CHAPTER 3. COLLECTION STANDARDS

3.01 ADMINISTRATIVE DEMANDS

a. General.

(1) One set of specific rules for recovery of debts due the United States cannot be prescribed for use in all instances because the circumstances pertaining to indebtedness vary widely. However, prompt and aggressive action on a timely basis with effective followup will always be taken to collect debts, utilizing every reasonable effort consistent with the nature and amount of the indebtedness (See M29-1, part II, chapters 11 and 12, for information regarding the collection of insurance liens.)

(2) It is recognized that, in pursuing collection of debts involving insignificant amounts, there is a point of diminishing returns beyond which further collection efforts are not justified. For instance, termination awards processed in the CP&E systems do not create receivables of less than $5, after application of any available offset deductions. In the insurance system, liens of less than $5 are written off if there is no active insurance policy from which collection can be effected.

b. Collection by Offset.

(1) Collection by offset should be accomplished whenever possible. Collection by offset from benefit payments is not limited to recovery of overpayments. Offset may be made, in certain instances, for defaulted home loan debts, education loan debts, work-study debts, or illegal payments made to or on behalf of beneficiaries. (38 U.S.C. 5301, 5314). Collection by offset from federal salary or benefit payments will not be made for a period greater than the period that such pay or benefit payment is expected to continue. (5 U.S.C. 5515; 38 U.S.C. 5314; 33 Comp. Gen 443; MP-4, pt. II, ch. 3, sec. C). Offsets of less than $50 per month may be approved only if justifiable on grounds of hardship or some other reasonable cause. Before offset of benefit payment is made, VA:

(a) Must make reasonable efforts to notify the debtor of his or her right to dispute the existence or amount of the debt and of such person's right to request a waiver and oral hearing on the issue.

(b) Must make a determination of such dispute or request. In determining the proper collection action, the debtor's waiver rights will be duly considered to assure compliance with the law prior to taking action to offset benefits.

(2) If an overpayment results from benefits being paid beyond the date of entitlement for a minor child, collection should be made from the estate of this child, if any. If there are no assets in the child's estate, collection action against the child's fiduciary will be pursued as in other overpayments. The assistance of the DC may be requested if necessary. The overpayment will not be withheld from benefits due another child (or children) of the same veteran, whether or not the children have the same custodian or guardian. Such withholding would be in violation of 38 U.S.C. 5301(b).

(3) Special consideration should be shown a veteran-debtor who has reenlisted or reentered active service as a result of a national emergency situation. Discretion and good judgment should govern collection actions where the debtor is in the military service and is also stationed overseas. In these latter instances where the veteran or a family member indicates that immediate repayment would create a problem, information should be furnished to the debtor that the collection of the indebtedness will be deferred until the veteran returns to the United States. The debtor will be advised to contact the local VA office upon return to the United States. Where interest, administrative costs, and other charges will continue to accrue, the debtor should be advised that it is advantageous to liquidate the debt as quickly as circumstances permit.

(4) Compensation and Pension (C&P).

(a) A retroactive payment will automatically be applied to an overpayment when the payment restores benefits for the period for which the overpayment was created.

(b) When a reopened C&P award is processed that does not restore benefits for a period previously paid, benefits will be withheld to apply to an existing overpayment if waiver and other due process rights have been granted the debtor. If full withholding causes undue hardship, a mutually satisfactory interest bearing repayment plan may be arranged. If the debtor requests a waiver and/or an oral hearing or disputes the debt within 30 days of the first collection letter, deductions will be suspended until the waiver issue is decided.

(c) When an amended award creates an overpayment and the payee is to remain in a running award status, the payee will be allowed to receive two full checks prior to starting deductions. If full withholding causes undue hardship, a mutually satisfactory interest bearing repayment plan may be arranged. (See MP-4, Part IV).

(5) Education.

(a) Where an overpayment exists in the Education system or is created as a result of award action, the full amount of retroactive, current and future education benefits will be automatically withheld until the overpayment is fully liquidated unless a request for waiver is received within 30 days from the date of the first demand letter. If full withholding causes undue hardship, a mutually satisfactory repayment plan may be arranged if the amount of the overpayment can be liquidated during the current period of enrollment.

(b) If the debtor requests a waiver and/or an oral hearing or disputes the debt within 30 days of the first collection letter, deductions will be suspended until the waiver issue is decided. However, suspension of deductions will only be made to the extent that suspension will not jeopardize the Government's ability to recover the debt if it is not waived. (A future deduction may be established to provide the safeguard of benefits.)

(c) When there is an existing receivable created by a Vocational Rehabilitation and Education (VR&E) revolving fund loan, records should be checked before offsetting benefits since a repayment agreement may already be in effect and should not be disturbed.

(6) Federal Salary. Due process outlined in chapter 10 must be provided a debtor before involuntarily offsetting from current federal salary.

c. Benefits That May Not Be Offset. Offset of benefits will not be made in the following instances:

(1) The $200 special monthly pension awarded to a person whose name has been entered on the Army, Navy, Air Force, and Coast Guard Medal of Honor Roll may not be offset. (The Compensation and Pension (C&P) Master Record, M11 TARGET screen, will indicate special law code 01 if a person has been awarded this special payment.)

(2) Burial awards may not be offset except to recover duplicate burial payments made to the same payee.

(3) Offset of an overpayment made to a payee in one capacity will not be made from benefits currently being paid in another capacity, e.g., offset against a surviving spouse for an overpayment made to him/her as wife or husband payee, legal custodian, etc. However, offset is permitted if a surviving spouse, legal custodian, etc., voluntarily consents to withholding from his/her benefits.

d. Collection by Installment (Debtor not in receipt of benefits).

(1) VA will collect claims (including interest, administrative costs, and other charges) in one lump sum whenever possible. However, if the debtor is financially unable to pay the indebtedness in one lump sum, payment may be accepted in regular installments.

(2) Arrangements to pay by installments should provide for complete liquidation within a reasonable time considering the size of the debt and the debtor's ability to pay and should not normally extend more than 3 years. Installment payments of less than $50 per month should be accepted only if justifiable on grounds of hardship or some other reasonable cause. However, if the financial information indicates that the proposed installment arrangement is the best that can be obtained, the voluntary payment should be accepted even though it is less than $50 per month.

(3) VA may attempt to obtain an executed confess-judgment note comparable to DOJ Form No. 1 whenever the total amount of unsecured deferred installments exceeds $750 and where the particular jurisdictional law permits such notes. (See Appendix B). Other security for deferred payments may be accepted in appropriate cases. However, installment payments may be accepted notwithstanding the debtor's refusal to execute a confess-judgment note or to give other security.

(4) Acceptable financial information should be secured before accepting an offer to pay by installments. Should the debtor become delinquent in the installment payments, a prompt reminder followed by a strong demand letter should be dispatched to the debtor. If such followup does not result in the resumption of payments, the debt will be referred to the IRS for tax refund offset and/or reported to the DC or DOJ for enforced collection. If referrals do not produce results, the account will be considered for writeoff.

3.02 COLLECTION LETTERS

a. Letters and replies to debtor's inquiries should be forceful but not threatening in tone and must explain clearly and in detail to the debtor the circumstances or reason for establishing the indebtedness. Appendix C, Administrative Debt Collection Procedures Guide, outlines collection action that will be taken. The form letters to be used to correspond with debtors are listed in VA Catalog 1, Standardized Forms and Form Letters and Appendix C. In order to maintain internal control, followup on delinquent debts will not be made by the agent cashiers since they collect and deposit funds. The followup function must be performed by personnel who have no access to collections and deposits.

b. Form letters and computer-generated letters programmed in the CARS and IFCAP system are usually written by VACO Debt Management Policy Division (047G7) and are concurred on by the proper components in VBA, VHA, and the General Counsel and may not be altered or changed by field stations. Administration components may request that existing letters be changed to adjust to changing circumstances; however, the letters must be approved by (047G7) prior to use. In special circumstances (other than first collection letters), dictated letters by field personnel may be used when the form or computer-generated letters are not appropriate, excluding first collection letters. Form and computer-generated letters do not require a signature.

c. Demand letters are sent at 30-day intervals (exceptions, in writing, may be granted by (047G7)) and advise the debtor of his or her rights and responsibilities. Requirements of a first demand letter are:

(1) The first demand letter is to be sent to the debtor as soon as the debt is identified. The letter must contain the following information:

(a) A statement of the debt and the reason for it. The reason for the overpayment must be explained in sufficient detail to preclude additional correspondence from the debtor. (Letters generated from the CARS do not indicate reason for debt. Reason is previously given when debtor is notified of award action that created debt.)

(b) Notice of the right and time frame the debtor has to dispute the existence or amount of the debt.

(c) Notice of the right and time frame (30 days) a waiver application must be filed to avoid commencement of recoupment by offset (when applicable).

(d) Notice of the right to request a waiver of the indebtedness within 180 days and refund of recovered monies when waiver is granted (when applicable), except for defaulted home loan debts which have a 1-year time limit and salary and travel overpayments which have a 3-year time limit.

(e) Notice of the right to an oral hearing on the issue of waiver before a decision is rendered.

(f) Where assistance may be obtained to aid the debtor in requesting a waiver.

(2) If no response is received, second and third demand letters are sent at 30-day intervals. The third letter advises the debtor of the consequences of not paying the debt, i.e., referral to consumer reporting agencies, private collection agencies, and DC or DOJ for enforced collection. In most cases, three progressively stronger letters will be sent, unless a response to the initial or second letter clearly indicates that further demands would be futile and the debtor's response does not require a rebuttal. An example would be when the debtor absolutely refuses to pay the debt even though the debt is acknowledged.

d. All collection letter envelopes should be stamped "Address Correction Requested." (Note: Envelopes sent out by the CARS are labeled "Do Not Forward"). A review of VA records should be made when a demand letter is returned because the debtor's whereabouts are unknown. A letter returned by the Postal Service as undelivered does not mean that the debtor's address is necessarily incorrect and should not be interpreted that the whereabouts of the debtor is unknown. Claim and loan files frequently contain leads that should be pursued. Other sources which may be of assistance are: current credit reports; telephone directories; city directories; employers; Postal Service; State and local government agencies; and other Federal agencies including the Internal Revenue Service (IRS). A list of Secretaries of State addresses is provided as Appendix D to aid in obtaining current corporate addresses. Addresses obtained from the IRS will be used for debt collection purposes only and will not be released outside VA. (See ch. 4 for instructions for obtaining address from the IRS and restrictions on use of these addresses.) Simultaneous use of several locator methods where there is no cost for the locator service is encouraged. Requests for locator assistance should not be forwarded to Social Security Administration offices.

e. Debtors may be contacted by telephone to arrange for repayment of a debt. The value of telephone contacts cannot be overemphasized. Also, debtors may be interviewed in person if feasible. Telephone and personal contacts must be documented and made a part of the collection record including referral to the Committee on Waivers and Compromises (COWC), or to the DCs or DOJ for enforced collection.

f. Correspondence sent to a debtor and received from a debtor must be filed in the claims file, loan docket (if no claims file exists), medical file, etc. (The Debt Management Center and the St. Paul VARO&IC may microfilm correspondence.) The importance of maintaining an accurate and fully documented file on all debts cannot be overstated. This becomes a critical matter in those cases where the debtor refuses to pay a debt and the case must be referred to the DOJ or DC for litigation or other action. Case file documentation includes but is not limited to documents identifying the overpayment such as site visit reports, audit reports, etc.; all demand letters; notices of intent to appeal; appeal board decisions; reports of contact of phone conversations with debtor; signed installment plans; court documents; other debt related correspondence to or from the debtor; etc.

3.03 FINANCIAL STATUS REPORTS, CREDIT REPORTS, AND FIELD EXAMS

a. Financial Status Reports. VA Form 4-5655, Financial Status Report, has been designed for use in the collection of debts. The VA Form 4-5655 (or equivalent) submitted by the debtor is used for determining:

(1) Ability to pay,

(2) Hardship factors for waiver cases,

(3) When acceptance of a compromise offer is appropriate, or

(4) When termination or suspension of collection action is appropriate. The VA Form 4-5655 must be signed and dated by the debtor and is to be included in referral packages submitted to the DC or DOJ when available.

b. Credit Reports. The Chief of the Fiscal activity is authorized to obtain credit reports for debt collection purposes on persons who are indebted to VA. Information contained in credit reports must be treated as confidential by VA personnel and will not be revealed to any persons except those involved in the collection process. (38 U.S.C. 5701; 5 U.S.C. 552 and 552a.) The Chief of the Fiscal activity should notify VACO (047G7) if credit reports are not received timely or if there is a significant number of negative (credit data not available) or incomplete reports.

c. Field Examinations. Referral of nonjudgment cases to Veterans Services Officers (VSOs) for field examination will rarely be made. Field examinations may be scheduled to verify information provided on financial status reports, credit reports, and other documentary evidence, or to obtain financial status information. When requesting a field examination, pertinent documentation on collection action taken should be provided to the VSO including the financial status report or credit report. Debts will not be referred to the DC or DOJ for litigation until after receipt of the field examination report. It is strongly emphasized that requests for field examinations will not be made routinely.

3.04 DECEASED DEBTORS

a. The following policy pertains only to debts existing prior to death. Policy for debts created because of death is located in MP-4, pt. IV, ch. 5, sec. D. (See Chapter 23 for write off policy.)

(1) Statute of Limitations Has Expired. When evidence is received that a debtor is deceased and has an overpayment of record (except for education loan debts which may be written off if a borrower dies), a specially composed letter will be sent to the representative of the estate stating that the estate is liable for the debt. If the estate does not repay the debt, it may be written off. In loan guaranty debts involving more than one person, debts of a decedent may be written off, but the debts of the coobligors may not be written off.

(2) Statute of Limitations Has Not Expired. If the statute of limitations has not expired and the debt is at least $200 (except for education loan debts which may be written off if a borrower dies), letters will be sent simultaneously to the clerk of the probate court of the county in which the debtor last resided and to the representative of the estate of the deceased as indicated above. Where there is evidence of an estate or assets and the initial notification to the representative of the estate does not produce payment, prompt action will be taken to protect the interest of the Government. Claim will be made upon the representative of the estate or attorney by the DC. If the representative or attorney indicates the debt will not be paid without a contest or court adjudication, the claim will be fully documented and referred to the DC for appropriate action. Debts under $200 will be written off. Loan guaranty debts may be written off as to the decedent but not as to the coobligors.