Debt Collection 101

1
Debt Collection 101
2
What is a Debt?

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

3
What is a Delinquent Debt?

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

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Examples of Delinquent Debts

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

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

• YES!!!!
• Agencies have a statutory duty to try to collect
  delinquent debts owed from the public.

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

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

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Laws, Regulations and Guidance that Apply to Debt
Collection

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

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Government-wide Regulatory References

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

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Government-wide Regulatory References Offset

• Offset In General FCCS (31 CFR 901.3)
• Non-Centralized Offset FCCS (31 CFR 901.3(c))
• Centralized Offset at FMS FCCS (31 CFR 901.3(b))
• FMS Regulations (31 CFR 285.5)
• Tax Refund Offset FMS Regulations (31 CFR
  285.2)
• Benefit Payment Offset FMS Regulations (31 CFR
  285.4)
• Salary Offset OPM Regulations (5 CFR
  550.1101- 1110)
• and 31 CFR 285.7

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

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

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General Concepts

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

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General Concepts Continued

• Due Process is Notice and Opportunity to
  Dispute
• Constitutional Requirement The Fifth Amendment
  to the United States Constitution provides that
  no person shall be deprived of life, liberty or
  property without due process of law
• Statutory Requirement Statutes and regulations
  define how much process is due
• The Right Thing to Do Mistakes can be made,
  and we all would like notice before something
  adverse occurs

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General Concepts Continued

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

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General Concepts Continued

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

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Determining the Appropriate Collection Technique
to Use

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

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General Concepts Continued

• Establishing a Collection Strategy
• A collection strategy is an organized plan of
  action incorporating the various collection tools
  to be used by an agency to recover debt
• Each agency should establish and implement
  effective collection strategies that suit the
  agencys programs and needs and meet all
  statutory requirements
• A collection strategy will facilitate debt
  collection by providing a systematic, uniform
  method for collecting classes of delinquent debts

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• Treasury Offset Program

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What is an Offset?

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

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Is Offset Mandatory?

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

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What is Centralized Offset?

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

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Offset Method Comparison
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Centralized Offset

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

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Centralized Offset

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

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What is the Treasury Offset Program (TOP)?

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

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

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

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What is the Treasury Offset Program?

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

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How Does the Treasury Offset Program Work?

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

Dear Debtor You owe
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How Does the Treasury Offset Program Work?
A TIN is an individuals social security number
or a business Federal employer identification
number

• TOP compares payee names and taxpayer
  identification numbers (TINs) on Federal payment
  certification vouchers to names and TINs of
  debtors in TOPs debtor database

• When a match occurs, TOP intercepts, or
  offsets, all or part of a payees eligible
  Federal payments
• FMS notifies the payee and the payment agency
  about the offset

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TOP Legal Authorities

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

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TREASURY OFFSET PROGRAM - LEGAL AUTHORITIES
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Barring Delinquent Debtors

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

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Barring Delinquent Debtors

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

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Other Delinquent Debtor Databases

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

34
DMS Common Client

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

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CY 2006 Collections Administrative Offsets
154.8 Million Tax Refund Offset Child
Support 1.6 Billion Tax Refund
Offset Federal Nontax Debt 996.8
Million Tax Refund Offset State Income Tax
Debt 218.5 Million Tax Levy 324.9
Million
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TOP Debtor Database (as of December 2006)

• 119.0 billion ? Federal tax debts
• 85.7 billion ? Child support debts enforced by
  states
• 37.0 billion ? Federal non-tax debts
• 6.0 billion ? State income tax debts
• TOTAL ? 247.9 billion

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Treasury Offset Program Debts
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Priority of Debts in TOP

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

Non-TANF debts will have the same priority as
TANF debt by 2008

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Priority of Debts in TOP

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

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

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

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General Rules For All Debts Submitted to TOP

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

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General Rules For All Debts Submitted to TOP

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

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Treasury Offset Program Payments
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TOP Payments

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

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TOP Exemptions/Payments

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

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Fees

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

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Benefit Payment Offset (BPO)
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Benefit Payment Offset (BPO)

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

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Centralized Salary Offset (CSO)
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What is Federal Employee Salary Offset?

• Federal agencies collect debts owed by a federal
  employee through installment deductions from the
  employees pay
• Salary Offset Limits 15 of disposable pay for
  federal non-tax debts

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What is Disposable Pay?

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

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Whats Different for the Salary Offset Process?

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

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Centralized Salary Offset

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

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Non-Treasury Disbursing Office (NTDO) Vendor
Offsets
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NTDO Vendor Offset Program

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

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State Income Tax Program
57
State Income Tax Program

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

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State Income Tax Program

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

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State Reciprocal Agreement Program
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State Reciprocal Agreement Program

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

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State Reciprocal Agreement Program
62

• Cross-Servicing

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Treasurys Role

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

64
Agencies Ask What do I do with my delinquent
debt?
Is debt 180 days delinquent?
Yes - Eligible for Mandatory referral
2
1
No - Eligible for Voluntary referral
Yes - Do not refer to Treasury (Cross-Servicing
or TOP)
Foreclosure Bankruptcy Foreign Gov.
Debt Forebearance/ Appeals
2
END
Is the debt one of following Exclusions?
No - Eligible for Cross-Servicing and TOP
3
At a Private Collection Agency At a Federal Debt
Collection Center Scheduled for Sale Collectible
Under Internal Offset w/in 3 yrs At DOJ/
Litigation
3
Yes - Refer directly to TOP. Do NOT refer to
Cross-Servicing
Is debt one of the following DCIA Exemptions?
TOP
No- Refer directly to Cross-Servicing. Cross-Servi
cing will refer to TOP as a collection tool.
CROSS SERVICING
65
Cross-Servicing Collection Tools

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

66
How Agencies Participate

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

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Agency Profile

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

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How Debts Get Into FedDebt

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

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Next Step Demand Letter

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

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WINNER
If you chose C, you are correct!! You win more
information on
The flexibility of a debt debtor based system!
71
Debt Debtor System

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

72
How are Payment Agreements established?
A. Discussing the terms with the debtor and
sending an e-mail to confirm the
terms B. Recording the terms in the system
without the debtors consent C. Scribbling the
terms on a post-it note and throwing it away
when the first payment arrives D. Discussing the
terms with the debtor and sending a written
agreement to confirm the terms

73
WINNER
If you chose D, you are correct!! You win more
information about
Payment Agreements!
74
Payment Agreements

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

75
How often are consumer debtors reported to Credit
Bureau repositories?

A. Every 30 days B. Every quarter C. Every
day D. Once a year
76
WINNER
If you chose A, you are correct!! With FedDebt,
you win
Credit Bureau Reporting at the Debtor Level!
77
Credit Bureau Reporting

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

78
What is TOP?

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

79
WINNER
If you chose C, you are correct!! You win
information about
TOP Referrals through the Cross-Servicing Program!

80
Treasury Offset Program

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

81
What is a Private Collection Agency?
A. A company that specializes in collecting
delinquent debt? B. A non-profit organization
which collects money for extravagant
parties? C. A soldier in the Army who holds all
the funds for the Superbowl pool? D. A company
that collects all type of objects to sell on
EBay?


82
WINNER
If you chose A, you are correct!! With this
correct answer, you win
More PCA Details!
83
Private Collection Agencies

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

84
Private Collection Agencies

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

85
Private Collection Agencies

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

86
Why is it important for Agencies to authorize
Administrative Wage Garnishment?
A. They will collect more money B. They will
collect more money C. They will collect more
money D. They will collect more money

87
WINNER
If you chose A, B, C, or D you are
correct!! With that correct answer, you win
More information about AWG!
88
Administrative Wage Garnishment

• Allows garnishment of up to 15 of private sector
  employees disposable wages
• Can be used without a court order
• Form issued to employer with instructions to send
  portion of wages to Treasury
• Funds received from employer applied to
  individuals debt balance
• Proved to be a useful collection tool to increase
  collection rate encourage agreements

89
How do we keep track of the money collected?

A. We were supposed to keep track? B. Carve the
collections on a stone? C. In a log
book? D. Record transactions, including how they
are applied in FedDebt?
90
WINNER
If you chose D, you are correct!! Great job,
you get to hear more about
FedDebt Financials!
91
FedDebt Financials

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

92
FedDebt Financials

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

93
FedDebt Financials

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

94
FedDebt Financials

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

95
What collection tools are remaining?

A. Litigation by the Department of
Justice B. Issuance of the IRS Form 1099C after
closeout C. Both A B D. I cant concentrate
anymore, I have a headache
96
WINNER
If you chose C, you are correct!! You win
More Cross-Servicing Information!
97
Department of Justice Referrals

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

98
Issuance of IRS Form 1099C

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

99
Review

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

100

• Federal Agency Role

101
Agencies Need To

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

102
Notice to the Debtor/Demand for Payment

• Demand Letter provides the debtor
• Notification of the existence of the debt and the
  amount
• Opportunity to repay in full, or work out a
  repayment agreement
• Information regarding agencys policies on
  accrual of interest, penalties, and
  administrative costs

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Notice to the Debtor/Demand for Payment continued

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

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Notice to the Debtor/Demand for Payment continued

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

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The Demand Letter Checklist

• Agency can send one letter or a series of
  letters, but the first letter must be sent within
  30 days of delinquency
• At least 60 days before referring to FMS, the
  following information must be provided to the
  debtor
• - Nature and amount of the debt, including the
  basis for the debt
• - Explanation of how interest, penalties, and
  administrative costs are added to the debt.
• - Date by which payment should be made to avoid
  late charges and enforced collection (generally,
  30 days from the date the demand letter is
  mailed)
• - Name, address, and phone number of a contact
  person or office within the creditor agency

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The Demand Letter Checklist

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

107
The Demand Letter Checklist Continued

• Explain Debtors Rights to
• Inspect and copy agencys records related to the
  debt
• Request a review of agencys determination of the
  debt
• Request a waiver, if applicable
• Request a hearing for salary offset or
  administrative wage garnishment
• Enter into a reasonable written repayment
  agreement

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The Demand Letter Checklist Continued

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

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Lump Sum Payment/Installment Payments

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

110
Installment Payments

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

111
Installment Payments

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

112
Installment Agreement

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

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Installment Agreement

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

114
Compromise

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

115
Compromise

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

116
Compromise

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

117
Compromise

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

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Compromises

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

119
Collateral Liquidation

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

120
Collateral Liquidation

• When to take action
• When debtor will not, or cannot, repay the
  amount owed, and collateral liquidation is the
  best method for protecting the governments
  financial interests

121
Collateral Liquidation

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

122
Collateral Liquidation

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

123

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

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

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