MP-4, Part VIII, Chapter 23

CHAPTER 23. SUSPENSION OF COLLECTION ACTION AND WRITE OFF OF DEBTS

23.01 GENERAL

a. Legal Authority. The Federal Claims Collection Act (FCCA) of 1966 (Pub. L. 89508) gave federal agencies the authority to suspend or stop collection action on debts with principal amounts under $20,000. The Administrative Dispute Resolution Act (Pub. L. 101552) dated November 15, 1990, raised the suspension and termination thresholds to $100,000. Debts over $100,000 are referred to the Department of Justice (DOJ) for disposition authority.

b. Statutes and Regulations. The standards set forth in 38 CFR Sections l.940 through 1.943, pursuant to 31 U.S.C. 3711(a)(3), and 4 CFR Parts 104.1 and 104.2, apply to the suspension or termination of collection action of debts due VA.

23.02 ASSOCIATED IRS REFERRAL ACTION

In December of each year, all debts $25 and above (including interest and other charges) that meet certain criteria are referred to the Internal Revenue Service (IRS) for offset of tax refund owed a taxpayerdebtor. A debtor must be notified 60 days in advance of the Department's intent to refer the account to the IRS for tax refund offset. This notification gives the debtor another opportunity to pay the debt or contest the validity of the debt. Balances of $25 or more remaining after an initial IRS offset will be referred to the IRS again the following year unless they meet the criteria for write off under paragraph 23.07. The criteria for IRS referral is as follows:

(1) The debt amount is at least $25 (including interest and other charges).

(2) The debtor has been properly notified and given the opportunity to exercise certain administrative rights.

(3) The debt is at least 90 days old.

(4) The debtor is a natural person.

(5) The debtor's written consent for offset was obtained for a loan guaranty debt or the loan was terminated through judicial foreclosure in a procedure involving the debtor.

(6) The debtor is not a current or former Federal employee whose debt is subject to offset from salary or retirement funds.

(7) The debt, unless it is a nonpaying judgment debt, is not older than

9 1/2 years.

(8) The debtor is not involved in bankruptcy proceedings which affect the debt.

(9) The debt has not been discharged in bankruptcy.

23.03 STANDARDS FOR SUSPENSION

The standards for suspension are found in 38 CFR Section 1.941 and 4 CFR Part 104. VA will suspend collection action when the standards listed below have been documented.

(1) Inability To Locate Debtor. Collection action may be suspended temporarily on a claim when the debtor cannot be located and there is reason to believe that future collection may be sufficiently productive to justify periodic review and action on the debt.

(2) Financial Condition of Debtor

(a) The debtor has been located but owns no substantial equity in realty and cannot now make payment or effect a compromise. However, the debtor's future prospects justify retention of the debt for periodic review and action. This type case should be suspended only if one or more of the following conditions apply:

1. The debtor has made written acknowledgment of the debt or made a partial payment causing the statute of limitations to start running anew, or

2. The debtor meets the exclusions set out in 28 U.S.C. 2416 and paragraph 1.04b of this part causing the statute of limitations to be tolled or stopped temporarily, or

3. Future collection can be effected by offset notwithstanding the statute of limitations, or

4. Financial data has become available from a credit report, financial statement or field examination, indicating an inability to pay which may be temporary. In such cases, the debtor should be informed that collection action has been suspended until a specified date. The reasons for such action will be clearly stated and a statement will be provided indicating what the debtor is expected to do on or before that date. If liquidation of current installment contracts is a factor in the suspension action, the letter should advise that the decision was conditional on the debtor not incurring additional obligations and that the debt to VA must be repaid on a priority basis.

(b) The debtor requires more time to pay the debt and has requested that collection action be delayed until some future date.

(3) A Request for Waiver or Administrative Review is Received.

(a) The debtor requests that the Committee on Waivers and Compromises (COWC) waive the payment of the debt. When a timely waiver request is received, further collection action will not be pursued. However, offset will be made from benefits due, pending a decision of the COWC, if the waiver request was not received timely.

(b) The debtor disagrees with a COWC waiver decision and the case is subsequently submitted to the Board of Veterans Appeals (BVA). Collection action will not be resumed pending a decision by the BVA except that collection by offset of benefits will continue during the BVA appeal process. (Refer to paragraph 2F.01f.)

(c) A decision of a COWC or the BVA holds that financial hardship has not been substantiated and the decision specifically states that even though the debtor may not be able to make immediate repayment arrangements, he/she should be able to pay the debt within the foreseeable future. The waiver denial letter may include information concerning suspension.

23.04 REQUISITES FOR MAKING THE SUSPENSION DECISION

In reviewing a case for approval of suspension of collection action, decisions will be based on as much of the documented information, indicated below, as is applicable to the particular case:

(1) Statement of the amount of indebtedness, indicating any credit; i.e.,

(a) The original principal amount of the debt,

(b) Principal reduction, if any, (including reduction by offset of VA benefits),

(d) Current accrued interest, if any,

(e) Other current accrued costs or charges, if any, and

(f) Total current amount of indebtedness.

(2) Itemized statement of allowances due the debtor from VA for educational assistance, disability compensation, pension, insurance, or other benefits.

(3) VA Form 45655, Financial Status Report, or a current credit report on the debtor, and/or verification of employment.

(4) When the debtor has not been located:

(a) Whether there was any security for the debt, and if so, the status of the liquidation of that security.

(b) The applicable statute of limitations, the date it began to run; whether it has expired and whether and when it started running anew, if tolled.

(d) Known possibilities of collection by offset in the future and such information as is available as to a probable date of offset, source, and amount.

(e) Circumstances showing the likelihood of the debtor's future acquisition of assets which could be reached to satisfy or substantially reduce the debt.

(f) Statement of efforts made to locate the debtor.

23.05 ESTABLISHING SUSPENSION DATES

Suspension dates will be established based on the facts pertinent to the individual debt. For cases other than those for which a specific date is requested by the debtor or established on the basis of financial ability to pay, the first suspension date established should be no more than six months from the date the decision to suspend is made. The case will be reviewed upon expiration of the suspension period. The review should include a check of VA records and files to determine if there is any new information as to the debtor's ability to pay. When this information shows an ability to pay, collection action is to be resumed immediately. Additionally, whenever information is learned which shows an ability to repay, collection action is resumed without regard to any previously established suspension date. The purpose of the sixmonth period is to allow sufficient time for administrative collection action, so that when the conditions of chapter 24A and 24B have been met, the debt can be referred timely to the District Counsel (DC) or DOJ, as appropriate.

23.06 FISCAL OFFICERS' AUTHORITY TO SUSPEND DEBTS

a. The Chief of the Fiscal activity, or designee, may suspend collection action on any debt (see par.1.03c) $40,000 or less, exclusive of interest and other charges, for a period justified by the circumstances. Collection action may be suspended when requested by the debtor for a valid reason or when the documented facts of the case indicate that such action is justified.

b. Debts over $40,000 and up to $100,000, exclusive of interest and other charges, are to be submitted to Central Office (047G7) for approval. Requests are to be signed by the Director and include a statement of facts summarizing collection action(s) taken and copies of all pertinent documentation, except that a Claims Collection Litigation Report (CCLR) is not required. Debts in excess of $100,000 are to be submitted to (047G7), together with a CCLR. VACO (047G7) will review the requests and submit them to DOJ for approval.

c. The reason for suspension and the applicable standard(s) that were applied must be documented on the accounts receivable record. If the Chief of the Fiscal activity is unsure whether suspension action is appropriate, 047G7 should be contacted for advice.

23.07 STANDARDS FOR TERMINATION OF COLLECTION ACTION (WRITEOFF)

The standards for termination of collection action are found in 38 CFR Section 1.942 and 4 CFR Part 104. VA will terminate collection action when one or more of the standards listed below have been documented.

(1) Inability To Collect Any Substantial Amount. Collection action may be terminated on a claim when it becomes clear that VA cannot collect or enforce collection of any significant amount from the debtor. A decision to approve write off of a debt under this criteria should also take the following factors into consideration:

(a) Age and health of the debtor.

(b) Present and potential income and assets including employment prospects, inheritance prospects, actual or potential rights to social security, VA benefits, workers' compensation, or military service, or retirement pay.

(d) The availability of assets or income which may be realized upon enforced collection proceedings.

(2) Inability To Locate Debtor. Collection action may be terminated on a claim when the debtor cannot be located and:

(a) There is no security remaining to be liquidated, or

(b) The applicable statute of limitations has run out and the prospects of collecting by offset, notwithstanding the bar of the statute of limitations, are too remote to justify retention of the claim.

(3) Cost of Collection Will Exceed Recovery. Collection action may be terminated on a claim when the costs of collection including those of a litigative nature would exceed the amount recovered. However, cases where a substantial legal issue or issue which might effect enforcement policies or have significance for the government as a whole, the cost of collection is usually not a deciding factor.

(4) Claim Is Legally Without Merit. Collection should be terminated on a claim whenever it is determined that the claim is legally without merit.

(5) Claim Cannot Be Substantiated By Evidence. Collection action should be terminated when the claim cannot be substantiated with the necessary evidence, witnesses are not available, and the debtor has refused to pay the debt voluntarily.

23.08 REQUISITES FOR MAKING THE TERMINATION DECISION

In reviewing a case for write off, decisions are to be based on as much of the documented information, indicated below, that is applicable to the particular case:

(1) Statement of the amount of indebtedness, indicating any credit; i.e.,

(a) the original principal amount of the debt,

(b) principal reduction, if any, (including reduction by offset of VA benefits),

(d) current accrued interest, if any,

(e) other current accrued costs or charges, if any, and

(f) total current amount of indebtedness.

(2) Itemized statement of allowances due the debtor from VA for educational assistance, disability compensation, pension, insurance, or other benefits.

(3) VA Form 45655, Financial Status Report, or a current credit report on the debtor, and/or verification of employment.

(4) For ineligible hospitalization or emergency care debts, a statement that all means of recovery from Medicare and Medicaid programs have been exhausted, or that neither is applicable stating the reasons why.

(5) When the debtor has not been located:

(a) Whether there was any security for the debt, and if so, the status of the liquidation of that security.

(b) The applicable statute of limitations, the date it began to run; whether it has expired. Additionally, whether and when it started running anew, if tolled.

(d) Known possibilities of collection by offset in the future and such information as is available as to a probable date of offset, source, and amount.

(e) Circumstances showing the likelihood of the debtor's future acquisition of assets which could be reached to satisfy or substantially reduce the debt.

(f) Statement of efforts made to locate the debtor.

23.09 VETERANS BENEFITS ADMINISTRATION (VBA) FIELD STATIONS

(When authority is granted to the Chief of the Fiscal activity, it also includes the Director of the Debt Management Center (DMC)). The Chief of the Fiscal activity, or designee, may write off benefit debts owed to VA after the conditions described below have been met. Multiple debts owed by individuals must be consolidated in order to determine dollar thresholds.

(1) Debts under $25, excluding interest and other charges, should be written off when one or more of the following conditions exist:

(a) The first collection letter is returned marked "no forwarding address", or

(b) No payment or reply is received within 30 days of the date the second collection letter is sent, or

(d) No additional payments are received on a debt where the remaining balance is under $25 and it has been 60 days from the date of the last payment.

(2) Debts $25 or more (excluding interest and other late payment charges) and under $600 will be placed in a suspended status after the third collection letter is sent and no reply or payment is received and there are indications that further collection attempts will not result in the voluntary liquidation of the receivable.

(a) In September of each year, these debts will be screened to determine if they meet the dollar limit and other criteria for referral for IRS tax refund offset in December. Debts that do not meet the criteria for referral to the IRS should be written off.

(b) After IRS offset any debt with a remaining balance less than $25 should be written off.

(c) Balances $25 and over remaining after IRS offset will be referred again the following year unless they meet the criteria for write off.

(d) Debts that are referred to the IRS but do not result in a collection because the debtor was not due a refund should be written off.

(3) The Chief of the Fiscal activity or designee may write off debts owed VA where the criteria for write off have been met and are not in excess of $40,000, exclusive of interest and other charges, after deducting the amount of partial payments or collections, if any, as follows:

(a) Deceased Debtor. The debtor is deceased and left no estate, or recovery from the estate cannot be effected.

(b) Debt Has Been Referred for Litigation. When either the U.S. Attorney or DC has jurisdiction over the collection of a debt and advice is received that the file is closed and the reason for closing the file states that the account is uncollectible.

(c) Debt Cannot Be Substantiated. When the DC/DOJ advise that a debt cannot be substantiated with the necessary evidence, witnesses are not available, and the debtor has refused to pay the debt voluntarily.

(d) All debts $600 and over will be screened in September to determine if they meet the criteria for referral for IRS tax refund offset in December. Balances $25 and over remaining after IRS offset will be referred again the following year unless they meet the criteria for write off.

1. Debts with balances under $25 remaining after IRS offset are to be written off when no additional charges have been incurred since September.

2. Balances $25 and over remaining after IRS offset will be referred again the following year unless they meet the criteria for write off.

3. Debts that are referred to the IRS but do not result in a collection because the debtor was not due a refund must be reviewed for appropriate disposition under FCCA criteria, i.e., suspension, termination, or enforced collection action.

(4) Debts in excess of $40,000 and not exceeding $100,000, exclusive of interest and other charges, that meet the criteria for write off are to be submitted to Central Office (047G7) for write off approval. Requests are to be signed by the Director and will include a statement of facts summarizing collection action(s) taken and copies of all pertinent documentation, except that a CCLR report is not required. Requests for write off of debts over $100,000 are submitted to (047G7), together with a CCLR. VACO (047G7) will review the requests and submit them to DOJ for write off approval.

(5) The Chief of the Fiscal activity or designee may write off a debt, regardless of amount, if:

(a) Debt Is Discharged in Bankruptcy. A debt will be written off when the DC states that the debt has been discharged in bankruptcy or that the legal effect of the bankruptcy proceedings releases the debtor of the obligation to pay the debt. Debts will not be written off because of bankruptcy without the written advice of the DC.

(b) Debt Is Waived. Any portion of a debt that is waived by the COWC, BVA, or General Accounting Office (GAO) is to be written off. (Refer to chapter 21, Waiver of Debts for waiver authority).

(c) Debt Is Compromised. Any portion of a debt (meeting FCCA criteria) that is compromised by VA (Fiscal Officer/COWC) or DOJ is to be written off.

(d) Debt is Legally Without Merit. A debt will be written off when the DC states, in writing, that the claim is legally without merit.

(e) Debt is an Education Loan Debt. An education loan debt will be written off if a borrower dies or becomes permanently and totally disabled after receipt of the loan.

(6) Entitlement Charging and Restoration

(a) When an education debt is written off because of waiver, compromise, bankruptcy, or uncollectibility, entitlement is charged equivalent to the amount written off. To restore the entitlement charged as a result of the write off, the debt must be paid in full.

(b) Basic loan guaranty entitlement is reduced by entitlement used to obtain a direct, guaranteed, or insured housing loan. If the loan is defaulted and VA incurs a loss on such loan, the loss must be paid in full to restore previously used entitlement.

23.10 VETERANS HEALTH ADMINISTRATION (VHA) FIELD STATIONS

Debts not in excess of $40,000 may be written off without referral to the IRS if they meet the standards for termination of collection action specified in paragraph 23.07; however, an individual's file must contain written documentation supporting the decision to terminate collection action. Multiple claims of individuals must be considered in their entirety. Claims may not be subdivided solely to justify their write off under "Cost of Collection Will Exceed Recovery". Otherwise, in September of each year, VHA Fiscal activities will run the IRS ADP Program to consolidate all medical care debts owed by an individual veteran. The ADP program automatically screens the total debt to determine if it meets the criteria for referral to the IRS for tax refund offset in December and prints the IRS notification letter. The Chief of the Fiscal activity, or designee, may write off benefit debts, including medical care debts, owed to VA after the conditions described below have been met.

(1) Debts under $25, excluding interest and other charges, will remain in an inactive status (do not suspend) until September when they will be consolidated and screened for write off or later referral to the IRS in December.

(a) Consolidated debts, per individual, under $25 are to be written off.

(b) Consolidated debts, per individual, over $25 are referred to the IRS in December.

(2) Debts $25 or more (excluding interest and other late payment charges) and under $600 will remain in an inactive status (do not suspend) after the third statement is sent and no reply or payment is received and there are indications that further collection attempts will not result in the voluntary liquidation of the receivable.

(a) Debts with balances under $25 remaining after IRS offset are to be written off when no additional charges have been incurred since September.

(b) Debts with balances $25 and over remaining after IRS offset will be referred again the following year unless they meet the criteria for write off.

(c) Debts that are referred to the IRS but do not result in a collection because the debtor was not due a refund should be written off.

(a) Deceased Debtor. The debtor is deceased and left no estate, or recovery from the estate cannot be effected.

(c) Debt Cannot Be Substantiated. When the DC states that a debt cannot be substantiated with the necessary evidence, witnesses are not available, and the debtor has refused to pay the debt voluntarily.

(d) All debts over $600 will be screened in September to determine if they meet the criteria for referral for IRS tax refund offset in December.

1. Debts with balances under $25 remaining after IRS offset are to be written off when no additional charges have been incurred since September.

2. Balances $25 and over remaining after IRS offset will be referred again the following year unless they meet the criteria for write off.

3. Debts that are referred to the IRS but do not result in a collection

because the debtor was not due a refund must be reviewed for appropriate disposition under FCCA criteria, i.e., suspension, termination, or enforced collection action.

(4) Debts in excess of $40,000 and not exceeding $100,000, exclusive of interest and other charges, that meet the criteria for write off will be submitted to Central Office (047G7) for write off approval. Requests will be signed by the Director and will include all pertinent documentation, except that a CCLR is not required. Requests for write off of debts over $100,000 will be submitted to (047G7), together with a CCLR. (047G7) will review the requests and submit them to DOJ for write off approval.

(5) The Chief of the Fiscal activity or designee may write off a debt, regardless of amount, if:

(b) Debt Is Waived. Any portion of a debt that is waived by the COWC, BVA, or GAO is to be written off. (Refer to chapter 21 for waiver authority).

(c) Debt Is Compromised. Any portion of a debt (meeting FCCA criteria) that is compromised by VA (Fiscal Officer/COWC) or DOJ may be written off.

(d) Debt is Legally Without Merit. A debt will be written off when the DC states, in writing, that the claim is legally without merit.

23.11 ALL FIELD STATIONS

The Chief of the Fiscal activity, or designee, may write off nonbenefit debts such as erroneous payment of pay and allowances, travel overpayments, vendor overpayments, FOIA, including amounts charged for services, after one or more of the conditions described below have been met. Multiple debts owed by individuals must be consolidated in order to determine dollar thresholds.