TABLE OF CONTENTS

PART III: THE FEDERAL NONTAX DEBT COLLECTION PROCESS 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 ................................................................................................................. 9 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 C. Acceptance of Partial Payments Without an Agreement ................................................. 17 III. Compromise .................................................................................................................. 17 A. Definition ......................................................................................................................... 17 B. When Agencies Must Enter into Compromise Agreements ............................................ 18 C. When Agencies May Enter into Compromise Agreements ............................................. 18 General Authority ................................................................................................. 18 Limitations on Authority....................................................................................... 18 a) Misconduct, Penalties, and Agency-Specific Statutes and Regulations ............... 18 b) Accountable Officials ........................................................................................... 19

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c) Claims Based on Fraud, Misrepresentation, Violations of Antitrust Laws .......... 19 d) Limitation on Amount........................................................................................... 19 e) Unauthorized Compromise Agreements............................................................... 20

i. Ultra Vires; Agency Error; Restrictive Endorsements ..................................... 20 ii. Induced by Fraud .............................................................................................. 21 iii. Consequences of Unauthorized Compromise Agreements .............................. 21 D. General Considerations .................................................................................................... 22

Payment Agreement Terms................................................................................... 22 Joint and Several Liability .................................................................................... 22 Finality .................................................................................................................. 22 Compromises Payable in Installments are Disfavored ......................................... 22 Reporting Discharged Indebtedness to the IRS as Gross Income......................... 23 E. Bases for Compromise ..................................................................................................... 23 Debtor's Inability to Pay....................................................................................... 23 a) Factors to Consider ............................................................................................... 23 b) Calculation of Appropriate Compromise Amount................................................ 24 c) Documentary Substantiation................................................................................. 24 Agency's Inability to Collect ................................................................................ 24 a) Factors to Consider ............................................................................................... 24 b) Calculation of Appropriate Compromise Amount................................................ 25 c) Documentary Substantiation................................................................................. 25 Costs of Collection................................................................................................ 25 a) Factors to Consider ............................................................................................... 25 b) Calculation of Appropriate Compromise Amount................................................ 25 c) Documentary Substantiation................................................................................. 25 Doubtful Litigation Prospects ............................................................................... 26 a) Factors to Consider ............................................................................................... 26 b) Calculation of Appropriate Compromise Amount................................................ 26 c) Documentary Substantiation................................................................................. 26 C. CENTRALIZED COLLECTION OF DELINQUENT DEBTS........................................ 27 I. INTRODUCTION ............................................................................................................ 27 II. FISCAL SERVICE'S CROSS-SERVICING PROGRAM .............................................. 28 A. What is Cross-Servicing?................................................................................................. 28 B. Requirement to Refer Debts; Consequences of Non-Referral ......................................... 28 C. Referral Prerequisites and Other Agency Responsibilities .............................................. 29 Certification Requirements ................................................................................... 29 Recall Ineligible Debts.......................................................................................... 29 Provide Sufficient Information ............................................................................. 30 D. Exemptions to the Referral Requirement......................................................................... 30 Statutory Exceptions ............................................................................................. 30 a) Less than 120 or 180 Days Delinquent ................................................................. 30 b) In Litigation .......................................................................................................... 30 i. In Litigation for Enforced Collection ............................................................... 31 ii. Bankruptcy........................................................................................................ 31 iii. Other Litigation................................................................................................. 31 c) In Foreclosure ....................................................................................................... 32

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d) Scheduled for Sale ................................................................................................ 32 e) At a Private Collection Contractor........................................................................ 32 f) At a Debt Collection Center.................................................................................. 33 g) Collectible Through Internal Offset...................................................................... 33 h) Agency has Suspended or Terminated Debt Collection ....................................... 33

Treasury-Granted Exemptions; Eligibility Requirements .................................... 33 a) Generally............................................................................................................... 33 b) Serviced by Third Parties...................................................................................... 34 c) Debts Less than $25 .............................................................................................. 34 d) Being Collected Through Administrative Wage Garnishment ............................. 34 e) Out of Business ..................................................................................................... 35 f) Deceased ............................................................................................................... 35 g) Owed by a Foreign Sovereign............................................................................... 35 h) Agency-Specific Exemptions................................................................................ 35 E. Fees ................................................................................................................................... 36 III. REFERRAL TO THE DEPARTMENT OF JUSTICE ................................................ 36 A. Enforced Collection ......................................................................................................... 36 B. Eligible Debts ................................................................................................................... 36 C. Required Referral ............................................................................................................. 37 D. Discretionary Referral...................................................................................................... 37 D. OFFSET .................................................................................................................................. 38 I. Introduction....................................................................................................................... 38 II. "Offset" Defined ............................................................................................................... 38 A. "Offset" and "Setoff" ....................................................................................................... 38 B. Offset Distinguished from Garnishment, Attachment, and Levy..................................... 38 C. Offset Distinguished from Withholding........................................................................... 39 D. Offset Distinguished from Recoupment .......................................................................... 39 III. Types of Offset ............................................................................................................. 39 IV. Federal Payments .......................................................................................................... 40 A. All Federal Payments Generally Subject to Offset .......................................................... 40 B. Special Rules for Certain Federal Nontax Payments ....................................................... 42

Secretary-Exempted Payments: Means Tested ..................................................... 42 Secretary-Exempted Payments: Non-Means Tested............................................. 42 Loan Payments...................................................................................................... 43 Tariff Payments..................................................................................................... 43 Federal Salary Payments....................................................................................... 43 a) Salary Payments Defined ...................................................................................... 44 b) Disposable Income Defined .................................................................................. 44 Benefit payments .................................................................................................. 45 a) Partial Exemption.................................................................................................. 45 b) Veterans Benefits .................................................................................................. 46 c) Other Benefit Payments ........................................................................................ 46 Civil Service Retirement Payments ...................................................................... 47 Settlements and Judgments ................................................................................... 47 C. Special Rules for Federal Tax Payments.......................................................................... 48 Joint Taxpayers ..................................................................................................... 48

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Disclosure ............................................................................................................. 48 D. Special Rules for State Payments..................................................................................... 49 V. Federal Nontax Debts ....................................................................................................... 49 A. All Federal Nontax Debts Are Subject to Offset ............................................................. 49 B. Eligible Debts ................................................................................................................... 49

Debt Defined ......................................................................................................... 49 Agency Determination .......................................................................................... 49 Due Process........................................................................................................... 50 C. Excluded Debts/Debtors................................................................................................... 50 Federal Agencies................................................................................................... 50 Foreign Sovereigns ............................................................................................... 50 Tax and Tariff Debts ............................................................................................. 51 Debts arising under certain portions of the Social Security Act ........................... 51 Hardship ................................................................................................................ 51 D. No Statute of Limitations................................................................................................. 51 VI. Centralized (Disbursing Official) Offset ...................................................................... 52 A. Administrative Offset....................................................................................................... 53 Creditor Agency Must Use Centralized Administrative Offset ............................ 53 Creditor Agency Must Satisfy Prerequisites to Administrative Offset................. 53 a) Attempt to Collect................................................................................................. 53 b) Notice .................................................................................................................... 53 c) Opportunity to Review Records............................................................................ 54 d) Opportunity for Agency Review........................................................................... 54 e) Opportunity to Enter into Repayment Agreement ................................................ 54 f) Additional Due Process Required for Salary Offset ............................................. 55 i. Notice................................................................................................................ 55 ii. Opportunity to Dispute ..................................................................................... 55 iii. Exceptions......................................................................................................... 56 B. Tax Refund Offset ............................................................................................................ 57 Creditor Agency Must Use Tax Refund Offset .................................................... 57 Creditor Agency Must Satisfy Prerequisites to Tax Refund Offset...................... 57 a) Attempt to Collect................................................................................................. 57 b) Notice .................................................................................................................... 57 c) Opportunity for Agency Review........................................................................... 58 Limited Judicial Review ....................................................................................... 58 C. Offset Process................................................................................................................... 59 Payment has been made ........................................................................................ 59 Payees ................................................................................................................... 59 a) Generally............................................................................................................... 59 b) Joint Payees........................................................................................................... 59 c) Assigned Payments ............................................................................................... 59 d) Payments made to Representative Payees ............................................................ 60 Role of Fiscal Service and the Treasury Offset Program (TOP) .......................... 60 Role of the Creditor Agency ................................................................................. 61 a) Submit Delinquent Debts to Fiscal Service .......................................................... 61 b) Creditor Agency Regulations................................................................................ 61

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c) Certifying Debt ..................................................................................................... 62 d) Responsibility for Collection ................................................................................ 62

Role of the Payment Agencies and Disbursing Agencies..................................... 63 a) Payment Agencies................................................................................................. 63

i. Certifying Payments ......................................................................................... 63 ii. Determination of Whether Payment is Eligible for Offset ............................... 63 iii. Restriction on Making Payments via Credit Card ............................................ 63 iv. No Liability for Erroneous Offsets ................................................................... 64 b) Disbursing Officials .............................................................................................. 64 i. Conducting Offsets ........................................................................................... 64 ii. Warning Notice to Debtor................................................................................. 65 iii. Post-Offset Notice to Debtor ............................................................................ 65 iv. Offset and Warning Notice Distinguished from Due Process Notice .............. 66 v. Disbursing Official: Notice to Paying and Creditor Agencies ......................... 66

Fees ....................................................................................................................... 66 Order of Priority.................................................................................................... 67 Computer Matching and Privacy Protection Act of 1988..................................... 67 Salary Offset Match Consortium .......................................................................... 68 VII. Non-Centralized Offset ................................................................................................. 68 A. Generally.......................................................................................................................... 68 B. Statutory Authority to Conduct Non-Centralized Offsets................................................ 68 C. Common Law ................................................................................................................... 69 Historical Right of Common Law Offset.............................................................. 69 Elements of Offset ................................................................................................ 69 Due Process Requirements ................................................................................... 71 a) Constitutionally Sufficient Notice ........................................................................ 71 i. Contents of Notice ............................................................................................ 71 ii. Method of Notification ..................................................................................... 72 iii. Timing of Notice............................................................................................... 73 iv. Right to Review Records .................................................................................. 73 b) Constitutionally Sufficient Opportunity to be Heard............................................ 74 i. Agency Review of its Records.......................................................................... 74 ii. Timely Reviews ................................................................................................ 74 iii. Inform Debtor of the Results ............................................................................ 75 iv. Debtor Must Exercise Right to Review ............................................................ 75 Common Law Exists Independently of Statutory Authority ................................ 75 E. ADMINISTRATIVE WAGE GARNISHMENT ................................................................ 77 I. Generally........................................................................................................................... 77 II. Effect of State Law ........................................................................................................... 77 III. Agency-Specific Regulations........................................................................................ 78 IV. Due Process Requirements ........................................................................................... 78 A. Notice ............................................................................................................................... 78 B. Opportunity to Dispute or Repay Debt ............................................................................ 79 Review records...................................................................................................... 79 Opportunity to Repay Debt................................................................................... 79 Disputes................................................................................................................. 79

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