontax debt collection. 31 U.S.C. 

§ 3701(b); 31 CFR § 285.5(d)(3)(iii). However, unlike debts owed by other types of debtors, 

creditor agencies may, but are not required to, submit debts owed by foreign sovereigns to 
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Fiscal Service for offset purposes. 31 CFR § 285.5(d)(3)(iii); 67 Fed. Reg. at 78937 

(permitting this exclusion under 31 U.S.C. § 3716(c)(5), which authorizes the Secretary to 

prescribe the rules necessary to carry out the centralized offset program). This exclusion 

applies to foreign sovereigns, but not privately owned foreign corporations or foreign 

individuals. Treasury deemed this exclusion appropriate because requiring submission of 

such debts for offset purposes could interfere with important foreign policy goals. 67 Fed. 

Reg. at 78937.

Tax and Tariff Debts

Debts arising under the Internal Revenue Code or the tariff laws of the United States are also 

not be considered debts for the purpose of statutory offset, as that term is used in this 

Treatise. 31 U.S.C. § 3701(d)(1), (3); see also Lyle v. Commodity Credit Corp., 104 F.3d 

367, 1996 U.S. App. LEXIS 33314, at *6 (10th Cir. 1996) (stating that “31 U.S.C. § 3716 is 

inapplicable to debts under the Internal Revenue Code”). Because of the unique nature of tax 

and tariff debts, this Treatise does not address what offset rights the Government may 

possess to collect such debts.

Debts arising under certain portions of the Social Security Act

Offset under 31 U.S.C. § 3716 generally does not apply to debts arising under the Social 

Security Act, except to the extent the debt arose from an overpayment of benefits. 31 U.S.C. 

§ 3701(d)(2); 42 U.S.C. §§ 404(a)(1)(A), 1631(b)(4); 31 CFR § 285.5(b) (definition of “Debt 

or claim”); see also 31 U.S.C. § 3720A(f).

Hardship

A creditor agency can request that the amount of an offset be reduced below the maximum 

allowed by law. 31 CFR § 285.5(d)(12). The debtor, however, is not entitled to such a 

reduction. See id. This reduction generally may only occur when the creditor agency has 

determined that a lesser offset amount is reasonable and appropriate based on the debtor’s 

financial circumstances. Id. A certified financial statement from the debtor will generally be 

necessary for this determination. Id.
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D. No Statute of Limitations 

Unless Congress explicitly provides for a limitations period, federal agencies will not be time 

barred from collecting their debts through any means, including offset. In general, there is no 

statute of limitations for offset.65 31 U.S.C 3716(e)(1) (explicitly stating that no time limitation 

on collection through administrative offset shall be effective); 31 CFR § 285.5(d)(3)(v) (stating 

that a debt can be collected through centralized offset “irrespective of the amount of time the 

debt has been outstanding”); Blanca Tel. Co. v. FCC, 991 F.3d 1097, 1110 (10th Cir. 2021)

(stating that the DCIA “contains no limitations period preventing [] debt collection”). Moreover, 

a defense of laches against the United States will generally fail. Guaranty Trust Co. v. United 

States, 304 U.S. 126, 132 (1938) (stating that the sovereign is exempt from the consequences of 

its laches); Lee v. Spellings, 447 F.3d 1087, 1089-90 (8th Cir. 2006) (holding that the United 

States retained its right to collect through administrative offset and the defense of laches “may 

not be asserted against the government”). 

Even when a statute of limitations for pursuing a civil action has expired, the United States can 

still collect via offset. BP Am. Prod. Co. v. Burton, 549 U.S. 84, 96-99 (2006) (stating that a 

statutory limit on a judicial remedy does not limit administrative remedies); Thomas v. Bennett, 

856 F.2d 1165, 1168-69 (8th Cir. 1988) (the statute of limitations in 28 U.S.C. § 2415(a) “merely 

eliminates one potential remedy” to collect the debt and did not, therefore, eliminate the right of 

offset); Gerrard v. U.S. Office of Educ., 656 F. Supp. 570, 574 (N.D. Cal. 1987) (holding that the 

fact that the statute of limitations for the remedy of a civil action had been cut off did not 

preclude the Government from collecting the debt by administrative offset); Matter of Dep’t of 

Homeland Sec. Inspector Gen., 2009 U.S. Comp. Gen. LEXIS 42, at *19 (Comp. Gen. Mar. 13, 

2009) (agency “should be alert to opportunities that may be available to offset or withhold other 

funds payable to the” debtor, even if recovery is time barred by another statute). 

65 While Congress originally provided for a ten year statute of limitations for administrative offset, it removed this 

limitation in 2008. Food, Conservation and Energy Act of 2008, Pub. L. 110-234, § 14219, 122 Stat. 923. An effect 

of this amendment is that debts that were once outside the umbrella of administrative offset due solely to the statute 

of limitations once again became eligible to be collected via administrative offset. See id; 74 Fed. Reg. 27707,

27707-08 (2009). Prior to collecting these older debts, however, federal agencies may need to provide the debtor 

with additional notification of their intent to offset. See, e.g., 31 CFR § 285.5(d)(6)(iii) (for debts delinquent more 

than ten years as of June 11, 2009, agency must send the debtor notice of its intent to offset); id. § 285.2(d)(6)(ii) 

(similar); id. § 285.7(d)(7) (similar). This additional notification is intended to alert a debtor that the statute of 

limitations the debtor may have been relying upon is no longer applicable. 74 Fed. Reg. at 27707-08. 
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VI. Centralized (Disbursing Official) Offset 

Fiscal Service has the operational responsibility for TOP, through which federal agencies can 

collect delinquent debts through the centralized offset of federal tax and nontax payments.66 31 

U.S.C. § 3716(c); 31 U.S.C. § 3720A(h); 31 CFR § 901.3; 31 CFR §§ 285.2, 285.4-285.7. Fiscal 

Service also has authority to issue regulations regarding the offset of tax and nontax payments 

for the collection of federal nontax debts. 31 U.S.C. §§ 3716(b)(1), (c)(5), 3720A(d). 

Federal agencies are required to submit their delinquent nontax debts to Fiscal Service for offset 

purposes. 31 U.S.C. § 3720A (requiring tax refund offset); 31 U.S.C. § 3716(c)(6) (requiring 

offset of federal nontax payments); 31 CFR § 285.5(d) (same); see also Anand v. U.S. Nat’l Sec. 

Agency, No. 5:05-cv-469 (FJS/GJD), 2006 U.S. Dist. Lexis 82165, at *8 (N.D.N.Y. Nov. 9, 

2006) (statute’s mandatory language establishes a lack of agency discretion in referring a valid 

delinquent debt for offset purposes). When an agency refers a debt to Fiscal Service for offset 

purposes, the debt will generally be subject to collection through offset of any federal payment 

(and certain state payments) made to the debtor. 31 U.S.C. § 3716; 31 U.S.C. § 3720A.

Prior to submitting a debt to TOP, however, agencies must satisfy the prerequisites of each type 

of offset. TOP is programmed to comply with a variety of laws, including laws that govern how 

debts can be collected, what payments can be intercepted, and how offset can be conducted. 

A. Administrative Offset

Creditor Agency Must Use Centralized Administrative Offset

Creditor agencies are required to use centralized offset of federal nontax payments and 

certain state payments to collect federal nontax debts once debts are delinquent for 120 days. 

31 U.S.C. § 3716(c)(6)(A). Creditor agencies may use administrative offset to collect 

delinquent debts at an earlier time if they have satisfied the necessary prerequisites. See 31 

U.S.C. § 3716(a). 

Creditor Agency Must Satisfy Prerequisites to Centralized Administrative Offset

a) Attempt to Collect

Prior to initiating an administrative offset, a creditor agency must “try” to collect a debt 

under 31 U.S.C. § 3711(a). 31 U.S.C. § 3716(a). The statute does not specifically 

delineate what constitutes a sufficient attempt to collect but sending a demand letter 

generally suffices. See McCall Stock Farms, Inc. v. United States, 14 F.3d 1562, 1570 

(Fed. Cir. 1993) (interpreting similar language under an agency’s regulation and finding 

that the agency was not required to foreclose on collateral, mediate, or file suit before 

initiating offset). 

66 TOP also includes programs to collect certain state debts (including the State Reciprocal, Child Support, State 

Income Tax, and Unemployment Insurance Compensation Programs) and a program to collect certain federal tax 

debts (i.e., the Federal Payment Levy Program whereby TOP is used to process levies served by the IRS). 
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b) Notice

Prior to collecting a claim through administrative offset, agencies must first notify the 

debtor that the agency intends to use administrative offset to collect the debt. 31 U.S.C. 

§ 3716(a)(1). Agencies must also provide the debtor with written notice of the type and 

amount of the claim, and an explanation of the debtor’s rights. Id. § 3716(a)(1) (setting 

forth the statutory requirements for administrative offset); 31 CFR § 285.4 (setting forth 

the regulatory requirements for administrative offset of benefit payments); 31 CFR

§ 285.5 (setting forth the regulatory requirements for centralized offset); 31 CFR § 285.7 

(setting forth the regulatory requirements for salary offset). 

The precise wording of the notice is left to the creditor agency. But see Christensen v. 

United States, 05-cv-4060, 2006 U.S. Dist. LEXIS 26224, at *19 (W.D. Mo. Mar. 23, 

2006) (indicating that the agency’s notice should have explicitly mentioned

“administrative offset”). Notice must be written, and reasonably calculated to reach the 

debtor, meaning that it can be provided through first class mail, certified mail, or, in some 

circumstances, by email. 31 U.S.C. § 3716(a) (requiring “written notice”); 31 CFR

§ 901.3(b)(4)(ii)(A) (same); 31 CFR § 285.5(d)(6) (requiring “[w]ritten notification”); 

Setlech v. United States, 816 F. Supp. 161, 162, 166-67 (E.D.N.Y. 1993) (holding that an 

agency must give notice of referral for offset that is “‘reasonably calculated, under all the 

circumstances, to apprise interested parties of the pendency of the action and afford them 

an opportunity to present their objections’” (quoting Mullane v. Central Hanover Bank & 

Trust, 339 U.S. 306, 314 (1950) and finding mail service to provide reasonable notice). 

Actual notice is not required, as long as the agency can prove that its notice was sent to 

the debtor’s last known address. 31 CFR § 285.5(d)(6) (requiring that notice be sent to 

the “debtor's most current address known to the agency”); Omegbu v. U.S. Dep’t of 

Treasury, 118 F. App’x 989, 991 (7th Cir. 2004) (notice mailed to debtor’s last known 

address was sufficient); Nelson v. Diversified Collection Servs., 961 F. Supp. 863, 868 

(D. Md. 1997) (stating that “[t]he key to the analysis, however, is whether the notice was 

mailed, not whether it was received”); Setlech v. United States, 816 F. Supp. 161, 162, 

166-67 (E.D.N.Y. 1993) (notice to last known address was sufficient for tax refund offset 

purposes, even if debtor never received notice), aff’d, 17 F.3d 390 (2d Cir. 1993); but see

Jones v. Flowers, 547 U.S. 220, 235 (2006) (in the context of the sale of real property, 

holding that reasonable, additional steps were necessary, if available, upon agency 

learning its notice attempt was ineffective); see also Part I.B.II.B(2) of this Treatise.

Notice must be given at least sixty days prior to submission of the debt for offset. 31 

CFR § 285.5(d)(6)(ii)(A). While the administrative offset statute does not specify a 

notice period, Fiscal Service’s offset regulations provide for a sixty-day notice period to 

match the notice period statutorily required for tax refund offset. See id.; see also 31 

U.S.C. §§ 3716, 3720A(b)(2).
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c) Opportunity to Review Records

Prior to collecting a claim through administrative offset, a federal agency must provide 

the debtor with “an opportunity to inspect and copy the records of the agency related to 

the claim.” 31 U.S.C. § 3716(a)(2); 31 CFR § 285.5(d)(6)(ii)(B). The agency is 

generally not required to produce every relevant document in the agency’s possession 

upon a debtor’s request to review the agencies records. See American Airlines v. Austin, 

826 F. Supp. 553, 556-57 (D.D.C. 1993) (interpreting 31 U.S.C. § 3716(a)(2)). Rather, 

production of the documents on which the agency relied to render its determination is 

generally sufficient. See id.

d) Opportunity for Agency Review 

Prior to collecting a claim through administrative offset, a federal agency must provide 

the debtor with “an opportunity for a review within the agency of the decision of the 

agency related to the claim.” 31 U.S.C. § 3716(a)(3); 31 CFR § 285.5(d)(6)(ii)(C). A 

written review or “paper hearing” will generally suffice. 31 U.S.C. § 3716(a)(3); 31 CFR 

§ 285.5(d)(6)(ii)(C). Similarly, an oral hearing is generally not required prior to 

conducting an administrative offset, except where the “validity of the debt turns on an 

issue of credibility or veracity.” 31 CFR § 901.3(e).

If a debtor requests a review, the agency must review its records, as well as any evidence 

presented by the debtor. Id. § 285.5(d)(6)(ii)(C); id. § 901.3(e)(4); Shlikas v. SLM Corp., 

Civ. No. 09-2806, 2010 U.S. Dist. LEXIS 88371, at *17-19 (D. Md. Aug. 25, 2010) 

(denying agency’s request for summary judgment because nothing in the record showed 

that the agency considered the debtor’s objections and requests for documents, nor did 

they show that the debtor was advised of the agency’s decision). After requesting agency 

review, the agency must also inform the debtor of the agency’s determination. See id. 

e) Opportunity to Enter into Repayment Agreement

Prior to collecting a claim through administrative offset, a federal agency must provide 

the debtor with “an opportunity to make a written agreement with the head of the agency 

to repay the amount of the claim.” 31 U.S.C. § 3716(a)(4); see also 31 CFR 

§ 285.5(d)(6)(ii)(C). One distinction between common law offset and offset under 31 

U.S.C. § 3716 is that “[t]here is no constitutional requirement that debtors be allowed to 

negotiate settlements on debts owed to the government.” Wisdom v. Dep’t of Hous. & 

Urban Dev., 713 F.2d 422, 425 (8th Cir. 1983). Under the statute, however, agencies 

must allow a debtor to pay a debt over time pursuant to a repayment agreement if 

necessitated by the debtor’s financial situation. 31 U.S.C. § 3716(a)(4). While debtors 

are entitled to the opportunity to enter into a repayment agreement, the creditor agency 

has the discretion to determine whether the terms of the proposed repayment agreement 

are reasonable. 31 CFR § 901.8. Generally, an agency should not agree to a repayment 

agreement if the debtor is financially able to pay the full amount of the debt in one lump 

sum. Id. Agencies should also establish procedures to ensure that the terms of 

repayment agreements are based on a debtor’s ability to pay and the size of the debt. Id. 
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May 2023 Part III:57 Bureau of the Fiscal Service

f) Additional Due Process Required for Salary Offset

Prior to offsetting federal salary payments, agencies are generally required to provide due 

process rights that go beyond what is required for general centralized administrative 

offset. 5 U.S.C. § 5514(a)(2); 31 CFR § 285.7(i).

i. Notice

Prior to conducting salary offset, the creditor agency must provide the debtor with 

30 days67 written notice of the nature and amount of the indebtedness determined by 

an agency official to be due, the intention of the agency to initiate proceedings to 

collect the debt through deductions from pay, and an explanation of the rights of the 

debtor (as well as how to exercise such rights). 5 U.S.C. § 5514(a)(2)(A); 31 CFR 

§ 285.7(d)(3)(iii); 5 CFR § 550.1104(d). The notice must also inform the debtor of 

the frequency, amount, and duration of the intended deduction(s), and an explanation 

of the agency’s policy regarding the charging of interest, penalties, and administrative 

costs. 5 CFR § 550.1104(d)(3)-(4). 

ii. Opportunity to Dispute

Prior to initiating salary offset, the creditor agency must provide the debtor with an 

opportunity to inspect and copy the agency’s records regarding the debt and an 

opportunity to enter into a written repayment agreement. 5 U.S.C. § 5514(a)(2)(B)-

(C); 5 CFR § 550.1104. The agency must also provide the debtor with an opportunity 

for a hearing on the existence or amount of the debt and, for debtors whose repayment 

schedule was established other than by a written agreement, concerning the terms of 

the repayment schedule. 5 U.S.C. § 5514(a)(2)(D); 5 CFR § 550.1104.

Such a hearing must be provided if the debtor requests a hearing within 15 days of 

receiving the notice in accordance with the agency’s procedures. 5 U.S.C. 

§ 5514(a)(2); 5 CFR § 550.1104. A timely request for a hearing will stay the 

commencement of collection proceedings. 5 U.S.C. § 5514(a)(2); 5 CFR 

§ 550.1104(d)(9). An untimely hearing will not stay the commencement of collection 

proceedings unless the hearing official fails to issue a final decision within 60 days 

after the hearing request. See 5 U.S.C. § 5514(a)(2); 5 CFR § 550.1104(d)(10), (f). 

Unlike hearings in most other debt collection contexts, a salary offset hearing may not 

be conducted by an individual under the supervision or control of the head of the 

agency. 5 U.S.C. § 5514(a)(2); 5 CFR § 550.1104(d)(7). Administrative law judges 

are not considered to be under the supervision or control of the head of the agency. 

See 5 CFR § 930.201. However, there is no requirement that a hearing official must 

be an administrative law judge. See 5 U.S.C. § 5514. The hearing official is required 

67 If referring the debt to TOP for centralized administrative offset, notice must be given at least sixty days prior to 

submission of the debt for offset, and the notice must be sent to the debtor’s last known address. 31 CFR 

§ 285.5(d)(6)(ii)(A).
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to issue a final decision at the earliest practicable date, but not later than sixty days 

after the hearing request. 5 U.S.C. § 5514(a)(2); 5 CFR § 550.1104(d)(10). 

iii. Exceptions

While agencies are generally required to provide the debtor with notice and an 

opportunity to be heard prior to offsetting a salary payment, there are some 

exceptions that permit the agency to provide post-deprivation due process. 5 U.S.C. 

§ 5514(a)(3); 5 CFR § 550.1104(c). For example, an agency can make routine intraagency pay adjustments attributable to clerical or administrative errors or delays in 

processing a past salary payment that occurred within the preceding 4 pay periods, 

without first providing notice. 5 U.S.C. § 5514(a)(3); 5 CFR § 550.1104(c)(2). 

Similarly, an agency can make any intra-agency adjustment to pay arising out of an 

employee’s election of coverage or a change in coverage under a federal benefits 

program which require periodic deductions from pay if the amount to be recovered 

was accumulated over 4 pay periods or less. 5 CFR § 550.1104(c)(1). Finally, an 

agency may make any intra-agency adjustments in pay that amount to $50 or less. 

5 U.S.C. § 5514(a)(3); 5 CFR § 550.1104(c)(3). If the agency does not provide prior 

due process, however, it must provide the debtor with written notice at the time of the 

adjustment or as soon thereafter as practical. 5 U.S.C. § 5514(a)(3); 5 CFR 

§ 550.1104(c). This written notice should inform the debtor about the amount and 

nature of the adjustment and a point of contact for contesting the adjustment. 5 

U.S.C. § 5514(a)(3); 5 CFR § 550.1104(c). In these circumstances, a hearing is 

generally not required. 5 U.S.C. § 5514(a)(3); 5 CFR § 550.1104(c). 

B. Tax Refund Offset68

Creditor Agency Must Use Tax Refund Offset

Tax refund offset is “withholding or reducing a tax refund payment by an amount necessary 

to satisfy a debt owed by the payee(s) of a tax refund payment.” 31 CFR § 285.2(a). It is 

authorized by 31 U.S.C. § 3720A and 26 U.S.C. § 6402(d). Creditor agencies are generally 

required to submit their delinquent federal nontax debts to Treasury for tax refund offset 

purposes, and Treasury (as a disbursing office) is generally required to offset tax refund 

payments to collect submitted debts. 31 U.S.C. § 3720A; 31 CFR § 285.2(b)(1).69 

68 Tax refund offset, as discussed in this chapter, applies to the collection of federal nontax debts and certain state 

debts; it does not apply to the collection of federal tax debt. While outside of the scope of this Treatise, Treasury is 

authorized to credit the amount of a tax overpayment to collect a tax debt. 26 U.S.C. § 6402(a); 26 CFR § 301.6402-

1. 

69 The Tennessee Valley authority may, but is not required to, report delinquent nontax debts to Treasury for tax 

refund offset. 31 U.S.C. § 3720A(a) (“[A]ny agency subject to section 9 of the Act of May 18, 1933 (16 U.S.C. 

831h), owed such a debt may . . . notify the Secretary of the Treasury at least once each year of the amount of such 

debt.”); 31 CFR § 285.2(b)(1). 
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Creditor Agency Must Satisfy Prerequisites to Tax Refund Offset

a) Attempt to Collect

Prior to using tax refund offset, agencies must first attempt to collect the debt. 31 U.S.C. 

§ 3720A(b)(4)-(5); 31 CFR § 285.2(d)(1)(ii). The statute does not specifically delineate 

what constitutes a sufficient attempt to collect, but an agency will meet the requirement 

by taking minimal steps toward collection, such as issuing a demand letter and providing 

due process. 62 Fed. Reg. at 34177 (explaining that the requirement that agencies must 

attempt to collect prior to using tax refund offset does not require that the agencies first 

report the debt to a credit bureau or attempt to collect using administrative or salary 

offset); see also McCall Stock Farms, Inc., 14 F.3d at 1570 (interpreting similar language 

under an agency’s regulation and finding that the agency was not required to foreclose on 

collateral, mediate, or file suit before initiating offset).

b) Notice

Prior to collecting a claim through tax refund offset, agencies must first notify the debtor 

that the agency proposes to use tax refund offset to collect the debt. 31 U.S.C. 

§ 3720A(b)(1); 31 CFR § 285.2(d)(1)(B), (2); Games v. Cavazos, 737 F. Supp. 1368, 

1377-78 (D. Del. 1990) (notice that an offset might occur is sufficient and agencies need 

not provide actual notice that an offset will occur). This notice must be sent at least sixty 

days prior to conducting a tax refund offset. 31 U.S.C. § 3720A(b)(2); 31 CFR

§ 285.2(d)(1)(B).

While agencies are strongly encouraged to provide written notice, the agency can 

determine for itself what method of notice to use. Notice can be provided through first 

class mail, certified mail, or email, so long as it is reasonably calculated to notify the 

debtor. See 31 U.S.C. § 3720A (requiring written notification, without specifying the 

method of notification); 26 U.S.C. § 6402(d) (not specifying notice requirements); 31 

CFR § 285.2(d) (2)(i) (agencies will satisfy the requirement to notify a debtor if it “uses 

the current address information contained in the agency’s records”); Gerrard, 656 F. 

Supp. at 575 (noting that the tax refund offset statute “does not require any particular 

form of notice”). Actual notice is not required. In re Huff, 343 B.R. 136, 143 (W.D. Pa. 

2006) (stating that actual notice is not required and finding that a single notice—rather 

than annual notice—to the debtor was sufficient); Setlech, 816 F. Supp. at 167 (stating 

that “[t]he means used to provide need not eliminate all risk of non-receipt”); Gerrard, 

656 F. Supp. at 575 (notice by mail to the debtor’s regular address was sufficient, 

regardless of whether the debtor actually received notice).

c) Opportunity for Agency Review

In addition to providing notice, agencies must provide the debtor with an opportunity to 

dispute the use of tax refund offset in a manner that meets minimum constitutional 

requirements for due process. Prior to using tax refund offset, agencies must first provide 
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May 2023 Part III:60 Bureau of the Fiscal Service

the debtor with at least 60 days to present evidence that all or part of such debt is not 

past-due or not legally enforceable. 31 U.S.C. § 3720A(b)(3); 31 CFR § 285.2(d). 

Agencies must consider any evidence presented and inform the debtor of the results of 

their review. 31 U.S.C. § 3720A(b)(3); 31 CFR § 285.2(d). 

Limited Judicial Review

No court has jurisdiction to review Treasury’s actions to offset a federal tax refund payment. 

The Internal Revenue Code deprives courts from having jurisdiction “to hear any action, 

whether legal or equitable, brought to restrain or review” a tax refund offset. 26 U.S.C. 

§ 6402(g); 31 CFR § 285.2(i); Craig v. United States, No. 1:20-cv-02538-TWP-MJD, 2021 

U.S. Dist. LEXIS 216408, at *10-11 (S.D. Ind. Nov. 8, 2021) (stating that section 6402(g) 

was a jurisdictional bar that prevents federal courts from reviewing claims regarding the 

interception of a tax refund payment under 6402(e)); Hicks v. United States, 130 Fed. Cl. 

222, 231 (2017) (finding that suit against Treasury for carrying out its statutory obligation 

was prohibited but that plaintiff could still sue the creditor agency); Mihretu Bulti Dasisa v. 

Dep't of Treasury, 951 F. Supp. 2d 45, 46 (D.D.C. 2013) (same); Richardson v. Baker, 663 F. 

Supp. 651, 654 (S.D.N.Y. 1987) (rejecting plaintiff’s claim that the intercept program is 

unconstitutional and finding that the court lacked jurisdiction “to review an authorized 

reduction made by the Secretary of the Treasury”); Satorius v. U.S. Dep’t of Treasury-IRS, 

671 F. Supp. 592, 594 (E.D. Wis. 1987) (finding that the court was precluded from reviewing 

IRS’s actions in reducing a tax refund to collect a child support debt and that “Congress 

clearly recognized that the IRS does not have the information and resources needed to 

adjudicate the validity of the alleged [debt]”). 

Courts do, however, have jurisdiction over the creditor agency’s actions. The Internal 

Revenue Code does not “preclude any legal, equitable, or administrative action against the 

Federal agency or State to which the amount of such reduction was paid.” 26 U.S.C. 

§ 6402(g); Thomas v. Bennett, 856 F.2d 1165, 1167-1168 (8th Cir. 1988) (creditor agency’s 

actions reviewable by court). 

C. Offset Process

Payment Has Been Made

When a payment is offset, the payment agency has satisfied its payment obligation; 

specifically, the payment is made in the form of a reduction of a debt, rather than, for 

example, a deposit into the bank account of the person entitled to payment (PEP). 31 U.S.C. 

§ 3716(c)(2); 31 CFR §§ 285.5(d)(10)(i), (ii), (v), § 285.5(e)(9). Thus, the net effect on the 

debtor’s overall net worth and financial situation is the same regardless of whether the 

payment is offset.
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Person Entitled to Payment

a) Generally

Payments are generally subject to offset for debts owed by the PEP. 70 See Astrue v. 

Ratliff, 560 U.S. 586, 594 (2010) (holding that Equal Access to Justice Act fees are 

payments to the litigant, not the litigant’s attorney and, thus, can be offset to collect debts 

owed by the litigant); Harrington v. Berryhill, 906 F.3d 561, 566 (7th Cir. 2018)

(recognizing the Ratliff precedent and finding it lacked jurisdiction to consider the claims 

of the plaintiffs’ attorneys); Caylor v. Astrue, 769 F. Supp. 2d 1350, 1354 (M.D. Fla. 

2011) (leaving to the agency’s discretion whether to honor the assignment of the 

litigant’s Equal Access to Justice Act fees to the litigant’s attorney and noting that this 

practice is appropriate only if the litigant does not owe any federal debts). Payment 

agencies are responsible for identifying the person or persons entitled to payment (PEP or 

PEPs) and, in the case where a person other than the payee is subject to having the 

payment offset, identifying that person. 31 CFR § 285.5(e)(8).

b) Joint Payments

A payment made jointly to two or more persons is subject to offset for a debt of either 

person. Id § 285.5(e)(4); see also id. § 285.2(f). This rule is based on the presumption 

that payments are made to persons who each own an undivided interest in the whole 

payment. 67 Fed. Reg. at 78939-40. If a non-debtor who is receiving a payment with a 

debtor requests a refund of monies that were offset from a joint payment for the debtor’s 

debt, the payment agency must determine whether the legal presumption was correct, and 

a refund is thus appropriate. 67 Fed. Reg. at 78939-40; see also 31 CFR § 285.2(f) 

(referencing a non-debtor taxpayer’s ability to file an injured spouse claim); Form 8379, 

Injured Spouse Allocation (form through which the non-debtor spouse can contact IRS to 

claim the portion of the tax refund to which the non-debtor spouse is entitled).

c) Assigned Payments

If a person (i.e., an assignor) assigns a right to receive a federal payment to a third party 

(i.e., an assignee), the assigned payment will be subject to offset to collect a delinquent 

debt owed by the assignee. 31 U.S.C. § 3716; 31 CFR § 285.5(e)(6); see also I TFM 3-

6100 (describing how centralized administrative offset works with payments that have 

been assigned by the party that the United States is legally required to pay).

71 Such 

payment will also be subject to offset to collect the delinquent debts of the assignor, 

unless:

70 In most instances, the person entitled to payment is also the payee. However, if a PEP directs the payment to be 

made to a different person (i.e., a separate payee), unless the PEP has assigned the payment to that payee, the 

payment will be subject to offset for only the debts owed by the PEP, and not the separate payee. See, for example,

paragraph d, regarding representative payees, below.

71 Available at https://tfm.fiscal.treasury.gov/v1/p3/c610.html.
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(A) In accordance with 41 U.S.C. § 15(e)-(f), the payment has been properly 

assigned to a financial institution pursuant to a Federal contract, the contract 

contains provisions prohibiting the payment from being reduced or offset for debts 

owed by the contractor, and the debt arose independently of the contract; or

(B) pursuant to 31 U.S.C. § 3727, the payment is being made to the assignee as 

settlement or satisfaction of a claim brought by the assignee against the creditor 

agency based upon the contract, and the debt of the contractor arises independently 

of the contract;72 or

(C) the debtor has properly assigned the right to such payments and the debt arose 

after the effective date of the assignment.

31 CFR § 285.5(e)(6)(ii)(A)-(C) see also 31 U.S.C. § 3716; I TFM 3-6100.

d) Payments Made to Representative Payees

Certain federal payments can be made to “representative payees.” This is common in the 

context of certain benefit payments, where a nursing home or family member can serve 

as the representative payee for a person entitled to the benefit of such payments, or where 

an attorney serves as a representative payee for a client. 67 Fed. Reg. at 78940. 

Payments that are made to a person solely in that person’s capacity as a representative 

payee are offsetable only to collect debts owed by the person having the beneficial 

interest in the payment. 31 CFR § 285.5(e)(5). That is, such payments cannot be offset 

to collect the debts owed by the representative payee. Id. Payment agencies are 

responsible for identifying representative payees. Id.

Role of Fiscal Service and the Treasury Offset Program (TOP)

Congress centralized within Treasury the collection of federal nontax debts through offset. 

31 U.S.C. §§ 3716(c); 3720A(c); 26 U.S.C. § 6402(d). Treasury’s Fiscal Service is 

responsible for Treasury’s implementation of these debt collection provisions. Treasury 

Directive 16-14 (Dec. 17, 2019).

73 Offset was centralized within Fiscal Service, in part,

because of Fiscal Service’s role as the disbursing agency for the majority of federal 

payments. See 31 U.S.C. § 3321. Because of its role in disbursing payments, Fiscal Service

72 To be valid, the “transfer” or “assignment” of claims against the United States must meet the requirements of the 

Anti-Assignment Act, 31 U.S.C. § 3727. If the requirements of the Anti-Assignment Act are not satisfied, the 

assignment of a payment is not valid unless the government waives the Anti-Assignment Act and agrees to accept 

the assignment. Agencies should not accept assignments if doing so would cause it to lose its right of offset. United 

States v. Shannon, 342 U.S. 288, 291-92 (1952) (stating that a recognized purpose of the Anti-Assignment Act was 

to preserve the United States’ right of setoff); Walker v. Astrue, Civ. No. 09-960, 2011 U.S. Dist. LEXIS 100138, at 

*4-5 (M.D. Ala. 2011) (recognizing that a purported assignment of Equal Access to Justice fees by litigant to 

litigant’s attorney could run afoul of the Anti-Assignment Act and that, while the check payment must be made out 

to the litigant, it can be mailed to the litigant’s attorney).

73 Available at https://home.treasury.gov/about/general-information/orders-and-directives/td16-14.
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May 2023 Part III:63 Bureau of the Fiscal Service

is uniquely suited to perform centralized offset by matching payments made by various 

federal agencies with debts owed to federal agencies.

Fiscal Service uses TOP to process centralized offsets, including administrative offsets and 

tax refund offsets. 31 CFR § 285.5(a)(1). TOP is not synonymous with centralized offset; 

rather, TOP is a computerized matching program that automates the process of comparing 

federal and certain state payments with delinquent debts owed to federal agencies and states. 

When a debt is referred to Fiscal Service by a creditor agency for centralized offset, it is 

included in the TOP database. TOP is programmed to apply the offsets in compliance with 

all applicable statutes and regulations, as they apply to the payments, the debts, and the 

offset itself. See generally id. § 285.5. In addition to collecting federal nontax debts, TOP 

collects federal tax debts, child support debts, and other debts owed to states.

Role of the Creditor Agency 

a) Submit Delinquent Debts to Fiscal Service

Federal agencies are required to refer legally enforceable nontax debts that are over 

120 days delinquent to Fiscal Service for the purpose of offset. 31 U.S.C. 

§ 3716(c)(6)(A). While federal agencies are required to refer debts 120 days delinquent 

to Fiscal Service for offset purposes, they are encouraged to refer debts earlier if they

have satisfied the prerequisites. 31 CFR § 285.5(d)(2) (permitting early referral); 67 Fed. 

Reg. at 78937 (encouraging agencies to submit debts as earlier as possible so as to 

maximize collections). Prior to submitting a debt to Fiscal Service for the purpose of 

offset, the creditor agency must ensure it has satisfied all applicable prerequisites. See 

generally 31 U.S.C. § 3716; 31 CFR § 285.5. These pre-referral requirements include 

promulgating applicable regulations, determining that the debt is past due, valid, and 

legally enforceable, providing the debtor with all appropriate due process, and certifying 

to Fiscal Service that these requirements have been satisfied. Id. 

While an agency should generally be able to satisfy the pre-referral requirements by the 

120th day of delinquency, if a debt which is over 120 days delinquent is considered not 

legally enforceable solely because it is under review, the agency will satisfy its 

requirement to submit the debt to Fiscal Service for collection by offset if it submits the 

debt within 30 days of completing the review. 31 CFR § 285.5(d)(1); 67 Fed. Reg. at 

78937 (explaining that these 30 additional days are necessary because immediate referral

of a debt to Fiscal Service following a decision on an appeal might be impractical). 

During this additional time, the creditor agency should work to collect the debt, including 

by providing debtors with an opportunity to pay the debt or to enter into a repayment 

plan. See id.; 31 U.S.C. § 3711(a) (agencies have an affirmative duty to collect). Once 

the creditor agency determines that a debtor is unlikely to pay the debt or enter into a 

repayment plan, however, it should submit the debt to Fiscal Service immediately. 67 

Fed. Reg. at 78937.

 
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b) Creditor Agency Regulations

Prior to initiating any offset action, each creditor agency must prescribe regulations 

regarding the agency’s offset procedures. 31 U.S.C. § 3716(b); 31 CFR §§ 285.2(c); 

285.5(d)(4), 285.7(d)(2). Agencies can satisfy the requirement to prescribe regulations 

by simply adopting, without change, the governmentwide offset regulations promulgated 

by Treasury or DOJ. 31 U.S.C. § 3716(b)(1). Alternatively, agencies can promulgate 

their own regulations, so long as they are consistent with the governmentwide 

regulations. Id. § 3716(b)(2). Agency regulations need not specify in “exacting detail”

the offset procedures. Allison v. Madigan, 951 F.2d 869, 871 (8th Cir. 1991) (rejecting 

plaintiff’s claim that administrative offset regulations were insufficiently detailed).

c) Certifying Debt

Prior to submitting a debt to Fiscal Service for offset purposes, the creditor agency must 

certify to Fiscal Service that the debt is past-due (i.e., delinquent), that the debt is valid 

and legally enforceable, and that the debtor has been provided with due process. 

31 U.S.C. §§ 3720A(b)(5) (tax refund offset); 3716(c)(1)(A) (administrative offset); 

31 CFR §§ 285.2(d)(1) (tax refund offset); 285.4(d) (benefit payment offset); 285.5(d)(6) 

(administrative offset); but see 285.7(d)(4) (permitting agencies to submit debts to TOP 

prior to certification provided they provide certification before a disbursing official 

offsets a salary payment). Agencies are also required to update information previously 

submitted to Fiscal Service or recall the debt from Fiscal Service in the event that they 

learn that the certification was improper or if they learn that the debt subsequently 

became ineligible for offset (such as a subsequent bankruptcy filing by a debtor). 31 

CFR §§ 285.2(d)(4), 285.5(d)(7), (10). The precise facts to which an agency certifies 

upon referral are set forth in an annual certification agreement between the referring 

creditor agency and Fiscal Service. 67 Fed. Reg. at 78938.

d) Responsibility for Collection

When a creditor agency submits a debt to Fiscal Service for offset purposes, the creditor 

agency remains responsible for collecting and administering debt. 31 CFR

§ 285.5(d)(10); 67 Fed. Reg. at 78938-9. This includes maintaining accurate records, 

accounting for all collections and accruals, and engaging in affirmative debt collection 

action. See id. 
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Role of the Payment Agencies and Disbursing Agencies

a) Payment Agencies

i. Certifying Payments

Agencies make payments by certifying on a payment voucher to the disbursing

official that a payment is due to be paid to a particular person. 31 U.S.C. §§ 3325,

3528. The payment voucher must be prepared and submitted in the manner

prescribed by the disbursing official. Id.; 31 CFR § 285.5(e)(8)(i). Among other

things, the payment voucher must include the name and the taxpayer

identification number (TIN) of the PEP. 31 U.S.C. § 3325(d);

31 CFR § 285.5(e)(8)(i); see also 31 U.S.C. § 7701; Fiscal Service, TIN Policy,

available at www.fiscal.treasury.gov/tin. Because TOP works by matching the

names and TINs of PEPs with the names and TINs of debtors, without a valid

name and TIN, the payment will not be properly offset for debts owed by the

PEP. 31 CFR § 285.5(c)(2); see also 142 Cong. Rec. H4046-01 (daily ed. Apr.

25, 1996) (statement of Rep. Horn74) (including TINs on payment vouchers “will

facilitate offset and increase collections”).

If a payment agency informs Fiscal Service that a payment should not have been

made (and thus the offset should not have occurred), Fiscal Service will notify the

creditor agency. 31 CFR §§ 285.2(g) and 285.5(i)(2). The creditor agency must

then return the erroneously offset funds to the disbursing official. Id. §§ 285.2(g)

and 285.5(i)(2).

ii. Determination of Whether Payment is Eligible for Offset

The payment agency is responsible for determining whether the payment is

eligible for centralized offset. Id. § 285.5(e)(8)(ii). As discussed above, payment

agencies may only indicate that a payment is exempt from offset if the payment is

exempted by statute or by action of the Secretary of the Treasury. If an agency

believes any of its payments are exempt by statute from centralized offset, the

agency must notify Fiscal Service so that Fiscal Service can make any necessary

adjustments to the payment process to ensure such payments are not offset.

I TFM-3-6200.

iii. Restriction on Making Payments via Credit Card

Generally, agencies may not make a credit card payment to a person who owes a

delinquent debt. When agencies use a credit card to make a payment, federal

funds are disbursed to the credit card company to pay the credit card bill. The

credit card company then pays the original party to whom the agency owed the

payment. The credit card company’s payment to the original party is not

74 Available at http://fiscal.treasury.gov/files/debt-management/dmhorn.txt.
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automatically matched through TOP.75 Therefore, prior to issuing a credit card 

payment, payment agencies are required to determine whether the PEP owes a 

delinquent federal debt, for example, by checking the System Award Management 

(formerly the Central Contractor Registration). See 31 U.S.C. § 3716(c); see also

48 CFR § 32.1108(b)(2)(i).

iv. No Liability for Erroneous Offsets

A payment agency cannot be held liable for an offset on the basis that the debt 

was invalid or that sufficient due process was not provided or on the basis that the 

payment was not made. 31 U.S.C. § 3716(c)(2)(A); 31 CFR § 285.5(d)(10), 

(e)(9); see also Harrington v. Berryhill, 906 F.3d 561, 564, 566 (7th Cir. 2018)

(finding that, by reducing plaintiffs’ payments and applying the reduction to 

outstanding debts, the litigants were paid their fee awards); Curtin v. United 

States, 2014 U.S. Dist. LEXIS 83167, *2-3 (M.D. Pa. June 18, 2014) (overruling

the debtor objections to the magistrate’s determination that he “received the 

benefit of the settlement payment through the reduction of his outstanding and 

pre-existing debts”). 

b) Disbursing Officials

i. Conducting Offsets

The disbursing official plays a key role in the offset process. 31 U.S.C. 

§ 3716(c)(1)(A). A disbursing official is an officer charged with the duty of 

paying out public money. When a payment agency submits a certified payment 

voucher, the disbursing official will disburse the money in the manner specified 

by the payment voucher. Id. § 3321; 31 CFR § 901.3(b)(2). The disbursing 

agency, which is responsible for disbursing a payment, has a legally distinct role 

from the payment agency, which owes the payment. Fiscal Service is responsible 

for disbursing the great majority of federal payments, but other certain agencies, 

have disbursement authority as well. 

When a payment is being made, the disbursing official is responsible for 

comparing the name and TIN of the PEP identified on the payment voucher with 

the names and TINs on the debt records in TOP. 31 CFR §§ 285.5(c)(2), 

901.3(b)(2). If there is a match and all other requirements for offset have been 

met, the payment is reduced, in whole or in part, to collect the debt. 31 U.S.C. 

§ 3716(c); 31 CFR §§ 285.5(c)(2) and 901.3(b)(2). 

A disbursing official cannot be held liable for conducting an offset on the basis 

that the debt was invalid or that sufficient due process was not provided. 31 

U.S.C. § 3716(c)(2)(A); 31 CFR § 285.5(e)(9); see also Johnson v. U.S. Dep’t of 

75 The payments disbursed by the United States to the credit card company, however, would be matched through 

TOP for debts owed to the United States by the credit card company. 
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Treasury, 300 F. Appx 860, 862-63 (11th Cir. 2008) (finding that Treasury, as the 

disbursing agency, had no role in determining the validity of the debt and that 

relief against Treasury would therefore be improper); Chambers v. SSA, Civ. No. 

3:19-CV-1062-K-BH, 2020 U.S. Dist. LEXIS 157704, at *33 (N.D. Tex. Aug. 12, 

2020) (finding that, because Treasury was not the creditor agency, it was the 

improper party for plaintiff’s challenge of the offset activities); Brooks v. Usde 

Fed. Offset Unit & United States Dep't of the Treasury Bureau of the Fiscal Serv., 

No. 3:19-cv-50-J-39JRK, 2020 U.S. Dist. LEXIS 240102, at *12 (M.D. Fla. Feb. 

26, 2020) (finding that Treasury should be dismissed as an improper party);

Lepelletier v. U.S. Dep’t of Educ., Civ. No. 09-1119 (RJL), 2009 U.S. Dist. 

LEXIS 117491, at *2-3 (D.D.C. Dec. 14, 2009) (finding that Treasury, as the 

disbursing agency, was an improper party to plaintiff’s suit in which plaintiff 

disputed the propriety of the offset to collect his student loan debt).

ii. Warning Notice to Debtor

By regulation, before offsetting a recurring payment76 or periodic benefit 

payment, a disbursing official must send a warning notice to the PEP or payee.

31 CFR §§ 285.5(g)(1), 285.4(f)(1).

77 The warning notice must state in writing 

when offsets will begin and the anticipated amount of the offset, which can be 

stated as a percentage of the payment. Id. This warning notice need only be sent 

once. If Fiscal Service suspends the offset of a periodic payment to satisfy a tax 

levy, Fiscal Service is not required to re-notify the debtor prior to re-commencing 

offset. Id. § 285.5(g)(2). 

iii. Post-Offset Notice to Debtor

The agency conducting the offset must send each PEP or payee a notice upon the 

occurrence of an offset. The notification must contain a description of the 

payment and the amount offset, the identity of the creditor agency, and contact 

information for the creditor agency for questions regarding the debt. 26 U.S.C. 

§ 6402(d)(1)(C) (tax refund offset); 31 U.S.C. § 3716(c)(7)(A) (administrative 

offset); 31 CFR §§ 285.2(e) (tax refund offset), 285(f)(2) (benefit payment 

offset); 285.5(g)(3) (administrative offset), 285.7(i) (salary offset). In the case of 

an offset of a joint tax payment, the notice must also instruct the non-debtor 

spouse how to secure his/her proper share of the offset payment. 26 U.S.C. 

§ 6402(d)(3)(B)(II); 31 CFR § 285.2(e)(ii). With regard to certain benefit 

payments, the notice must be sent no later than the date of the offset, or as soon as 

practical thereafter; however, if the debtor was previously sent a warning notice, 

76 31 CFR § 285.5(b) (“Recurring payment means a payment to an individual that is expected to be payable to a 

payee at regular intervals, at least four times annually. The term ‘recurring payment’ does not include payments 

made pursuant to a Federal contract, grant or cooperative agreement.”) 77 See also Social Security Administration, Benefit Payment Offset Guidance, GN 02410.300 (explaining that before 

offsetting a monthly Social Security benefit payment, Fiscal Service sends two warning notices to the payee, 

including a 60-day notice and a 30-day notice).
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that warning notice will satisfy this timing requirement. 31 U.S.C. 

§ 3716(c)(7)(B). Failure to send the notice will not impact the validity of the 

offset or result in liability for the disbursing official or payment agency. Id. 

§ 3716(c)(2)(B); see also In re Scott, No. 14-00715, 2016 Bankr. LEXIS 397, at 

*23-24 (Bankr. D.D.C. Feb. 7, 2016) (finding that Treasury acted appropriately in 

offsetting a payment despite sending a post-offset notice to an incorrect address, 

and that both the Treasury official who made the offset and the payment agent 

were “statutorily immunized from liability for such a mistake”).

iv. Offset and Warning Notice Distinguished from Due Process Notice

The notices described above are not due process notices; rather, they are 

informational notices. 70 Fed. Reg. at 3144 (describing the notices as a 

“courtesy”). Due process notices are the notices sent to the debtor by the creditor 

agency prior to referring the debt to Fiscal Service for offset purposes. Failure to 

send a warning or offset notice will not affect the validity of the offset. 31 U.S.C. 

§ 3716(c)(7)(B); 31 CFR §§ 285.4(f), 285.5(g)(1).

v. Disbursing Official: Notice to Payment and Creditor Agencies

Fiscal Service is required to notify each creditor agency of all offsets made to 

collect that agency’s debt. 31 CFR §§ 285.2(e)(2) and 285.5(h)(1). The 

notification must include the full name and TIN of the debtor whose payment was 

offset, the total amount collected by the offset, and the amount of fees charged by 

Fiscal Service and other disbursing officials. Id. §§ 285.2(e)(2) and 285.5(h)(1).

Due to laws limiting the disclosure of information, this notification generally 

should not include the source of the payment from which the amounts were 

collected. This notification allows the creditor agency to keep accurate records, 

without disclosing unnecessary information (such as the source of the payments), 

which may be subject to the Privacy Act, 26 U.S.C. § 6103, or other laws. When 

a non-Treasury disbursing official performs the offset, the official must inform 

Fiscal Service, so that Fiscal Service can notify the creditor agency. Id.

§ 285.5(h)(2).

Fiscal Service will also notify a payment agency that an offset has occurred, 

thereby allowing the payment agency to refer questions about the offset to the 

creditor agency. Id. §§ 285.2(e)(3), 285.5(h)(3).

Fees

Fiscal Service is authorized to charge agencies a fee to cover the costs of offset, and creditor 

agencies are responsible for paying these fees, which can be collected through a deduction of 

the amounts collected through offset or by billing the creditor agency. 31 U.S.C. 

§§ 3716(c)(4) (authorizing Treasury to charge a fee for administrative offset services);

3720A(d) (authorizing Treasury to charge a fee for tax refund offset services); 5 U.S.C. 

§ 5514(a)(1) (authorizing agencies that perform salary offset to charge a fee); 31 CFR 
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§§ 285.4(g) (describing Treasury’s authority to charge fees), 285.5(j) (describing Treasury’s 

authority to charge a fee for the full costs of implementing the centralized offset program, 

including fees charged by other disbursing officials); 285.7(j) (describing the authority of 

agencies that provide centralized salary offset services to charge fees). Creditor agencies are 

generally required to charge debtors for the costs of collection, including the amount of such

fees. 31 U.S.C. § 3717(e)(1).

Order of Priority 

Many debtors owe more than one debt. In such cases, the statutory scheme determines how 

to apply eligible payments. If there are two or more debts within a certain priority category, 

the overpayment is applied against such debts “in the order in which such debts accrued.” 26 

U.S.C. § 6402(d)(2) (describing the priorities for tax refund offset). To the extent a type of 

debt is eligible for collection by offset from a particular payment, the priority scheme is set 

forth below:

- First. Federal tax debts have first priority. 26 U.S.C. § 6402(a) (governing offset of 

tax payments); 31 CFR § 285.5(f)(3)(i) (governing nontax payments); 5 U.S.C. 

§ 5514(d) (governing salary payments); 31 CFR § 285.7(h) (governing salary 

payments); 26 CFR § 301.6402-1 (governing tax payments).

- Second. Any remaining amount is then applied to past-due child support. 26 U.S.C. 

§ 6402(c) (governing tax payments); 31 CFR §§ 285.5(f)(3)(ii)(A) (governing nontax 

payments); 285.7(h) (governing salary payments).

- Third. Federal nontax debts have next priority. 26 U.S.C. § 6402(d)(2) (governing 

tax payments); 31 CFR § 285.5(f)(3)(ii)(B) (governing nontax payments).

- Fourth. State tax debts, followed by other state debts, have last priority. 31 CFR

§ 285.5(f)(3)(ii)(C) (governing nontax payments); see also 26 U.S.C. §§ 6402(e)(3) 

(governing tax payments to collect state income tax debts); 6402(f)(2) (governing tax 

payments to collect state unemployment insurance compensation debts).

- Fifth. If any amount of the payment is left over after satisfying the above-listed 

categories of debts, the remaining balance is paid to the payee.
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Computer Matching and Privacy Protection Act of 1988

The centralized offset process involves the automated matching of systems of records: 

delinquent debt records and payment records. Under the Privacy Act of 1974, as amended, 

when agencies are engaged in computer matching activities, they must comply with the

Computer Matching and Privacy Protection Act of 1988 (CMPPA). In general terms, the 

CMPPA requires that agencies engaging in an automated match enter into a matching 

agreement, obtain approval of these agreements from each agency’s Data Integrity Board, 

deliver reports to Congress and the Office of Management and Budget regarding the 

matching program, and independently verify all match findings before taking an adverse 

action against individuals. 5 U.S.C. § 552a(a)(8), (o), (p). 

In the context of centralized offset, Treasury has the authority to waive certain CMPPA 

requirements for matches between delinquent debt records and payment records. 31 U.S.C. 

§ 3716(f)-(g); 31 CFR § 285.5(k). Specifically, Treasury has waived the requirements that 

agencies enter into written agreements and independently verify match information prior to 

taking adverse action, provided that the creditor agencies certify in writing that they have 

provided the individuals with the due process required by 31 U.S.C. § 3716(a). 31 U.S.C. 

§ 3716(f) (permitting the Secretary of Treasury to waive certain CMPPA requirements); 

Treasury Directive 16-14 (Dec. 17, 2019) (delegating to Fiscal Service the authority to waive 

these requirements). Similarly, in the context of tax refund offset, the provisions of the 

CMPPA do not apply because the CMPPA explicitly excludes from the definition of 

“matching program” matches performed for the purpose of tax administration or tax refund 

offset. 5 U.S.C. § 552a(a)(8)(B)(iv). 

Salary Offset Match Consortium 

As required by statute, Treasury established and maintains an interagency consortium to 

implement salary offset through TOP and promulgated regulations for salary offset. 5 U.S.C. 

§ 5514(a)(1); 31 CFR § 285.7(a)(4), (c). Pursuant to Treasury’s regulation, the consortium 

initially included all agencies that disbursed federal salary payments, including the 

Department of Defense, the United States Postal Service, government corporations, and 

agencies with Treasury-designated disbursing officials. 31 CFR § 285.7(c). The 

membership of the consortium may be changed by Treasury, and Treasury is responsible for 

the ongoing coordination of the consortium’s activities. Id.

VII. Non-Centralized Offset

A. Generally

While agencies are required to submit their delinquent debts to Fiscal Service for centralized 

offset, they can also collect their debts through non-centralized offset. 31 U.S.C. § 3716(a); 31 

CFR § 901.3(a)(3), (c). The rules that apply to centralized offset may, in some circumstances, be 

more limited than what can be accomplished through non-centralized offset. See 31 CFR 

§ 285.5(b) (for centralized offset purposes, the term “debt” does not include tax debts or debts 

arising under the tariff laws or certain portions of the Social Security Act). Therefore, if an 
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agency cannot collect a debt through centralized offset, it should consider whether the debt can 

be collected through non-centralized offset (including statutory and common law offset). 

Non-centralized offsets include interagency offsets (i.e., ad hoc offsets conducted in cooperation 

with the payment agency) and intra-agency offsets (i.e., offsets conducted when the creditor and 

payment agency are the same agency). Id. § 901.3(c). Non-centralized offset can take place 

under statute or common law. Id.

B. Statutory Authority to Conduct Non-Centralized Offsets

Federal agencies have long had the statutory right to administratively offset federal payments to 

collect federal debts. E.g., Debt Collection Act of 1982, Pub. L. No. 97-365, 96 Stat. 1749 

(1982) (among other things, providing federal agencies with statutory administrative offset 

authority); In re Offset under statutes other than Debt Collection Act of 1982, 64 Comp. Gen. 

142 (1984) (stating that Pub. L. No. 97-365 supplemented but did not replace pre-existing 

statutory offset authorities). As used in the non-centralized offset context, “[t]he term 

‘administrative offset’ is a general term embracing all offsets accomplished by other than judicial 

process.” 64 Comp. Gen. 142. 

In the context of statutory, non-centralized offset, before requesting that a payment agency 

conduct an offset, the creditor agency must adopt regulations. 31 CFR § 901.3(c)(2). These 

regulations must require that, generally, the offset take place only after the creditor agency has

provided the debtor with due process and has certified to the payment agency that the debt is 

past-due, legally enforceable in the amount stated, and that it has complied with its regulations. 

Id.; see also 5 CFR § 550.1109 (describing the requirements for non-centralized salary offset). 

While many laws permit offset (both centralized and non-centralized), “when effecting offset 

under a statute which does not provide its own procedures . . . agencies should comply with the 

procedures prescribed by section 10 of the Debt Collection Act of 1982, as implemented by [the 

Federal Claims Collection Standards].” 64 Comp. Gen. 142.
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C. Common Law

Historical Right of Common Law Offset

Offset, in both the private sector and government context, has a long common law history, 

and offset under the common law continues to be an important remedy for federal agencies. 

In re De Laurentiis Entertainment Group, Inc., 963 F.2d 1269, 1277 (9th Cir. 1992) (“Setoffs 

have a long and venerable history, dating back to Roman and English law”); In re Davis, 889 

F.2d 658, 661, n.5 (5th Cir. 1989) (noting that the “historical antecedent of the doctrine of 

setoff dates back to the Roman Empire and is based on the common sense notion that ‘a man 

should not be compelled to pay one moment what he will be entitled to recover back the 

next’”). Offset, or setoff, originated as a common law right, based on principles of equity. 

See, e.g., Tatelbaum v. United States, 10 Cl. Ct. 207, 211 (1986); Monroe Retail, Inc. v. RBS 

Citizens N.A., 589 F.3d 274, 285 (6th Cir. 2009). Courts have recognized the common law 

right of the United States to collect debts through offset in a variety of contexts. See, e.g., 

Munsey Trust Co., 332 U.S. at 239 (offset of contractor payments); Aetna Cas. & Sur. Co. v. 

LTV Steel Co. (In re Chateaugay Corp.), 94 F.3d 772, 778-9 (2d Cir. 1996) (tax refund 

offset); Woods v. United States, 724 F.2d 1444, 1448 (9th Cir. 1984) (recoupment of 

overpayments); Collins v. Donovan, 661 F.2d 705, 708 (8th Cir. 1981) (offset of benefit 

payments). 

Elements of Offset

Under the common law, a setoff requires: “(i) a decision to effectuate a setoff, (ii) some 

action accomplishing the setoff, and (iii) a recording of the setoff.” Strumpf, 516 U.S. at 19. 

Creditors—both private citizens and governmental agencies alike—have the right to employ 

offset under the common law:

The United States possess[es] the general right to apply all [payments due to an officer in 

its service] to the extinguishment of any balances due [to it by such an officer] on any 

other account, whether owed by him as a private individual, or [in an official government 

capacity]. It is but the exercise of the common right, which belongs to every creditor, to 

apply the unappropriated moneys of his debtor, in his hands, in extinguishment of the 

debts due to him. 

Gratiot, 40 U.S. at 370. 

The right of common law offset “allows entities that owe each other money to apply their 

mutual debts against each other.” Strumpf, 516 U.S. at 18; see also Studley, 229 U.S. at 528 

(the right of setoff circumvents “the absurdity of making A pay B what B owes A”). 

Mutuality generally requires that the debts be due to and from the same persons, in the same 

capacities. 

For mutuality purposes, the “same person” means a single legal entity. The United States is 

considered to be one party (also referred to as a “single unitary creditor”) for purpose of 

setoff. See, e.g., Compagnie Noga D’Imp. et D’Exp., S.A. v. Russian Fed’n, 361 F.3d 676, 
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688 (2d Cir. 2004); HAL, Inc. v. United States (In re HAL, Inc.), 122 F.3d 851, 853 (9th Cir. 

1997); In re Chateaugay Corp., 94 F.3d at 779; Turner v. SBA (In re Turner), 84 F.3d 1294, 

1298 (10th Cir. 1996). In general, just as the United States is a unitary entity for setoff 

purposes, so too are states, regardless of whether or how a state may divide itself into 

separate departments or agencies, and corporations that have a single charter but divide 

themselves into separate locations or departments. However, separate legal entities with 

common ownership or parent-subsidiary relationships, for example, will generally be 

separate parties for setoff purposes, unless the separate entities hold themselves out as a

single party (e.g., by using the same taxpayer identification number for separate but affiliated 

entities when conducting business with the United States or by misusing the corporate 

structure). See McCall Stock Farms, Inc., 14 F.3d at 1566 (allowing offset against payment 

to corporation for debts of its principals after piercing the corporate veil); MNC Commercial 

Corp. v. Joseph T. Ryerson & Son, Inc., 882 F.2d 615, 618 (2d Cir. 1989) (stating that “a 

subsidiary's debt may not be set off against the credit of a parent”); In re K Town, Inc., 171 

B.R. 313, 319 (Bankr. N.D. Ill. 1994) (although common law limits setoff to “identical legal 

entities,” a contractual right to setoff between two accounts can provide the requisite 

mutuality for setoff); Mid-South Metals, B-230158.2, 1991 U.S. Comp. Gen. LEXIS 291, at 

*9-10 (Comp. Gen. Mar. 1, 1991) (allowing offset against payment to corporation for debts 

of its principals after piercing the corporate veil). 

Joint payments (i.e., payments to two or more payees), however, generally cannot be offset 

under common law authority for a debt owed by only one of the payees. As the Supreme 

Court stated:

Courts of equity, following the law, will not allow a set-off of a joint debt against a 

separate debt, or conversely, of a separate debt against a joint debt; or, to state the 

proposition more generally, they will not allow a set-off of debts accruing in different 

rights. But special circumstances may occur creating an equity, which will justify even 

such an interposition.

Gray v. Rollo, 85 U.S. 629, 632 (1874) (quoting Justice Story’s treatise on Equity 

Jurisprudence); see also Federal Deposit Ins. Corp. v. Mademoiselle of California, 379 F.2d 

660, 663 (9th Cir. 1967) (permitting offset, but noting that, in general, a separate debt cannot 

be setoff against a joint demand).

For mutuality purposes, persons are in the “same capacity” if they stand in the same 

relationship. Braniff Airways v. Exxon Co., 814 F.2d 1030, 1036 (5th Cir. 1987) (stating that, 

“[f]or mutuality to exist, ‘each party must own his claim in his own right severally, with the 

right to collect in his own name against the debtor in his own right and severally’”) (citation 

omitted). For example, a person acting in his individual capacity is not in the same 

relationship as that same person acting in his capacity as a trustee. See Wiand v. Meeker, 

2014 U.S. App. LEXIS 13700, *5 (11th Cir. 2014) (finding no right to setoff because “[a]n 

individual’s role as trustee is legally distinguishable from his individual identity”); Auburn 

Chevrolet-Oldsmobile-Cadillac, Inc. v. Branch, 2009 U.S. Dist. LEXIS 18222, *34 

(N.D.N.Y Mar. 10, 2009) (describing that “same capacity” requires that each person “must 

owe the other in his own name and not as a fiduciary”); In re Bevill, Bresler & Schulman 
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Asset Mgmt. Corp., 896 F.2d 54, 59 (3d Cir. 1990) (finding mutuality requirement met 

because “[each party] contracted with the other, each breached a contractual obligation to the 

other and owes the other as a result”). Debts do not need to arise from the same transaction 

to be considered “mutual.” In re Express Freight Lines, Inc., 130 B.R. 288, 291 (Bankr. E.D. 

Wis. 1991) (distinguishing setoff from recoupment).

Due Process Requirements

Generally, prior to conducting an offset under the common law, agencies must provide the 

debtor with notice and an opportunity to dispute. While determining the precise nature of 

constitutionally sufficient due process is situational, the standard requirements are notice and 

an opportunity to be heard. This section discusses the minimum protections provided for by 

the Constitution.78 A more detailed explanation of due process is provided in Part I.B. of this

Treatise. 

a) Constitutionally Sufficient Notice

i. Contents of Notice 

A deprivation of property requires that a person be given notification with 

sufficient detail regarding the proposed action. Federal agencies must provide 

notice reasonably calculated to notify a debtor about the proposed offset of future 

payments, the debtor’s rights, and how the debtor may exercise those rights. The 

notice must be sufficiently clear so that the debtor can understand the proposed 

action. Games, 737 F. Supp. at 1379 (offset notice’s description about how to 

obtain a review was sufficient, even accepting plaintiff’s “allegation that the 

accompanying regulations were indecipherable to a layman”). The notice should 

also inform the debtor of what rights the debtor has to contest the proposed action

(as well as how to exercise such rights). The extent to which the notice should 

inform the debtor of possible defenses may depend on the circumstances. E.g., 

Anderson v. White, 888 F.2d 985, 992 (3d Cir. 1989) (noting that the Supreme 

Court has never required notices to “contain a list of potential defenses or explain 

available hearing procedures in intricate detail”); Games, 737 F. Supp. at 1376 

(finding that agencies are not required to specifically advise debtors of their right 

to retain an attorney); Kandlbinder v. Reagen, 713 F. Supp. 337, 340 (W.D. Mo. 

1989) (explaining that in context of tax refund offset, providing the debtor with 

list of possible defenses might have done more harm than good); Knisley v. 

Bowman, 656 F. Supp. 1540, 1554 (W.D. Mich. 1987) (finding that due process 

does not require that the notice list all possible defenses but noting that listing 

common defenses may be “better practice”); Wagner v. Duffy, 700 F. Supp. 935, 

943 (N.D. Ill. 1988) (finding that due process requires that the notice warning of a

tax refund offset provide the debtor with a list of common defenses); Smith v. 

Onondaga Cnty. Support Collection Unit, 619 F. Supp. 825, 830 (N.D.N.Y. 1985) 

78 Cases involving statutory offset are instructive because due process for statutory offset must also comply with 

minimum constitutional due process standards.
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(finding that due process was insufficient where notice failed to list possible 

defenses or appeal procedures and debtor was not given an opportunity for a 

hearing); Nelson v. Regan, 560 F. Supp. 1101, 1107 (D. Conn. 1983) (finding that 

the notice did not satisfy due process because it failed to list “the possible 

defenses an individual might have to the interception of tax refunds or the 

availability of regular procedures in which to challenge the offset”), aff’d, 731 

F.2d 105 (2d Cir.), cert. denied, 469 U.S. 853 (1984). 

ii. Method of Notification

While actual notice is not required in the offset context, a letter mailed to the 

debtor’s last known address is generally adequate. See Omegbu, 118 F. App’x at 

991 (stating that “by sending notice by mail to his last known address, the 

[agency] complied with the constitutional requirements that [it] provide notice 

reasonably calculated to apprise [the debtor] of the offset, and to provide him an 

opportunity to present his objections”); SEC v. Fonecash, Inc., 795 F.Supp.2d 73, 

77-78 (D.D.C. 2011) (where SEC sent notification to debtor’s pre-incarceration 

address after he was released from prison, court held that notice should have been 

sent to the prison address, which was the address last provided by debtor to SEC). 

In certain circumstances, an agency may be required to conduct some due 

diligence to determine whether mailing notice to the debtor’s last known address 

is “reasonably calculated” to inform the debtor of the offset. When a debtor has 

not kept the agency apprised of the debtor’s most recent address, courts are likely 

to consider the agency’s efforts to determine the proper address to be adequate, 

even if the actual notice never reaches the debtor. See Shabtai v. U.S. Dep’t of 

Educ., Civ. No. 0-8437, 2003 U.S. Dist. LEXIS 14398 at *23-25 (S.D.N.Y. Aug. 

20, 2003) (debtor failed to update agency with new address, so notice sent to the 

address for debtor in the agency’s database was sufficient); Setlech, 816 F. Supp. 

at 167 (notice sent to most current address known to the agency was sufficient 

where there was no indication that the letter was returned as “undeliverable”). 

If an agency learns that notice did not reach the debtor, however, it may be 

required to take reasonable additional steps to provide notice, if any such steps are 

available and practicable. In Jones v. Flowers, for example, the State of Arkansas 

mailed a notice of intent to sell a tax debtor’s real property and the notice was 

returned unclaimed. 547 U.S. at 235. The court found that the state should have 

taken additional reasonable steps, since it was practicable for it to do so. Id. 

Because Jones was decided in the context of the sale of real property—a 

significant type of taking—it is unlikely that the same level of notification would 

be required for a mere offset. See id.; see also Small v. United States, 136 F.3d 

1334, 1337 (D.C. Cir. 1998) (in a forfeiture proceeding, when the Government 

knows or can easily ascertain where a person may be found, it must direct its 

notice there, and not to some other address where the designee formerly resided). 
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iii. Timing of Notice

Generally, notification should be provided prior to the offset. In some 

circumstances, however, it might be appropriate to provide the debtor with a postdeprivation notice and opportunity to dispute. Wisdom, 713 F.2d at 425 (8th Cir. 

1983) (in case where the agency collected debt by applying funds from debtor’s 

retirement account, finding that “[c]learly due process does not mandate a prior 

hearing in this case” because “[t]he deprivation was of property neither then 

available to [debtor] nor being used by him for necessities of life”); Tyson v. 

DOL, Civ. No. 20-cv-147, 2021 U.S. Dist. LEXIS 234186, at *28 (D.D.C. Dec. 7, 

2021) (“[R]egardless of whether [the debtor] received adequate notice and an 

opportunity to be heard before the offsets were applied, the post-deprivation 

remedies that he received, which included an appeal and a motion for 

reconsideration, were sufficient to vindicate his right to due process of law”); see 

also 31 CFR § 901.3 (where there is insufficient time before a payment would 

have to be made to provide for prior notice and an opportunity for review, an 

agency can conduct the offset first, and as soon as practicable thereafter, provide 

the debtor due process); but see Atwater v. Roudebush, 452 F. Supp. 622, 631

(N.D. Ill. 1976) (in the context of the offset of back wages and retirement 

payments, “the Government’s interest in protecting the treasury by prompt 

recovery of past debts is outweighed by the slight incremental cost of providing at 

least [a limited form of a pre-deprivation hearing]”).

iv. Right to Review Records

Debtors must have an opportunity to inspect the agency’s records regarding the 

debt. While the agency is generally not required to produce every single relevant 

record in response to a debtor’s request to review the agency’s records, it must 

provide the debtor with information sufficient to support the agency’s 

determination regarding the debt. See Housing Authority of County of King v. 

Pierce, 711 F. Supp. 19, 22-23 (D.D.C. 1989) (while “[d]iscovery is not a sine 

qua non of due process,” the agency’s failure to comply with “minimal discovery 

requests” resulted in its failure to provide sufficient constitutional due process).

b) Constitutionally Sufficient Opportunity to be Heard 

i. Agency Review of its Records

A deprivation of property also requires that a person be afforded a “timely and 

meaningful” opportunity to be heard. Mathews v. Eldridge, 424 U.S. 319, 349 

(1976); see also Coral Gables Convalescent Home, Inc. v. Richardson, 340 F. 

Supp. 646, 650 (S.D. Fla. 1972) (finding insufficient due process due to “the 

failure to afford plaintiff at least a post-reduction hearing”). One court defined 

the term “hearing” as follows:
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any confrontation, oral or otherwise, between an affected individual and an 

agency decisionmaker sufficient to allow the individual to present his case in a 

meaningful manner. Hearings may take many forms, including a “formal,” 

trial-type proceeding, an “informal discuss(ion)” . . . or a “paper hearing,” 

without any opportunity for oral exchange. 

Gray Panthers v. Schweiker, 652 F.2d 146, 148 n.3 (D.C. Cir. 1980). The 

Supreme Court has recognized that “[t]he formality and procedural requisites for 

the hearing can vary, depending upon the importance of the interests involved and 

the nature of the . . . proceedings.” Boddie v. Connecticut, 401 U.S. 371, 378-379 

(1971). The requirement that the debtor have the “opportunity to be heard” does 

not mean that the debtor is entitled to a formal, trial-like hearing. Califano v. 

Yamasaki, 442 U.S. 682, 695-96 (1979) (in a case involving the recoupment of 

erroneous overpayments, the Court stated that oral hearings are not required in 

case involving “relatively straightforward matters of computation for which 

written review is ordinarily an adequate means to correct prior mistakes”); 

Anderson, 888 F.2d at 994-95 (because “the precise choice of hearing procedures 

is better left to the persons administering [the offset program]”); Atwater, 452 F. 

Supp. at 630-31 (explaining that “[a] full evidentiary hearing prior to termination 

may not be required, but an effective opportunity to press one's claim prior to 

administrative action must still be available”); Pierce, 711 F. Supp. at 23-24

(holding that neither a trial-type hearing nor an oral hearing was required for an 

agency to exercise its right of recoupment). In circumstances where the 

determination involves issues of credibility or veracity, however, an oral hearing 

may be required. Califano, 442 U.S. at 696. This review must be conducted by 

an impartial decision maker. Richardson, 340 F. Supp. at 651.

ii. Timely Reviews

An administrative review should be conducted in a timely fashion. Anderson, 888 

F.2d at 996 (“A timely opportunity to be heard is at the core of the due process 

guarantees”). When feasible, this review should be conducted prior to any offset. 

United States v. James Daniel Good Real Prop., 510 U.S. 43, 53 (1993) (in the 

context of a civil forfeiture of real property, a pre-deprivation hearing is required, 

absent exigent circumstances); Kechijian v. Califano, 621 F.2d 1, 5 (1st Cir. 

1980) (post-deprivation hearing after offset against payments to Medicare 

provider satisfied due process because full relief could have been obtained at a 

post-deprivation hearing).

iii. Inform Debtor of the Results 

After conducting a requested administrative review, the agency must inform the 

debtor of the results of the review. Anderson, 888 F.2d at 995-96 (due process 

requires notification of the decision regarding the contested offset); Shlikas, 2010 

U.S. Dist. LEXIS 88371, at *19 (agency failed to provide sufficient due process 

when debtor received no response to his request for a hearing and the agency 
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submitted no evidence that it actually undertook a review); Pierce, 711 F. Supp. at 

24 (agency must provide proof that it has actually considered the debtor’s 

challenge and must provide a “reasonably detailed statement” of the reasons 

underlying its final decision). The agency, however, need only communicate the 

basic reason(s) for its decision. As one court explained, this communication:

need not amount to a full opinion or even formal findings of fact and 

conclusions of law. In order to satisfy procedural due process, [an agency] 

need only provide a minimal, and perhaps even symbolic, recitation of the 

factors it took into account in arriving at its final determination. Such a 

meager showing might well be rejected on appeal as inadequate under the 

arbitrary and capricious test, but the problem would not be one of due process.

Pierce, 711 F. Supp. at 24 (internal quotations and citations omitted). 

iv. Debtor Must Exercise Right to Review

Debtors must be provided with the opportunity to be heard. If a debtor does not

properly exercise this right, the agency is not required to provide a hearing. See

Johnson v. Spellings, Civ. No. PJM 07-671, 2008 U.S. Dist. LEXIS 118676 at

*12 (D. Md. July 11, 2008) (debtor’s failure to properly request a hearing

precludes any argument that he was denied an opportunity to be heard).

Common Law Exists Independently of Statutory Authority

Common law setoff rights generally exist independently of, and in addition to, statutory 

offset rights. See, e.g., 31 U.S.C. § 3716(d) (“Nothing in this section is intended to prohibit 

the use of any other administrative offset authority existing under statute or common law”); 

142 Cong. Rec. H4046-01 (daily ed. Apr. 25, 1996) (statement of Rep. Horn79) (stating that 

“the Debt Collection Improvement Act is not intended to prohibit the use of any existing 

authority to perform administrative offset under statute or common law”). Generally, 

common law setoff and recoupment rights will only be unavailable where Congress has 

explicitly overridden common law. See, e.g., 38 U.S.C. § 5301(b) (protecting Veterans 

benefits from offset); 5 U.S.C. § 5514(a)(1) (imposing limits on the percent of current pay 

that may be offset). 

Statutes “are to be read with a presumption favoring the retention of long-established and 

familiar principles, except when a statutory purpose to the contrary is evident.” Cecile 

Indus., Inc. v. Cheney, 995 F.2d 1052, 1054-55 (Fed. Cir. 1993) (quoting United States v. 

Texas, 507 U.S. 529, 534 (1993)); see also Johnson v. All-State Constr., Inc., 329 F.3d 848, 

853 (Fed. Cir. 2003) (“[T]he government’s set-off right can be defeated only by explicit 

language”); Mt. Sinai Hospital, Inc. v. Weinberger, 517 F.2d 329, 338 (5th Cir. 1975) 

(discussing the effect of the Medicare Act on the common law right of recoupment and 

finding that the Act complements rather than displaces or supersedes the common law 

79 Available at https://www.fiscal.treasury.gov/files/debt-management/dmhorn.txt. 
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recoupment right). The extent to which debt collection statutes may impact federal agencies’ 

common law authority must be analyzed on a case-by-case basis.80

80 Compare United States v. York, 909 F. Supp. 4, 9 (D.D.C. 1995) (“[T]he government cannot avoid the terms of 

the [Debt Collection Act] or the [Federal Debt Collection Procedures Act] by asserting it has common law authority 

for its action when it cannot support its position with case law”) with In re Chateaugay Corp., 94 F.3d at 779

(agency possessed a common law right to setoff debtor’s tax refunds because the terms of the tax refund statute did 

not apply), McCall Stock Farms, Inc., 14 F.3d at 1566 (finding that the intent of the Debt Collection Act was to 

expand federal agencies’ authority to collect debts via offset, rather than restrict existing authority under the 

common law), Cheney, 995 F.2d at 1054-55 (same), Allied Signal, Inc. v. United States, 941 F.2d 1194, 1198 (Fed. 

Cir. 1991) (offset of claims from the same contract (i.e., recoupment) was not governed by the DCA); Amoco Prod. 

Co. v. Fry, 904 F. Supp. 3, 10 (D.D.C. 1995) (DCA supplemented common law right to offset), Cascade Pac. Int’l 

v. United States, 773 F.2d 287, 296 (Fed. Cir. 1985) (Federal Claims Collection Act was not meant to abrogate 

common law offset rights), Senator Percy, B-212222,1984 U.S. Comp. Gen. LEXIS 1738 (Comp. Gen. Jan. 5, 1984)

(explaining the basis for its determination “that the Debt Collection Act does not abrogate pre-existing common law 

rights beyond the extent required by its terms”), and Debt Collection—Admin. Offset and Interest Against State and 

Local Gov’ts, 1983 U.S. Comp. Gen. LEXIS 648 (Comp. Gen. Aug. 23, 1983) (holding that the administrative offset 

and interest provisions of the Debt Collection Act are not exclusive).
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E. ADMINISTRATIVE WAGE GARNISHMENT

I. Generally

Garnishment allows a creditor to recover from a debtor through an attachment of the debtor’s 

property in possession of a third party, and wage garnishment is when that property consists of 

the debtor’s wages in the hands of his or her employer.81 Administrative wage garnishment 

(AWG) is a process in which a federal agency may collect delinquent nontax debt by garnishing 

the wages of a delinquent debtor without first obtaining a court order. 31 U.S.C. § 3720D(a); 31 

CFR § 285.11(d). 

By regulation, agencies whose debts are being serviced by Treasury are generally required to use 

AWG as a collection tool, when appropriate.82 This is consistent with Congress’s intent that 

“every debtor that has a job or income should be in a repayment schedule.”83 AWG can be an 

extremely effective collection tool. Even the mere notification that an agency is considering 

commencing AWG encourages some debtors to voluntarily pay their debts, either in full or 

pursuant to a repayment agreement. Moreover, there is no time limitation on an agency’s ability 

to collect through AWG.84

This chapter discusses AWG authorized by 31 U.S.C. § 3720D, which can be used by federal 

agencies seeking to collect delinquent federal nontax debts.

85

II. Effect of State Law

Agencies may administratively garnish the wages of an individual debtor “[n]otwithstanding any 

provision of State law.” 31 U.S.C. § 3720D(a); 31 CFR § 285.11(b)(2). As such, the federal 

81 Wash. State Dep't of Soc. & Health Servs., 537 U.S. at 383. 82 Agencies are generally required to refer delinquent debts to the Cross-Servicing program, and the Cross-Servicing 

program requires agencies to authorize the use of AWG. I TFM §§ 3-5030.10, 5030.30 (regulations governing the 

collection of debt through the Cross-Servicing program); 31 U.S.C. § 3711(g)(9)(G). 83 See 142 Cong. Rec. H4046 (daily ed. Apr. 25, 1996) (statement of Rep. Horn), available at

https://fiscal.treasury.gov/files/dms/dmhorn.txt. 84 See, e.g., Horton v. United States, No. 2022-1158, 2022 U.S. App. LEXIS 9044, at *7 (Fed. Cir. Apr. 5, 2022); 

Abdelmalik v. United States SBA, Civil Action No. 1:17-CV-00175-YK, 2018 U.S. Dist. LEXIS 49549, at *7-9 

(M.D. Pa. Mar. 26, 2018); In re Patel, No. 20-30455, 2022 Bankr. LEXIS 1215, at *4-5 (Bankr. W.D.N.C. May 4, 

2022). 

85 Under 31 U.S.C. § 3720D, all federal agencies seeking to collect delinquent federal nontax debts may do so 

through AWG. This chapter does not address the administrative wage garnishment authority authorized by 20 

U.S.C. § 1095a, which can be used by the Department of Education and its guaranty agencies to collect student loan 

debts. Cases interpreting 20 U.S.C. § 1095a, however, can be useful for interpreting 31 U.S.C. § 3720D. See Frew 

v. Van Ru Credit Corp., No. 05-5297, 2006 U.S. Dist. LEXIS 54583, at *12 (E.D. Pa. Aug. 7, 2006) (treating 

precedent under 20 U.S.C. § 1095a as persuasive when deciding a case under 31 U.S.C. § 3720D, and noting that the 

language of 20 U.S.C. § 1095a is nearly identical to the language of 31 U.S.C. § 3720D). This chapter also does not 

address court-ordered garnishments, which remain a useful tool for federal agencies. Compare 15 U.S.C. § 1673(a) 

(Consumer Credit Protection Act limiting court-ordered wage garnishment orders to 25% of disposable pay), with

31 U.S.C. § 3720D(b)(1) (limiting AWG withholding orders to 15% of disposable pay). Agencies should be aware 

of these additional authorities as they determine how best to collect their debts. 
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statute preempts any contrary state law and can be applied uniformly throughout the United 

States.86

III. Agency-Specific Regulations

Treasury issued regulations setting forth the minimum requirements for how federal agencies 

may conduct AWG, including minimum requirements for conducting a hearing. 31 U.S.C. 

§ 3720D(h); see generally 31 CFR § 285.11. Prior to attempting to collect a debt through AWG, 

agencies must prescribe procedures for the conduct of AWG hearings consistent with the hearing 

requirements specified in Treasury’s governmentwide regulations. 31 U.S.C. § 3720D(c)(1); 31 

CFR § 285.11(f)(1), (k)(2). Agencies may choose to provide greater due process protections to 

the debtor but must meet Treasury’s minimum standards. See 31 CFR § 285.11(f)(1).

IV. Due Process Requirements

As further discussed below, agencies are required to provide debtors with notice, an opportunity 

to dispute the existence and amount of the debt, and the opportunity to repay the debt in 

installments. 31 U.S.C. § 3720D(b); 31 CFR § 285.11(e), (f). While debtors are entitled to 

specific due process prior to the initiation of AWG, agencies are not required to duplicate notices 

or administrative proceedings. 31 CFR § 285.11(b)(6). In contrast to most collection tools, an 

agency generally must provide a paper or oral hearing, if the debtor requests one, prior to 

initiating AWG. Id. § 285.11(f).87

86 U.S. Const. art. VI, cl. 2; Frew, 2006 U.S. Dist. LEXIS 54583, at *12; Savage v. Scales, 310 F. Supp. 2d 122, 134 

(D.D.C. 2004); Nelson v. Diversified Collection Servs., Inc., 961 F. Supp. 863, 872 (D. Md. 1997); see also Tex. 

Atty. Gen. Op. DM-419, available at https://www2.texasattorneygeneral.gov/opinions/opinions/48morales/op/1996

/pdf/dm0419.pdf (Sept. 23, 1996). 87 The Supreme Court has determined that the requirements of procedural due process vary depending on the 

circumstances. See, e.g., Morrissey v. Brewer, 408 U.S. 471, 481 (1972) (“It has been said so often by this Court 

and others as not to require citation of authority that due process is flexible and calls for such procedural protections 

as the particular situation demands”). That the garnishment of wages may require a hearing where other collection 

actions do not is not surprising given the Supreme Court’s view that wages are “a specialized type of property 

presenting distinct problems in our economic system.” Sniadach v. Family Fin. Corp. of Bay View, 395 U.S. 337, 

340-342 (1969) (while making no judgment on the wisdom of garnishment policy, noting that garnishment without 

proper protection could “drive a wage-earning family to the wall”).
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A. Notice

At least 30 days prior to the initiation of AWG proceedings (i.e., at least 30 days before sending 

the employer a withholding order), the creditor agency must send written notice of its intent to 

initiate AWG to the debtor’s last known address by first class mail. 31 U.S.C. § 3720D(b)(2); 31 

CFR § 285.11(e)(1). This notice can be sent by the creditor agency, by another agency acting on 

behalf of the creditor agency, or a contractor or agent of either agency. This notice must inform 

the debtor of the nature and amount of the debt, the intention of the agency to initiate AWG 

proceedings, and the debtor’s rights (and how to exercise those rights). 31 U.S.C. 

§ 3720D(b)(2); 31 CFR § 285.11(e)(1). The debtor’s rights include the opportunity: (1) to 

inspect and copy agency records related to the debt; (2) to enter into a repayment agreement; and 

(3) for a hearing concerning the existence or amount of the debt. 31 U.S.C. § 3720D(b); 31 CFR 

§ 285.11(e)(2). The notice must also inform the debtor of the relevant timeframes to exercise 

these rights. 31 CFR § 285.11(e)(1)(iii). 

An agency must keep evidence of the fact that it served this notice, including the date on which 

the notice was mailed. Id. § 285.11(e)(3). An agency meets this requirement by retaining 

information indicating the nature of the document to which it pertains, the mailing date of the 

document, and to whom the document was sent. Id. § 285.11(c) (defining “evidence of 

service”). Evidence of service may be retained electronically. Id. 

B. Opportunity to Dispute or Repay Debt

Review records

The agency must provide the debtor with the opportunity to inspect and copy records relating 

to the debt. 31 U.S.C. § 3720D(b)(3); 31 CFR § 285.11(e)(2)(i). Without an opportunity to 

view agency records, the debtor may be unable to effectively dispute the debt or the proposed 

collection action.

Opportunity to Repay Debt

The agency must provide the debtor with the opportunity to enter into a payment agreement

under terms agreeable to the agency. 31 U.S.C. § 3720D(b)(4); 31 CFR § 285.11(e)(2)(ii). 

An agency should generally require that the debtor pay in accordance with his or her ability 

to pay. See generally 31 CFR § 901.8. 

Disputes

a) Timing of Request for Hearing

If the debtor submits a written request for a hearing, the agency must provide one before 

commencing AWG. 31 U.S.C. § 3720D(c); 31 CFR § 285.11(f)(2). If the agency 

receives the debtor’s written request on or before the 15th business day following the 

mailing of the notice, the agency may not issue a withholding order until a hearing has 

been held and a decision rendered. 31 U.S.C. § 3720D(c)(1); 31 CFR § 285.11(f)(4). If 
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the agency receives the debtor’s written request after the 15th business day following the 

mailing of the notice, the agency must still provide a hearing to the debtor. 31 U.S.C. 

§ 3720D(c)(2); 31 CFR § 285.11(f)(5). However, the agency is not required to delay the 

issuance of the withholding order unless the agency determines that the delay in filing the 

request was caused by factors over which the debtor had no control, or the agency 

receives information that the agency believes justifies a delay or cancellation of the 

withholding order. 31 CFR § 285.11(f)(5). Agencies must issue a hearing decision 

within 60 days of the date of receipt of the written request and must suspend any 

previously issued withholding order pending the hearing decision if a decision is not

made within 60 days of receipt of the written request. 31 U.S.C. § 3720D(c)(2)-(3); 31 

CFR § 285.11(f)(10).

b) Hearing Officers

A hearing official is any individual that the head of the agency determines is qualified. 

The hearing official may be an employee of the creditor agency88 or may be the employee 

of another federal agency. While the hearing official may be an attorney or an 

administrative law judge, that is not necessary for qualifying as a hearing official. See 31 

CFR § 285.11(f)(6).

c) Bases for Dispute and Burden of Proof

i. Existence or Amount

The agency must provide the debtor with the opportunity for a hearing on the 

agency’s determination of the existence or amount of the debt. Id.

§ 285.11(e)(2)(iii). The agency has the initial burden of proving the existence or 

amount of the debt in dispute. Id. § 285.11(f)(8)(i). Thereafter, if the debtor

disputes the existence or amount of the debt, the debtor must present by a 

preponderance of the evidence that no debt exists or that the amount of the debt is 

incorrect. Id. § 285.11(f)(8)(ii). 

To succeed under the “preponderance of the evidence” standard, the debtor must 

prove that its position is more likely than not the correct position and demands 

more than a mere assertion.89

88 Unlike federal salary offset, there is no requirement that the hearing official not be “under the supervision or 

control of the head of the agency.” Cf. 5 U.S.C. § 5514(a)(2)(D). 89 See Tellabs, Inc. v. Makor Issues & Rights, Ltd., 551 U.S. 308, 329 (2007) (citing to Herman & MacLean v. 

Huddleston, 459 U.S. 375, 390 (1983)); Harrill v. U.S. Dep't of Educ., No. 07- 385, 2009 U.S. Dist. LEXIS 7045, at 

*8-9 (S.D. Ohio Jan. 30, 2009) (concluding that the debtor “failed to proffer any evidence that [the agency] acted 

arbitrarily or capriciously” and dismissing a suit challenging the AWG hearing decision).
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ii. Financial Hardship

The agency must provide the debtor with the opportunity for an agency review (or 

hearing) on the basis that the proposed garnishment would cause financial 

hardship. 31 CFR § 285.11(f)(8)(ii). If the debtor demonstrates through a 

preponderance of the evidence that garnishment would cause financial hardship, 

the agency must make a downward adjustment to the garnishment amount. 

Id. § 285.11(k)(3).

If an agency has previously denied a debtor’s claim of financial hardship, the 

debtor may request another hearing if the debtor can demonstrate changed 

circumstances, such as disability, divorce, or catastrophic illness. Id.

§ 285.11(k)(1). 

iii. Continuous Employment Standard

An agency may not garnish a debtor’s wages if the debtor was involuntarily 

separated from employment and then continuously reemployed for less than 12 

months. 31 U.S.C. § 3720D(b)(6); 31 CFR § 285.11(f)(8)(ii), (j). The agency 

must provide the debtor with the opportunity for an agency review (or a hearing) 

on this basis. 31 CFR § 285.11(f)(8)(ii). The debtor has the burden to inform the 

agency of the circumstances of their involuntary separation from employment. Id.

§ 285.11(j). 

Seasonal and temporary workers are not eligible for the continuous employment 

exemption because their work has a natural end, and thus, does not constitute an 

“involuntary” separation from employment

iv. Current on a Repayment Agreement

Agencies may not use AWG to collect a debt when a debtor is currently repaying 

the debt in accordance with an unbreached agreement between the agency and the

debtor. 31 U.S.C. § 3720D(a). The agency must provide the debtor with the 

opportunity for an agency review (or a hearing) for the debtor to show that the 

terms of the repayment schedule are unlawful, would cause a financial hardship to 

the debtor, or that collection of the debt may not be pursued due to operation of 

law. See 31 CFR § 285.11(f)(8)(ii).
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d) Minimal Requirements for Hearing

i. Paper v. Oral Hearings

Generally, agencies may conduct AWG hearings as written (i.e., paper) hearings. 

Id. § 285.11(f)(2).90 However, when the issues cannot be resolved by a review of 

the documentary evidence, the agency must provide the debtor with a reasonable 

opportunity for an oral hearing. Id. § 285.11(f)(3)(i). If an oral hearing is 

required, it may be conducted by telephone or in-person, at the debtor’s option. 

Id. § 285.11(f)(3)(ii). The time and location of the hearing must be established by 

the agency. Id. §§ 285.11(f)(3)(ii), (f)(7). Any travel expenses incurred by the 

debtor in connection with an in-person hearing must be borne by the debtor and 

all telephonic charges incurred during the hearing are the responsibility of the 

agency. Id. § 285.11(f)(3)(ii). Any witnesses who testify in oral hearings must do 

so under oath or affirmation. Id. § 285.11(f)(9).

ii. Administrative Record and Evidence

The agency must set a reasonable deadline for the submission of evidence. Id. 

§ 285.11(f)(3)(iii), (f)(7). If the debtor fails to submit evidence or otherwise 

appear for the hearing, absent good cause, the debtor will be deemed as not 

having filed a timely request for a hearing. Id. § 285.11(f)(13).

The hearing official must maintain a record of any hearings provided. Id. 

§ 285.11(f)(9).

iii. Hearing Decisions

The hearing decision must include a summary of the facts presented and the 

hearing official’s findings, analysis, and conclusions. Id. § 285.11(f)(11). It must 

also include the terms of any repayment schedules, if applicable. Id. 

§ 285.11(f)(11)(iii).

The hearing decision constitutes the final agency action for purposes of judicial 

review under the Administrative Procedures Act. Id. § 285.11(f)(12).

90 See also Harter v. Paige, 130 F. Appx. 69, 70 (8th Cir. 2005) (a “written records hearing satisfies the due process 

requirement [for] a meaningful opportunity to present objections” before commencing AWG); Part I.B.II.C of this 

Treatise.
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e) Timing of Hearing Decision

The hearing official must issue a written decision within 60 days of the agency’s receipt 

of a request for a hearing. 31 U.S.C. § 3720D(c)(3); 31 CFR § 285.11(f)(10). If an 

agency fails to meet this 60-day deadline, it may not issue a withholding order until it 

holds the hearing and renders a decision. 31 CFR § 285.11(f)(10)(i). If a withholding 

order has already been issued, the agency must suspend the order until it holds the 

hearing and renders a decision. Id. § 285.11(f)(10)(ii). 

V. Other Procedural Matters

A. Employer Documents

Withholding Order

After satisfying the due process requirements for collecting a debt through AWG, a creditor 

agency (or another federal agency acting on the creditor agency’s behalf) may send a 

withholding order to the debtor’s employer by first class mail. Id. § 285.11(g). The 

withholding order should be signed91 by an official or employee of the agency responsible 

for collecting the debt. Id. § 285.11(g)(2). If the debtor makes a timely request for a 

hearing, the withholding order generally should be sent within 30 days of the agency’s final 

hearing decision. Id. § 285.11(g)(1)(ii). If the debtor does not make a timely request for a 

hearing, the withholding order generally should be sent within 30 days of the expiration of 

the period given for making a timely hearing request (i.e., 15 business days after the agency 

sends its notice of intent to initiate AWG). Id. § 285.11(g)(1); see also 63 Fed. Reg. 25,136, 

25,138 (May 6, 1998) (withholding order should be issued promptly after notice and an 

opportunity to be heard have been provided to the debtor). The agency may delay or cancel 

the issuance of the withholding order if the agency receives information that the agency 

believes justifies delay or cancellation. 31 CFR § 285.11(g)(1). The withholding order 

should include only the information needed for the employer to comply. 31 U.S.C. 

§ 3720D(d); 31 CFR § 285.11(g)(2). 

When issuing a withholding order, agencies must use the form prescribed by Treasury. 31 

CFR § 285.11(g)(2). The form, along with templates for other AWG material, is available 

at https://fiscal.treasury.gov/files/forms/SF329.pdf. It is intended that by using standard 

forms, agencies make it easier for employers to recognize and comply with withholding 

orders. See 63 Fed. Reg. 25,136, 25,138 (May 6, 1998).

The agency must retain evidence of service indicating the date on which it mailed the 

withholding order. 31 CFR § 285.11(g)(3). 

91 The withholding order must contain either the actual signature or an image of the signature of the head of the 

agency or his or her delegate. Id. § 285.11(g)(2). 
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Employer Certification

The creditor agency should also send the employer a certification form, which the employer 

must complete within the time frame prescribed on the form. Id. § 285.11(h). As with the 

withholding order, agencies must use the form prescribed by Treasury. Id. The employer 

must disclose whether the employee is currently employed by the employer, the gross 

amount of pay to the employee, the calculated garnishment amount, and a list of any 

withholding orders with priority. See Standard Form 329D, available at 

https://fiscal.treasury.gov/files/forms/SF329.pdf. The employer must certify that the 

information it provided is accurate to the best of its knowledge and belief. Id. The 

information provided on the certification form provides agencies with information necessary 

to monitor the employer’s compliance and to anticipate the amount that can be collected 

through AWG so it can determine whether to pursue other collection tools. 63 Fed. Reg. 

25,136, 25,138 (May 6, 1998). 

Employer Worksheet

In addition to the withholding order and the employer certification form, agencies may send 

the employer a wage garnishment worksheet, which the employer can use to calculate the 

appropriate amount of the garnishment.92

Suspension and Termination Orders

Once the agency has recovered the full amount of the debt owed by the debtor, the agency 

must send the employer a notification to discontinue wage withholding. 31 CFR 

§ 285.11(l)(1).

The agency must also notify the employer to suspend wage withholding when the debtor is 

subject to an active bankruptcy proceeding or any other circumstances that would cause the 

debt to be collected in violation of law. See, e.g., 11 U.S.C. § 362(a).93 And, if the agency 

has not issued a hearing decision on a debtor’s late hearing request within 60 days, the 

agency must notify the employer to suspend wage withholding until the agency issues the 

hearing decision. 31 CFR § 285.11(f)(10)(ii). 

In these circumstances, the agency should consider whether it should ask the employer to 

merely suspend garnishments until further notification, or if it should terminate them 

altogether. The agency’s choice to terminate its initial withholding order and reissue a new 

withholding order at some later point in time (rather than merely suspend the initial 

withholding order) may impact the priority of its withholding order. It may also affect the 

liability of an employer who failed to comply with the initial withholding order.

If an agency’s initial withholding order incorrectly listed the employee or employer, the 

agency must issue a new withholding order with a new date. However, if the initial 

92 Standard Form 329C, available at https://fiscal.treasury.gov/files/cross-servicing/SF329.pdf. 93 For additional information on the bankruptcy automatic stay, see Part II.D.IV of this Treatise.
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withholding order merely contained a clerical error, the agency should issue a corrected 

withholding order with the original date. Likewise, if the agency sends follow-up copies of 

the initial withholding order to an employer to gain compliance, the agency should retain the 

date of the original withholding order.

B. Paperwork Reduction Act of 1995 

The Paperwork Reduction Act of 1995 does not apply to the collection of information during the 

conduct of an administrative action involving an agency against specific individuals. See 44 

U.S.C. § 3518(c)(i)(B)(ii). 

C. Use All Available Collection Tools

An agency that is collecting a debt through AWG may, and generally should, continue to collect 

the debt through other debt collection tools. 31 CFR § 285.11(b)(4).

VI. What Can be Garnished

A. Non-Federal Wages

The wages that are subject to AWG generally include any wages other than those earned by 

federal employees from their federal employment.

94 Agencies can collect from federal wages 

earned by federal employees through federal salary offset. See 5 U.S.C. § 5514. Like AWG, 

federal salary offset permits agencies to deduct up to 15% of a debtor’s disposable pay of federal 

employees. See supra Chapter D.IV.B.5 of this Treatise. Any wages earned by a federal 

employee from a non-federal government source are still eligible for garnishment, as it is the 

source of the wages that is dispositive, not the employment status of the debtor. 31 CFR 

§ 285.11(b)(5). 

B. Disposable Pay

Disposable pay includes any part of the debtor’s compensation (including salary, bonuses, 

commissions, vacation pay) from an employer after the deduction of health insurance premiums 

and any amounts required by law to be withheld (including amounts for deductions such as 

social security taxes and withholding taxes).95 31 CFR § 285.11(c). Disposable pay does not 

exclude amounts withheld pursuant to a court order. d. 

94 Id. § 285.11(b)(5). Agencies should consider whether to protect wages due to a master or seaman. See 46 U.S.C. 

§ 11109 (generally applying to garnishments issued by a “court”). 95 Cf. Koethe v. Johnson, 328 N.W.2d 293, 298 (Iowa 1982) (concluding that for purposes of 15 U.S.C. § 1672(b) 

“amounts required by law to be withheld” clearly includes deductions for federal, state, and local withholding taxes, 

and social security taxes); First Nat’l Bank v. Hasty, 415 F. Supp. 170, 174 (E.D. Mich. 1976) (holding that, under 

Michigan state garnishment law (MCLA § 600.4011 et seq.) earnings allocated to child support and alimony are 

included in disposable pay). 
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Any attempted assignment or allotment by an employee of his or her wages are void to the extent 

it interferes with an agency’s rights to collect through AWG, with the exception of assignments 

or allotments made pursuant to a family support judgment or order. Id. § 285.11(i)(7).

The employer is responsible for calculating the employee’s disposable pay and must certify its 

calculation to Treasury. Id. § 285.11(h). 

C. Amount of Garnishment

Unless the debtor agrees to a greater percentage, an agency can garnish no more than 15% of the 

debtor’s disposable pay when collecting a debt through AWG. 31 U.S.C. § 3720D(b)(1); 31 

CFR § 285.11(i)(2)(i), (4). If a debtor owes more than one debt, agencies can garnish up to 25% 

of disposable pay.96 

The debtor has the right to a reduction in garnishment to the extent of demonstrated financial 

hardship. See supra Chapter E.IV.B.3.c. In addition, agencies may not garnish the debtor’s 

disposable pay in excess of the amount by which a debtor’s weekly disposable pay exceeds an 

amount equivalent to thirty times the minimum wage. 31 CFR § 285.11(i)(2)(B); see also 15 

U.S.C. § 1673(a); 29 CFR § 870.10. The aggregate amount garnished under one or more 

garnishment orders is limited to the lesser of: (1) 25% of disposable pay or (2) the amount of 

weekly disposable pay that exceeds thirty times the federal minimum wage. 31 CFR

§ 285.11(i)(3)(ii); see also 15 U.S.C. § 1673(a). 

VII. Priority of Garnishments

When a debtor’s pay is subject to multiple withholding orders, the employer should generally 

comply with the withholding orders on a “first come, first served” basis.

97

VIII. Use of Private Collection Contractors

Agencies may use private collection contractors to assist in the AWG process. For example, 

agencies may use contractors “to mail notices and garnishment orders authorized by the agency, 

receive documents from the debtor and the employer, and document agency-approved repayment 

agreements with the debtor” or anything else that is not an inherently governmental function.98 

However, federal employees must retain responsibility for making the ultimate decision regarding 

whether and when to issue a withholding order and for providing hearings. 

96 31 CFR § 285.11(i)(3)(ii); Cf. Halperin v. Reg’l Adjustment Bureau, Inc., 206 F.3d 1063 (11th Cir. 2000) (holding 

that the 10% limit under 20 U.S.C. § 1095a applies to each individual creditor and multiple garnishments are 

governed by the 25% limit established by the Consumer Credit Protection Act, 15 U.S.C. § 1673). 97 But see 31 CFR § 285.11(i)(3)(i) (noting that withholding orders for family support shall have priority over other 

withholding orders). 

98 63 Fed. Reg. 25,136, 25,137 (May 6, 1998); see also 76 Fed. Reg. 56,227, 56,236 (Sept. 12, 2011) (defining an 

inherently governmental function as “a function that is so intimately related to the public interest as to require 

performance by Federal Government employees”). 
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IX. Employer Issues

A. Compliance Required

The employer of a debtor is required to pay the agency as directed by the withholding order. 31 

U.S.C. § 3720D(f)(1)(A). An employer is “a person or entity that employs the services of others 

and that pays their wages or salaries” and includes state and local governments, non-profit 

organizations, and small businesses.

99 31 CFR § 285.11(c). An “employer” also generally 

includes Indian Tribes.100 For the purposes of AWG, the definition of “employers” does not 

include federal agencies101 or sole proprietorships in which the debtor is self-employed.102 31 

CFR § 285.11(c). 

An employer’s failure to comply with its obligations under 31 U.S.C. § 3720D may result in 

liability. The employer can be held liable for all wages that are not withheld as directed, 

attorney’s fees, and costs. 31 U.S.C. § 3720D(f)(1). In some circumstances, a court, in its 

discretion, may award punitive damages.103 Id. If an agency seeks to hold the employer liable 

for its noncompliance, the agency must first terminate its collection actions against the debtor. 

31 U.S.C. § 3720D(f)(2)(B); 31 CFR § 285.11(o). However, for purposes of this requirement, an 

agency will be deemed to have terminated collection if it has not received any payments from the 

debtor for a period of one year. 31 CFR § 285.11(o). Moreover, an agency could (and should) 

continue to collect from other debtors who were jointly and severally liable on the debt. 63 Fed. 

Reg. 25,136, 25,139 (May 6, 1998).

99 See also United States v. S.C. Dep’t of Corrs., Civil Action No. 3-04-22066-MJP, 32 (D.S.C. June 14, 2006) 

(concluding that 31 CFR § 285.11(c), defining “employer” to include state governments, is a reasonable 

interpretation of the Debt Collection Improvement Act and therefore state government employers are required to 

honor AWG orders issued pursuant to 31 U.S.C. § 3720D); Tex. Atty. Gen. Op. DM-419; 63 Fed. Reg. 25,136, 

25,138 (May 6, 1998) (rejecting a suggestion that small business should be excluded from the requirement to 

comply with AWG orders when compliance would constitute a major hardship). 100 See 31 CFR § 285.11(c) (broadly defining the term “employer”); Smart v. State Farm Ins. Co., 868 F.2d 929, 

932-33 (7th Cir. 1989) (concluding that general statutes whose concerns are widely inclusive and do not affect 

traditional Tribal rights are typically applied to Tribes). 101 See 31 U.S.C. § 3701(a)(4) for a definition of “executive, judicial, or legislative agency.” 102 A corporation in which a sole shareholder was the sole employee, however, might qualify as an “employer” for 

purposes of AWG because, unlike a sole proprietorship, the employee and the employer are two separate legal 

entities. For the sole shareholder to qualify as an employee, the employee would have been paid by the company as 

an employee (i.e., with regular paychecks with statutory deductions for payroll taxes). 

103 See, e.g., United Student Aid Funds, Inc. v. Gary’s Grading & Landscaping, No. 6:07-cv-1140-Orl-19DAB, 2008 

U.S. Dist. LEXIS 106866, at *23-24 (M.D. Fla. Sept. 22, 2008) (declining to award punitive damages for failure of 

the employer to comply with a garnishment order under 20 U.S.C. § 1095a); Educ. Credit Mgmt. Corp. v. Cent. 

Equip. Co., 477 F. Supp. 2d 788, 796 (E.D. Ky. 2007) (holding that an employer’s repeated failure to comply with a 

garnishment order under 20 U.S.C. § 1095a was not so reprehensible as to warrant punitive damages). 
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Confusion or ignorance regarding this requirement will not excuse the employer from liability.104 

Likewise, an employer’s genuine concerns that the debt sought to be collected is not valid or 

legally enforceable will not be a defense to liability.105

Employers must continue to withhold pursuant to a withholding order until the employer 

receives notification from the agency to discontinue or suspend the wage withholding. 31 CFR 

§ 285.11(i)(8). 

B. Timing of Compliance

Employer must commence garnishments within a reasonable amount of time after receiving the 

withholding order. Id. § 285.11(i)(8). A reasonable amount of time generally requires that the 

employer commence withholding within two pay cycles following receipt of the withholding 

order, but may differ based on the employer’s circumstances. 63 Fed. Reg. 25,136, 25,139 (May 

6, 1998). However, employers are not required to vary normal pay cycles. 31 U.S.C. 

§ 3720D(f)(3); 31 CFR § 285.11(i)(6). Once the employer commences withholding, it must 

promptly pay to the agency any amounts withheld in accordance with the withholding order. 31 

CFR § 285.11(i)(5). 

C. Retaliation Prohibited

Employers may not take action against the debtor as a result of the withholding order, including 

discharging the debtor from employment, refusing to employ the debtor, or taking any other

disciplinary action against the debtor. 31 U.S.C. § 3720D(e)(1); 31 CFR § 285.11(m). If the 

employer does retaliate against the debtor, the debtor has a right of action against the employer. 

31 U.S.C. § 3720D(e)(1). The debtor would be entitled to an award of attorneys’ fees and, in the 

court’s discretion, reinstatement of the debtor to employment, punitive damages, back pay, or 

any other remedy that the court determines is reasonable. Id. § 3720D(e)(2). 

104 Educ. Credit Mgmt. Corp. v. Wilson, No. 1:05-CV-41, 2005 U.S. Dist. LEXIS 45334, at *8-9 (E.D. Tenn. May 

27, 2005) (refusing to excuse employer’s noncompliance with withholding orders issued under 20 U.S.C. § 1095a 

despite employer’s contention that they believed the garnishment orders to be false or fabricated); United Student 

Aid Funds, Inc. v. Gary’s Grading & Landscaping, No. 6:07-cv-1140-Orl-19DAB, 2008 U.S. Dist. LEXIS 106866, 

at *2-4 (M.D. Fla. Sept. 22, 2008) (showing that ignorance of the validity of the withholding orders issued under 20 

U.S.C. § 1095a did not excuse requirement to comply). 105 See, e.g., Educ. Credit Mgmt. Corp. v. Wilson, No. 1:05-CV-41, 2005 U.S. Dist. LEXIS 45334, at *6-8 (E.D. 

Tenn. May 27, 2005) (refusing to excuse employer’s noncompliance with withholding orders issued under 20 U.S.C. 

§ 1095a despite employer’s belief that employee did not owe the loans). 
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F. USE OF PRIVATE COLLECTION CONTRACTORS

I. Agency Authority to Use Private Collection Contractors

Agencies have statutory authority to procure the services of private collection contractors (PCCs) 

to recover federal nontax debts.

106 Before Congress explicitly granted this authority to federal 

agencies through the Debt Collection Act of 1982 (DCA),107 there was some uncertainty about 

whether agencies were permitted to procure such services.108 Congress provided agencies with

explicit authority to procure services of PCCs in the DCA to encourage agencies to make use of 

PCCs.109

II. Limitations on What Authority May Be Delegated to Private Collection Contractors

Although agencies may use PCCs to assist with their debt collection responsibilities, there are 

limits on the authority that agencies may delegate to PCCs.110 Any actions of a PCC that exceed 

its statutory, regulatory, or contractual authority are invalid. See supra Chapter B.III.C.2.e of 

this Treatise. In addition, when referring a debt to a PCC, the agency retains ownership of and 

106 31 U.S.C. § 3718(a) (permitting agencies to enter into contracts “for collection service to recover indebtedness 

owed”); see also id. § 3701(f) (defining PCCs for 31 U.S.C. § 3711 as “private debt collectors under contract with 

an agency to collect a nontax debt or claim owed the United States” and noting that the term “includes private debt 

collectors, collections agencies, and commercial attorneys”). 107 Pub. L. No. 97-365, § 13, 96 Stat. 1749, 1757 (1982). 108 See 46 Fed. Reg. 22,353, 22,353 (Apr. 17, 1981) (“Agencies have been contracting for some services related to 

debt collection . . . . The scope of such contracts has been limited, however, because several years GAO [i.e., the 

Government Accountability Office, which was then known as the Government Accounting Office] took the position 

that [f]ederal agencies could not delegate to private contractors the agencies’ collection authority under the Federal 

Claims Collection Act [of 1966].”); see also 76 Fed. Reg. 56,227, 56,241 (Sept. 12, 2011) (defining the collection of 

“fees, royalties, duties, fines, taxes and other public funds” to be an inherently governmental work to be performed 

by federal government employees, unless authorized by statute, like 31 U.S.C. § 3718); In re GSA Transp. Audit 

Contracts, B-198137, 64 Comp. Gen. 366, 369 (1985) (stating that agencies may use PCCs to collect delinquent 

amounts if they retain inherently governmental functions); LETTER TO REP. CABELL, B-171524 (Jan. 4, 1971), 

available at https://www.gao.gov/products/400061#mt=e-report (“[I]t was not our intention to indicate that the head 

of an agency has authority to divest himself of the statutorily assigned function of collection claims of the United 

States . . . and delegate this responsibility to a private debt collection agency”). GAO based its original position that 

agencies could not delegate collection authority to PCCs on both legal and policy grounds. See 46 Fed. Reg. at 

22,353 (noting that the policy objections related to the “dubious reputations and method of collection agencies,” 

which were addressed by the passage of the Fair Debt Collection Practices Act in 1978 and comparable State laws 

prohibiting “abusive, deceptive, and unfair practices by collection agencies”). After GAO’s policy concerns were 

resolved, it re-examined its legal position and determined that although “agencies must retain ultimate responsibility 

for, and control over, debt collection activities, including retention of discretion over the compromise of debts or 

other dispositions short of full recovery,” agencies could delegate “routine administrative actions such as locating 

debtors, arranging for repayment schedules and billing and posting payments, which could be provided by private 

sources.” Id. But, even after GAO reversed its position, agencies remained reluctant to use PCCs. See S. REP. NO. 

97-378, at 18-20, as reprinted in U.S.C.C.A.N. 3377, 3394-96 (1982). 109 See S. REP. NO. 97-378, at 19 (“The Committee has concluded that collection agencies should be used much 

more extensively by the Federal Government”). 110 31 U.S.C. § 3718; 31 CFR § 901.5. 
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certain responsibilities for the debt. See id.; cf. 31 U.S.C. § 3711(i) (providing for authority for 

agencies to sell debts).

For example, a federal agency using a PCC must “retain the authority to resolve disputes, 

compromise debts, suspend or terminate collection activity, and refer debts [to the Attorney 

General] for litigation.” 31 CFR § 901.5(a)(1); see also 31 U.S.C. § 3718(a)(1); 31 CFR 

§ 901.5(a)(2) (“The [PCC] is not allowed to offer the debtor, as an incentive for payment, the 

opportunity to pay the debt less the [PCC’s] fee unless the agency has granted such authority 

prior to the offer”). In addition, even though agencies must retain authority to compromise 

debts, agencies may “set parameters within which [PCCs] could compromise debt.” Federal 

Claims Collection Standards, 65 Fed. Reg. 70,390, 70,393 (Nov. 22, 2000). 

PCCs must also comply with applicable law, including the Privacy Act of 1974, the Fair Debt 

Collection Practices Act, the Federal Claims Collection Standards, and other federal and state 

laws applicable to debt collection practices.111

III. Compensation of Contractors

A contract with a PCC is effective “only to the extent and in the amount provided in an 

appropriation law” or to the extent the contractor is compensated through a fee recovered under 

31 U.S.C. § 3718(d). 31 U.S.C. § 3718(e); see also 31 U.S.C. § 3718(d) (permitting contracts 

with PCCs to permit compensation to be paid to PCCs from the amounts recovered); 31 CFR

§ 901.5(c).

IV. Centralized Referral to PCCs

Through its Cross-Servicing program, Fiscal Service collects delinquent nontax debts on behalf 

of federal agencies. Agencies may use PCCs before referring debts to Fiscal Service but, in 

general, must refer uncollected debts to Fiscal Service before the debts are more than 120 days 

delinquent. 31 CFR § 901.5(b); see also 31 U.S.C. § 3711(g)(2)(A)(iii). In addition, Fiscal 

Service may refer debts in the Cross-Servicing program to PCCs. 31 U.S.C. § 3711(g)(4)(B); 31 

CFR § 901.5(a)(4)(b). 

In accordance with its statutory obligations, Fiscal Service maintains a schedule of those PCCs 

“eligible for referral of debts from Fiscal Service, other debt collection centers, and creditor 

agencies for collection action.” 31 U.S.C. § 3711(g)(5)(C). 

111 31 U.S.C. § 3718(a)(2)(B) (requiring that PCCs be subject to “laws and regulations of the United States 

Government and State governments related to debt collection practices”); 5 U.S.C. § 552a(m) (providing that 

agencies must require contractors to comply with Privacy Act requirements); 31 CFR § 901.5(a)(3) (requiring that 

PCCs contractually agree to comply with “applicable Federal and state laws and regulations pertaining to debt 

collection practices”). In general, PCCs will have to comply with all applicable law, including laws that federal

agencies themselves do not have to comply with when there has been no waiver of sovereign immunity. See 

Campbell-Ewald Co. v. Gomez, 136 S. Ct. 663, 672 (2016) (“When a contractor violates both federal law and the 

Government’s explicit instructions. . . no ‘derivative immunity’ shields the contractor from suit by persons adversely 

affected by the violation.”).
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G. CREDIT BUREAU REPORTING

I. Introduction

Federal agencies are generally permitted to report debts to credit bureaus and, in many cases, are 

required to do so.112 Reporting debts to credit bureaus is meant to incentivize debtors to satisfy 

their federal, nontax debts. S. REP. NO. 97-378, at 8 (1982), reprinted in 1982 U.S.C.C.A.N. 

3377, 3384 (“The theory behind debt reporting by the Federal government is that the availability 

of delinquency information to private sector credit grantors will induce debtors to pay their 

obligations to the Federal government. Those who do not pay may find that other credit is 

unavailable”). Credit bureau reporting also equips agencies with effective debt collection tools 

used by private lenders. Id. (“In view of the fact that the Federal government operates the 

largest credit institution in the world, the Committee feels that it should have the same collection 

tools available to private lenders – this is especially true because the Federal government is 

assuming a higher risk than the private sector in lending in most of its programs”).

When reporting debts, agencies have an obligation to ensure information reported to credit 

bureaus is accurate, and to correct inaccurate information once they are aware of it. See 31 

U.S.C. §§ 3711(e)(1)(B), (E)(ii). 

II. Requirements to Report Debts

A. Delinquent Debts Owed by Individuals

In most cases, agencies are required to report delinquent debts owed by individuals (not 

including tax and tariff debts) to consumer reporting agencies. Id. § 3711(e)(1) (“When trying to 

collect a claim of the Government . . . the head of an executive, judicial, or legislative agency 

shall disclose to a consumer reporting agency information from a system of records that a person 

is responsible for a claim . . . .”) (emphasis added); OMB CIRCULAR NO. A-129, at 15 (“Agencies 

shall refer . . . all delinquent non-tariff and non-tax consumer accounts”). There is no minimum 

dollar threshold for agencies to refer debts to credit bureaus. Id. (debts of $5 may be reported); 

but see 38 U.S.C. § 5320 (requiring the Secretary of Veterans Affairs to establish a threshold for 

reporting certain debts to consumer reporting agencies). 

112 For the purpose of this Treatise, “credit bureaus” include both consumer reporting agencies (defined in 31 U.S.C. 

§ 3701(a)(3)) and commercial reporting agencies. 
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B. Current Debts Owed by Individuals

Agencies are also encouraged to report current debts owed by individuals to credit bureaus. 

OMB CIRCULAR NO. A-129, at 15 (providing guidance on federal debts other than tax and tariff 

debts). “The reporting of current data . . . provides a truer picture of indebtedness while 

simultaneously reflecting accounts that the borrower has maintained in good standing.” Id. 

Reporting current debts also “allows Federal credit reporting to be more consistent with private 

sector practice.” 142 CONG. REC. H4087, 4089 (daily ed. Apr. 25, 1996) (statement of Rep. 

Horn). 

C. Delinquent and Current Debts Owed by Entities

Finally, agencies must report delinquent and current debts owed by entities to credit bureaus. 

OMB CIRCULAR NO. A-129, at 15 (providing guidance on federal debts other than tax and tariff 

debts). 

III. Exceptions to Required Reporting

A. Termination of Debt Collection 

Agencies are not required to report debts to credit bureaus on which they have terminated or 

suspended collection. See 31 CFR § 903.3(a) (allowing agencies to terminate debt collection 

because, for example, the costs of collection are anticipated to exceed the amount recoverable, 

the debt is legally without merit, or the debt cannot be substantiated); id. § 903.2(a) (permitting 

agencies to suspend debt collection when, among other things, the agency cannot locate the 

debtor, or the debtor has requested a waiver or review of the debt). Still, even after suspending 

or terminating active debt collection, agencies may continue credit bureau reporting if 

appropriate. See id. § 903.3(b) (permitting agencies to continue certain collection actions after 

termination). 

B. Bankruptcy 

If an agency discovers that a debtor has filed for bankruptcy protection and an automatic stay is 

in effect, the agency should consider whether it should suspend credit bureau reporting. See 11 

U.S.C. § 362(a); 31 CFR § 903.2(d). While reporting debts to credit bureaus likely is not a per 

se violation of the automatic stay,113 in some cases courts have held that such reporting is a 

violation of the stay when combined with another factor, such as when the reported information 

was inaccurate.114 

113 In re Porcoro, 565 B.R. 314, 327 (Bankr. D.N.J. 2017) (“[T]he Court holds that the mere act of reporting a 

debtor's truthful credit information post-petition—but pre-discharge—without further evidence that the creditor is 

attempting to collect the debt, is not a violation of the automatic stay”). 

114 In re Drake, 2015 Bankr. LEXIS 326, at *11 (Bankr. M.D.N.C. Jan. 6, 2015) (finding that a creditor’s “failure to

correct a false report for over a month after it received notice of its stay violation evidences a pattern of sluggishness 

and disorganization, and further supports this Court's finding of a willful violation [of an automatic stay].”); In re

Weinhoeft, 2000 Bankr. LEXIS 2246, at *4 (Bankr. C.D. Ill. Aug. 1, 2000) (finding that reporting a pre-petition debt 
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In addition, agencies are generally required to terminate debt collection action when the debt has 

been discharged in bankruptcy. 31 CFR § 903.3(a)(6), (c). Agencies generally may report a debt 

that has been discharged to credit bureaus so long as the reported information accurately reflects

that the debt was discharged in bankruptcy and that nothing is being collected from the debtor.

115 

But, a creditor can violate the discharge injunction if the reporting was done with the intent to

collect a discharged debt.116

IV. Prerequisites for Referring Debts to Credit Bureaus 

First, the head of an agency must determine that claims are valid and overdue before the agency 

reports the debts to consumer credit bureaus. 31 U.S.C. § 3711(e)(1)(B). 

A. Privacy Protections

The Privacy Act of 1974, which applies to individuals, permits federal agencies to disclose debts 

to credit bureaus. 5 U.S.C. § 552a(b)(12); see also 31 U.S.C. § 3711(e)(1)(A), (5). But, these 

disclosures are only permissible if agencies provide applicable protections for debtors. 31 

U.S.C. § 3711(e)(1)-(2). To do so, agencies must publish a system of records notice in the 

Federal Register, as per 5 U.S.C. § 552a(e)(4), that indicates which information they may 

disclose to credit bureaus. 31 U.S.C. § 3711(e)(1)(A), (5). 

When reporting a debt, agencies may only disclose information necessary to establish the 

debtor’s identity, the amount, status, and history of the debt, and the agency or program under 

which the debt arose. Id. § 3711(e)(1)(F). 

to credit bureaus with intent to harass or coerce the debtor into paying the debt could constitute a violation of the 

stay).

115 Such a report shows historically accurate information and would be treated differently by prospective creditors in 

evaluating credit applications compared with an amount that is past due and for which the debtor continues to be 

personally liable. Delane v. Carrington Mortg. Servs., LLC, 2016 U.S. Dist. LEXIS 196761, at *35 (N.D. Ga. May

18, 2016) (holding that the reporting did not violate the discharge injunction because the report was accurate,

showed a zero balance due and historical delinquency, and stated that the debts at issue were discharged in the 

bankruptcy); In re Helmes, 336 B.R. 105, 107 (Bankr. E.D. Va. 2005) (holding that furnishers of credit information

may be in violation of a bankruptcy discharge injunction unless "a debt discharged in bankruptcy [is] reported to a 

credit reporting agency with the notation 'Discharged in bankruptcy' and with a zero balance due"). 116 See e.g. Mahoney v. Wash. Mut., Inc. (In re Mahoney), 368 B.R. 579, 584 (Bankr. W.D. Tex. 2007) (the mere

reporting of a discharged debt is not an “act” to collect unless there is a link between the reporting and the recovery

of the discharged debt); In re Puller, 2007 Bankr. LEXIS 2017, at *25 (Bankr. N.D.W. Va. June 20, 2007) (holding 

that to prove a violation of the discharge injunction, the debtor would need to demonstrate not only that the creditor

continued to report inaccurate information, but also that it did so in knowing disregard of the discharge injunction); 

Irby v. Fashion Bug (In re Irby), 337 B.R. 293, 295 (Bankr. N.D. Ohio 2005) (discharge does not extinguish debt, so

the sole act of reporting a debt does not violate discharge the injunction); Smith v. Am. Gen. Fin., Inc., (In re Smith), 

2005 Bankr. LEXIS 2481, at *2 (Bankr. N.D. Iowa Dec. 12, 2005) (finding creditors’ reporting of debts postdischarge as "charged off," "past due," and "written off" with an intent to collect could be a violation of a discharge 

injunction); Vogt v. Dynamic Recovery Servs. (In re Vogt), 257 B.R. 65, 71 (Bankr. D. Colo. 2000) (inaccurate

reporting of a discharged debt does not violate the discharge injunction unless the reporting was “done to extract

payment of the debt”).
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B. Due Process Protections

Agencies must also provide individuals with due process protections before their debts are 

referred to credit bureaus. Before reporting a delinquent debt to consumer reporting agencies, 

the head of the agency must provide written notice to debtors: (1) that payment of the claim is 

overdue, (2) that the agency head will disclose the claim to a credit bureau 60 days after the 

agency has sent notice to the debtor or later, (3) the specific information that the agency will 

report, and (4) “of the rights the person has to a complete explanation of the claim, to dispute 

information in the records of the agency about the claim, and to administrative repeal or review 

of the claim . . . .” Id. § 3711(e)(1)(C). The agency head must send this notice to the most 

current address on file, and if no current address is available, must take reasonable action to 

locate the debtor. Id. § 3711(e)(3). Such reasonable efforts may include, among other things, 

obtaining an address from the Internal Revenue Service pursuant to 26 U.S.C. § 6103(m)(2) or 

from a consumer reporting agency. S. REP. NO. 97-378, at 21 (1982). 

Agencies may choose not to refer a debt to a credit bureau for a person who has repaid the debt, 

entered into a written repayment plan with the agency, or requested a review of the debt. 31 

U.S.C. § 3711(e)(1)(D). Furthermore, the agency head must provide for “a review of the 

obligation of the person, including an opportunity for reconsideration of the initial decision on 

the claim.” Id. § 3711(e)(2). Agencies generally should act promptly on such requests for 

review. S. REP. NO. 97-378, at 21 (1982) (advising that the opportunity for review should not be 

construed to allow the debtor to delay referrals to credit bureaus unreasonably or unjustifiably 

and that agencies should reach final decisions on debtor appeals within 30 days, if possible). 

Agencies, however, generally need not duplicate due process opportunities. 31 CFR 

§ 901.4(a)(2). After agencies have reported debts to a credit bureau, the head of an agency must 

create procedures: (1) to report any substantial change in the condition or amount of the claim, 

(2) quickly verify and correct information requested by credit bureaus, and (3) get assurances 

from credit bureaus that they are complying with all relevant laws. 31 U.S.C. § 3711(e)(1)(E). 

The verification and correction are limited to the information the agency originally disclosed. Id. 

While applicable statutes do not address due process requirements for reporting debts owed by 

entities, constitutional due process protections apply to entities,117 and agencies should consult 

their counsel on what if any due process protections to provide non-individual debtors before 

reporting to credit bureaus. 

C. Agencies Must Develop Standards

Agencies must develop standards for reporting delinquent debts to credit bureaus that comply 

with the Privacy Act and Bankruptcy Code and may similarly develop standards for reporting 

current debts to credit bureaus. 31 CFR § 901.4(a).

117 Grosjean v. American Press Co., 297 U.S. 233, 244 (1936) (“[A] corporation is a ‘person’ within the meaning of 

the equal protection and due process of law clauses”). 
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V. Application of Fair Credit Reporting Act

The Fair Credit Reporting Act (FCRA), codified at 15 U.S.C. § 1681 et seq, is a consumer 

protection statute that imposes duties on persons that provide information to credit bureaus to 

ensure that credit reports are accurate. See e.g., 15 U.S.C. § 1681s-2. 

The law on whether FCRA applies to federal agencies’ credit bureau reporting activities is 

unsettled. Some courts have held that federal agencies may not be sued for violations of FCRA 

because FCRA does not waive the federal government’s sovereign immunity.118 Other courts to 

address the issue, however, have found that FCRA waived sovereign immunity.119 Agencies 

should consult with agency counsel about whether and how to comply with FCRA when 

reporting debts to credit bureaus. 

118 Robinson v. U.S. Dep’t of Educ., 917 F.3d 799, 806 (4th Cir. 2019) (concluding that the United States had not 

waived its sovereign immunity under the enforcement provisions of FCRA, such as the provision requiring agencies 

to fully investigate disputed information reported to credit bureaus); Daniel v. Nat’l Park Serv., 891 F.3d 762, 774 

(9th Cir. 2018) (opining that the federal government could not be sued for violating FCRA by failing to redact the 

plaintiff’s debit card expiration date from a receipt because the federal government had not unequivocally waive its 

sovereign immunity). 119 See, e.g., Kirtz v. Trans Union LLC, 46 F.4th 159 (3d Cir. 2022), petition for cert. filed, (U.S. Mar. 3, 2023) (No. 

22–846) (finding that federal agencies may be liable under FCRA for incorrectly reporting debts to a credit bureau 

as “past due,” and failing to investigate or correct the report after the debtor disputed the information); Mowrer v. 

U.S. Dep’t of Transp., 14 F.4th 723, 729 (D.C. Cir. 2021) (holding that federal agencies generally may be liable for 

damages under FCRA, but that the federal agencies at issue were not acting as “consumer reporting agencies,” and 

so were not subject to FCRA); Bormes v. United States, 759 F.3d 793, 795 (7th Cir. 2014) (regarding the alleged 

failure to redact credit card information from a receipt and holding that FCRA waived the United States’ sovereign 

immunity). 
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H. BARRING DELINQUENT DEBTORS

I. Introduction

Barring delinquent debtors from receiving federal financial assistance is yet another tool for the 

collection of delinquent nontax debt.120 Although barring delinquent debtors from receiving 

loans, loan insurance, and loan guarantees does not result directly in the collection of delinquent 

amounts, it can be an effective collection method because denial of assistance may incentivize a 

debtor to resolve a delinquency.121 This collection tool also serves the additional purpose of 

“reduc[ing] losses arising from debt management activities by requiring proper screening of 

potential borrowers.”122 In general, the Government should not provide financial assistance to 

those who have failed to repay other debts owed to the United States. To facilitate this objective, 

31 U.S.C. § 3720B requires federal agencies to deny certain types of federal financial assistance 

to delinquent debtors, even if creditworthiness is not a factor for eligibility. 123

Credit granting agencies124 may also be required to screen for creditworthiness, which can 

facilitate the identification of applicants owing delinquent federal nontax debts.125 Credit 

granting agencies can obtain information regarding whether a person owes a delinquent debt 

from a variety of sources, including from Do Not Pay (DNP), which operates a resource 

dedicated to detecting and preventing improper payments.126 Operated by Treasury, DNP is 

authorized and governed by the Payment Integrity Information Act of 2019 (PIIA) and Office of 

Management and Budget (OMB) memoranda and circulars. In addition to DNP, credit granting 

agencies can also obtain delinquent debt information from credit reports or borrower selfcertification.127 Several laws and regulations also mandate that credit granting agencies properly 

screen potential borrowers to avoid making improper payments to ineligible recipients.128 

120 See 31 U.S.C. § 3720B. In this context, the term “barring” refers to the denial of federal financial assistance

under 31 U.S.C. § 3720B and is distinct from the legal concept of debarment applicable in government contracting. 

Cf. 48 CFR §§ 9.406-1 to 9.406-5 (reflecting the debarment provisions of the Federal Acquisition Regulations). 121 Cf. 142 Cong. Rec. H4088 (daily ed. Apr. 25, 1996) (statement of Rep. Horn) (“The intent of this section is to 

provide authority to Federal agencies which administer credit programs to refuse to approve credit to parties who are 

delinquent on Federal claims to resolve their debts with the appropriate agency”). 122 Debt Collection Improvement Act of 1996 (DCIA), Pub. L. No. 104-134, § 31001(b)(3), 100 Stat. 1321-358

(1996). 

123 See 31 U.S.C. § 3720B; 31 CFR § 285.13(c)(1). 124 Throughout this Chapter, the agency from which financial assistance is sought is referred to as the “credit 

granting agency, and the agency to which a delinquent debt is owed is referred to as the “creditor agency.” In some 

cases, the credit granting agency and the creditor agency may be the same. 125 See OFFICE OF MGMT. & BUDGET, EXEC. OFFICE OF THE PRESIDENT, OMB CIRC. NO. A-129, POLICIES FOR 

FEDERAL CREDIT PROGRAMS AND NON-TAX RECEIVABLES (revised Jan. 2013) [hereinafter OMB CIRCULAR A-129]. 126 The Do Not Pay portal includes, among other databases, the Department of Housing and Urban Development’s 

Credit Alert Verification Reporting System (CAIVRS), Treasury’s Debt Check Database, the Social Security 

Administration’s Death Master File, and the General Services Administration’s System for Award Management 

(SAM). See DNP: “What Can I Search?”, available at https://fiscal.treasury.gov/dnp/search.html. 127 See 31 CFR § 285.13(c)(3). 128 See id. § 3354(a)(1); see also id. §§ 3351-3358. 
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II. Barring Delinquent Debtors Under 31 U.S.C. § 3720B

A. Overview

General Rule

A person may not obtain any federal loan, loan insurance, or loan guarantee if that person has 

an outstanding nontax debt with any federal agency that is “in a delinquent status.” 31 

U.S.C. § 3720B(a). If a person is barred from receiving federal loans, loan insurance, or loan 

guarantees under this statute, the bar remains effective until the delinquency is resolved. Id.; 

31 CFR § 901.6; see also id. § 285.13(b), (e) (describing the circumstances in which a 

delinquency is resolved). Even if a debt is resolved, a prior delinquency can still impact a 

debtor’s ability to obtain federal financial assistance if creditworthiness is a factor for 

eligibility.129

Definition of “Person” and Applicability of the Bar to Affiliates

The bar applies to persons who owe delinquent debts. The term “person” refers not only to 

individuals, but to any entity other than a federal agency, including corporations, 

partnerships, associations, organizations, and state and local governments. Id. § 285.13(a). 

Because the bar applies regardless of how the debt arises, it can operate to preclude 

borrowers, guarantors, or persons owing administrative debts from receiving federal financial 

assistance. 31 U.S.C. § 3701(b); 31 CFR § 285.13(a), (c)(1).

The bar also applies to persons who control or are controlled by a delinquent debtor. 31 CFR 

§ 285.13(c)(2). For example, if the delinquent debtor is a corporation, the bar on federal 

financial assistance could extend to its subsidiaries (who are controlled by the delinquent 

debtor) and its officers, directors, and controlling shareholders (who control the delinquent 

debtor). Whether a control relationship is sufficient to subject a person to the restrictions of 

31 U.S.C. § 3720B is determined under standards issued by the applicable credit granting 

agency. Id.; see also Barring Delinquent Debtors, 63 Fed. Reg. at 67,755. Because the 

standards for control may vary from agency to agency, a person that is ineligible for one type 

of federal financial assistance may nevertheless remain eligible for another. 

B. Debts Subject to the Bar on Federal Financial Assistance

Delinquent Status and the 90-Day Rule

The bar applies to any person who owes a federal nontax debt “in a delinquent status, as 

determined under standards prescribed by the Secretary of the Treasury.” 31 U.S.C. 

§ 3720B(a). A debt is delinquent for purposes of 31 U.S.C. § 3720B if it has not been paid 

within 90 days of the payment due date. 31 CFR § 285.13(d)(1). This definition of 

129 See OMB CIRCULAR A-129, at 9 (“Where creditworthiness is a criterion for loan approval, agencies and private 

lenders shall determine if applicants have the ability to repay the loan, taking into consideration the applicant’s 

history of repaying debt.” (emphasis added)).
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delinquency applies exclusively to 31 U.S.C. § 3720B and does not extend to other debt 

collection tools.130

The 90-day rule ensures the debtor will not be subject to the bar if the debtor is merely late 

with a payment or a creditor agency fails to timely post a payment.131 The rule is also 

“[c]onsistent with standard lending practices which classify a loan as non-performing when 

the loan is 90 days past-due.”132 In addition, credit granting agencies generally rely on credit 

reports to determine whether an applicant is delinquent on federal nontax debts, and creditor 

agencies are required to provide debtors with 60 days’ notice before reporting delinquent 

debts to credit bureaus.133 Similarly, the Do Not Pay portal that credit granting agencies can 

check to confirm recipient eligibility before issuing payments includes a data extract from the 

delinquent debtor database maintained by the TOP, and creditor agencies must also provide 

debtors with 60 days’ notice before referring debts to TOP for collection.134 Therefore, as a 

practical matter, the 90-day rule allows sufficient time for debts to be reported to credit 

bureaus and referred to TOP before applying the bar on federal financial assistance.135 

Debts Not In Delinquent Status

There are three circumstances in which a debt will not be in “delinquent status” for purposes 

of 31 U.S.C. § 3720B, even if it is more than 90 days past due. See 31 CFR § 285.13(d)(2). 

a) Obligation to Pay No Longer Exists

First, if a creditor agency releases a debtor from any obligation to pay a debt, or if there is 

a determination that the debtor either does not owe the debt or does not have to pay the 

debt, then the debt is not in delinquent status for purposes of 31 U.S.C. § 3720B. See 31 

CFR § 285.13(d)(2)(i). 

b) Debt Subject to Bankruptcy Protection

Second, a debt is also not in delinquent status: (i) if the debt is the subject of, or has been 

discharged in, a bankruptcy proceeding; and (ii) if applicable, the person seeking federal 

financial assistance is current on any court-authorized repayment plan. Id. 

§ 285.13(d)(2)(ii). 

130 Compare 31 CFR § 285.13(d)(4) (defining “delinquent status” in relation to the bar on federal financial 

assistance), with 31 CFR § 900.2 (defining “delinquent” for purposes of the Federal Claims Collections Standards). 131 Barring Delinquent Debtors From Obtaining Federal Loans or Loan Insurance or Guarantees, 63 Fed. Reg. 

67,754, 67,755 (Dec. 8, 1998) [hereinafter Barring Delinquent Debtors], 63 Fed. Reg. at 67,756. 132 Id. 133 See 31 U.S.C. § 3711(e); Barring Delinquent Debtors, 63 Fed. Reg. at 67,755. 134 See 31 U.S.C. § 3720A(b)(2); 31 CFR § 285.5(d)(6)(ii)(A); DO NOT PAY—DATA SOURCES, 

https://fiscal.treasury.gov/dnp/search.html (identifying TOP’s Debt Check database as one of the data sources for the 

Do Not Pay portal).

135 Barring Delinquent Debtors, 63 Fed. Reg. at 67,755-56.
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c) Debt Subject to a Pending Appeal

Finally, debts are not delinquent if the existence of the debt or its status (i.e., whether or 

not delinquent) is subject to a pending administrative appeal or a contested judicial 

proceeding filed by the debtor in a timely manner.136

Exemptions by the Secretary of the Treasury

The Secretary of the Treasury (Secretary) may also exempt certain classes of debts from 

restricting debtors’ eligibility for federal financial assistance. 31 U.S.C. § 3720B(a); 31 CFR 

§ 285.13(f). These exemptions can be based either on the Secretary’s determination that an 

exemption is “in the best interests of the Federal Government,” or upon review at the request 

of a creditor agency. 31 CFR § 285.13(f)(1), (f)(3). 

While there are no specific requirements on what the Secretary must consider when 

determining that an exemption is in the best interests of the United States, this review may 

involve: (a) balancing the purpose of the financial assistance program against the interests of 

the Government in reducing losses associated with debt management activities, and 

(b) assessing whether the assistance program’s goals are frustrated by including the relevant 

class of debts within the scope of the bar.137 By contrast, when a creditor agency requests an 

exemption for a particular class of debts, the agency must provide the Secretary with the 

following: (i) information about the nature of the program; (ii) the number, dollar amount, 

and age of the debts in the program; (iii) reasons justifying an exemption; and (iv) other 

information the Secretary deems necessary to review the exemption request.138 

C. Resolution of Delinquent Debts

Once a delinquent debt is resolved, it will no longer prevent the debtor from receiving federal 

financial assistance under 31 U.S.C. § 3720B. See 31 CFR § 285.13(c)(1). There are four ways 

to resolve a delinquent debt: (1) full satisfaction; (2) compromise; (3) entry into a written 

repayment agreement; and (4) cure of the delinquency. 139

136 31 CFR § 285.13(d)(2)(iii). Only challenges to the existence and/or status of the debt trigger this exception; 

appeals on other matters do not prevent the debt from being in delinquent status. See id. 137 Compare Id. § 285.13(g)(2) (directing credit granting agencies to perform a balancing test based on these factors 

when considering a waiver of the eligibility requirement), with Id. § 285.13(f)(3) (indicating that the Secretary can 

“exempt a class of debts [from the bar] if exemption is in the best interests of the Federal Government,” but 

declining to opine on what would fulfill that requirement). 138 Id. § 285.13(f)(2). 139 A creditor agency’s suspension or termination of collection action on a delinquent debt does not, on its own, 

constitute a resolution. 31 CFR § 285.13(e)(2); see also Id. § 900.8 (“The standards [, including the provisions of 31 

CFR part 903 regarding suspension and termination] do not create any right or benefit, substantive or procedural, 

enforceable at law or in equity by a party against the United States”). Likewise, a delinquent debt is not resolved 

merely because an agency has closed-out or written off the debt, or reported a discharge of indebtedness to the IRS

on a Form 1099-C. Id.; see also Issuance of Transmittal Memorandum Amending OMB Circular No. A-129, 

“Policies for Federal Credit Programs and Non-Tax Receivables,” 65 Fed. Reg. 71,212, 71,222 (Nov. 29, 2000). 

For a more detailed discussion of suspension and termination of debt collection action, and the ways in which these 

actions differ from accounting actions like “close-out” and “write-off,” see Part IV.B (Terminology). 
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Full Satisfaction

Once a debtor pays or otherwise satisfies a delinquent debt in full, the debt is resolved. Id. 

§ 285.13(e)(1)(i). 

Compromise

If a creditor agency accepts partial payment from the debtor “as a compromise in lieu of 

payment in full,” then debt is resolved. Id. § 285.13(e)(1)(ii). 

Written Repayment Agreement

A delinquency is also resolved if a debtor enters into a written agreement to repay the debt, in 

whole or in part, on terms acceptable to the creditor agency. Id. § 285.13(e)(1)(iv). 

Cure of the Delinquency

A debtor can also cure a delinquency by making all overdue payments and paying all 

assessed interest, penalties, and administrative costs, on terms acceptable to the agency. 

Id. § 285.13(e)(1)(iii). Cure differs from the other methods of resolution because even 

though the delinquency is cured, the obligation to pay the entire balance of the debt survives 

resolution.

 

D. Federal Financial Assistance barred by 31 U.S.C. § 3720B

Federal Loans, Loan Insurance, and Loan Guarantees

 

Subject to the exceptions below, the bar applies to all loans, loan insurance, and loan 

guarantees provided by federal agencies, regardless of whether the funds are issued by a 

financial institution or directly by the agency.140 Therefore, credit granting agencies should 

take care to ensure that they incorporate this eligibility requirement into the regulations, 

policies, and procedures for all loan, loan insurance, and loan guarantee programs they 

operate.

Exceptions

The general bar against federal financial assistance does not apply to disaster loans or 

marketing assistance loans and loan deficiency payments under Subtitle C of the Agricultural 

140 31 U.S.C. § 3720B(a); 31 CFR § 285.13(a); Barring Delinquent Debtors, 63 Fed. Reg. at 67,754. There is no 

distinction for different types of federal loans. See Barring Delinquent Debtors, 63 Fed. Reg. at 67,755 (declining to 

include specific language in the rule on price support loans with non-recourse provisions because, as a type of loan, 

they were already within the rule’s scope). Federal grants and other types of financial assistance are outside the 

scope of 31 U.S.C. § 3720B but may be restricted under other legal authority. 
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Market Transition Act (7 U.S.C. § 7231 et seq.).141 This does not, however, preclude credit 

granting agencies from denying these forms of federal financial assistance on other grounds, 

such as when creditworthiness is a separate factor for eligibility or when another statute or 

regulation authorizes denial.142

E. Due Process 

Unlike other debt collection tools, the bar on receiving federal financial assistance does not give 

rise to any specific due process or procedural requirements. See 31 U.S.C. § 3720B. However, 

credit granting agencies must comply with any procedural requirements that apply to their 

specific assistance programs when denying federal financial assistance due to ineligibility. 

Although there is no requirement to do so, creditor agencies may include language in their 

demand letters and/or due process notices explaining that an extended delinquency may cause 

the debtor to become ineligible for federal loans, loan guarantees, and loan insurance programs. 

F. Waiver

The head of a credit granting agency may waive the provisions of 31 U.S.C. § 3720B for an 

applicant seeking federal financial assistance. 31 U.S.C. § 3720B(a); 31 CFR § 285.13(g)(1). 

These waivers may be granted only on “person by person basis” and, therefore, cannot be 

applied to an entire class of applicants.143 By contrast, the Secretary can exempt an entire class 

of debts from application of the bar at the request of an agency or if doing so is in the best 

interests of the United States.144

Delegation of Waiver Authority 

The head of a credit granting agency may delegate the authority to grant waivers to the 

agency’s Chief Financial Officer, who may in turn re-delegate the authority to the Deputy 

Chief Financial Officer.145 No further delegations are permitted.

Factors to Consider When Reviewing a Waiver Request

The agency official who reviews a waiver request must balance two competing 

considerations: whether denial would interfere with the underlying purpose of the financial 

assistance program, and the extent to which granting a waiver is contrary to the goal of 

reducing federal losses through proper screening of potential borrowers. 31 CFR 

§ 285.13(g)(2). In assessing these factors, the agency official should also consider the age, 

amount, and cause of the delinquency; the likelihood of resolution; the aggregate amount of 

141 31 U.S.C. § 3720B(a). The loans and deficiency payments provided under the Agricultural Market Transition 

Act provide interim financing to commodities producers and distributors. See 7 CFR § 1434. 142 See 31 CFR § 285.13(b)(3). 143 31 CFR § 285.13(g). A waiver of the provisions of 31 U.S.C. § 3720B, however, does not constitute a waiver of 

the debt. For a more detail discussion on waiver of debts, see infra at Part IV.B (distinguishing between suspension 

and termination of collection action, on the one hand, and waiver, on the other hand). 144 31 U.S.C. § 3720B(a). 145 Id. § 3720B(b); 31 CFR § 285.13(g)(1).
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debt (delinquent or otherwise) owed by the person; and the person’s credit history with 

respect to repayment of debt. Id. § 285.13(g)(3). 

Recordkeeping Requirement

Each agency that waives the provisions of 31 U.S.C. § 3720B for an applicant must also 

maintain a centralized record indicating the number and types of waivers granted.146 

III. Suspension or Revocation of Eligibility for Loans, Licenses, Permits, and Privileges

Agencies should also consider whether to suspend or revoke licenses, permits, or other privileges 

for “any inexcusable or willful failure” of a debtor to pay delinquent debts, but agencies must act 

pursuant to their own authority, rather than 31 U.S.C. § 3720B, in taking such actions. 31 CFR 

§ 901.6(b). Any agency considering suspension or revocation of these opportunities in relation 

to delinquent debts subject to bankruptcy proceedings should consult the Bankruptcy Code, 

including 11 U.S.C. §§ 362 and 525, and other applicable laws to understand what restrictions 

may apply. Id. § 901.6(d).

IV. Other Delinquency-Related Restrictions 

In addition to 31 U.S.C. § 3720B, several other laws restrict the eligibility of debtors for federal 

financial assistance or may prevent debtors from receiving other federal opportunities. A few 

examples of these delinquency-related restrictions are discussed below.147

A. Judgment Liens for Federal Debts 

A debtor whose property is subject to a judgment lien for any federal debt (tax or nontax) is 

ineligible to receive any grant or loan that is made, insured, guaranteed, or financed directly or 

indirectly by the United States. See 28 U.S.C. § 3201(e). Debtors in these circumstances are 

also ineligible to receive funds directly from the Government in any program, except funds to 

which the debtor is entitled as a beneficiary, until the judgment is paid in full. Id. The range of 

federal financial assistance that may be denied under 28 U.S.C. § 3201(e) is broader than that 

denied under the 31 U.S.C. § 3720B, and includes federal grants, loans, and other program 

funds.148 

Credit granting agencies may issue regulations permitting waiver of the eligibility restrictions of 

28 U.S.C. § 3201(e) but, in contrast to 31 U.S.C. § 3720B, may do so for an entire category of 

applicants or an entire class of financial assistance.149 

146 Id. § 285.13(g)(4). 147 This Treatise includes only a brief overview of eligibility restrictions outside the context of the DCIA and does 

not attempt to provide a detailed analysis of all other contexts in which federal financial assistance may be denied. 148 Compare 28 U.S.C. § 3201(e) with 31 U.S.C. § 3720B(a) (covering only federal loans, loan insurance, and loan 

guarantees). 149 Compare 28 U.S.C. § 3201(e), with 31 CFR § 285.13(g)(1) (requiring that waivers of 31 U.S.C. § 3720B be 

granted on a person-by-person basis). 
Part III: The Debt Collection Process Barring Delinquent Debtors

May 2023 Part III:106 Bureau of the Fiscal Service

B. Delinquent Child Support obligations

Several laws also restrict the availability of federal assistance to debtors owing delinquent child 

support.150 For example, Executive Order 13019 requires that all federal agencies implement 

procedures to deny federal financial assistance to individuals whose nontax payments are subject 

to administrative offset to collect delinquent child support.151 For this purpose, federal financial 

assistance means any federal loan (other than a disaster loan), loan insurance, or loan guarantee. 

C. Delinquent Tax Debts

Delinquent tax debt may also prevent debtors from receiving certain federal opportunities. For 

example, the Federal Acquisition Regulations permit agencies to prevent bidders from being 

awarded government contracts if the bidders have delinquent federal taxes of more than $10,000. 

See 48 CFR § 9.406-2(b)(1)(v). 

150 See e.g., 42 U.S.C. § 652(k) (denying issuance of passports for nonpayment of child support); 7 CFR 

§ 273.11(q)(1) (allowing States to prevent individuals who are delinquent on child support from participating in the 

Supplemental Nutrition Assistance Program); 13 CFR § 109.400(b)(21) (denying certain small business loans to 

businesses owned or controlled by an applicant who is more than 60 days delinquent on child support); 49 CFR 

§ 22.17 (requiring controlling owners of certain Department of Transportation loan recipients to certify that they are 

not more than 60 days delinquent on child support obligations). 

151 Supporting Families: Collecting Delinquent Child Support Obligations, Exec. Order No. 13,019, 61 Fed. Reg. 

51,763 (Oct. 3, 1996).