Citation Nr: 0809726 Decision Date: 03/24/08 Archive Date: 04/09/08 DOCKET NO. 05-40 369 ) DATE ) ) On appeal from the Department of Veterans Affairs Medical and Regional Office Center in Fargo, North Dakota THE ISSUE Entitlement to a waiver of recovery of an overpayment of service-connected compensation benefits in the calculated amount of $4,173.00. REPRESENTATION Appellant represented by: North Dakota Department of Veterans Affairs ATTORNEY FOR THE BOARD Michael A. Pappas, Counsel INTRODUCTION The veteran-appellant served on active duty from April 1986 to December 1989. This matter comes before the Board of Veterans' Appeals (the Board) on appeal of a September 2005 decision of the Committee on Waivers and Compromises (Committee) of the Department of Veterans Affairs (VA) Fargo, North Dakota, Regional Office (RO) that denied the veteran's request for a waiver of an overpayment of VA disability compensation benefits in the amount of $4,173.00. FINDINGS OF FACT 1. In June 1990, the veteran was awarded VA service- connected disability compensation benefits at the 20 percent rate based upon a January 1990 application for such benefits. There is no indication that VA notified the veteran in that award, or at any time thereafter, of the obligation to notify VA immediately of any incarceration, or that his compensation benefits would be reduced to 10 percent if he were incarcerated for more than 60 days as the result of conviction of a felony. 2. In March 2005, VA conducted a prisoner computer match with the Social Security Administration (SSA) thereby discovering that the veteran had been convicted of a felony and had been incarcerated since October [redacted], 2001. Based upon this information, VA proposed to reduce the veteran's VA disability compensation to 10 percent, effective from December 15, 2001. 3. In May 2005, the veteran's disability compensation benefits were reduced to 10 percent effective from December 15, 2001, based on his incarceration. This action created an overpayment of $4,173.00. 4. There was no fraud, misrepresentation, or bad faith on the part of the veteran. 5. The veteran was at fault in the creation of the overpayment of compensation benefits because of his failure to timely notify VA of his incarceration, but his fault was substantially mitigated by the fact that he had no actual notice of his obligation to report the incarceration. 6. VA was not without fault in the creation of the overpayment by their failure to provide prior notification to the veteran of his obligations to report any incarceration, and their failure to timely discover such incarceration. 7. The veteran's assets and income, with consideration of the costs of life's basic necessities, is not sufficient to permit repayment of the overpayment indebtedness of $4,173.00 without resulting in undue hardship to the veteran's dependent children, and the collection of that indebtedness would defeat the purpose of the compensation benefit program, and otherwise be inequitable. 8. Because the veteran is obligated to pay the full amount of the overpayment towards his child-support obligations, he would not be unjustly enriched as a result of the receipt of the overpayment. CONCLUSION OF LAW Recovery of the overpayment of compensation benefits in the amount of $4,173.00, would be against equity and good conscience. 38 U.S.C.A. §§ 5107, 5302 (West 2002); 38 C.F.R. §§ 1.963, 1.965 (2007). REASONS AND BASES FOR FINDINGS AND CONCLUSION Preliminary Matters Initially, the Board notes that the Veterans Claims Assistance Act of 2000 (VCAA), Pub. L. No. 106-475, 114 Stat. 2096 (2000), is not applicable to cases involving waiver of indebtedness. Barger v. Principi, 16 Vet. App. 132 (2002). Notwithstanding the fact that the VCAA is not controlling in these matters, the Board has reviewed the case for purposes of ascertaining that the appellant has had a fair opportunity to present arguments and evidence in support of his request for a waiver. In short, the Board concludes from that review that the requirements for the fair development of the waiver request have been met in this case. Every possible avenue of assistance has been explored, and the appellant has had ample notice of what might be required or helpful to his case. VA has satisfied its duties to inform and assist the appellant in this case. Moreover, given that this decision represents a full grant of the benefit sought, further development and further expending of VA's resources is not warranted. The Board also notes that the appellant has not challenged the validity of the indebtedness; nor does there appear to be any reason to believe that the debt was improperly created. As such, that question need not be examined further. See Schaper v. Derwinski, 1 Vet. App. 430 (1991). The appellant is seeking entitlement to a waiver of recovery of an overpayment of improved compensation benefits in the amount of $4,173.00. The Committee found that there was no indication of bad faith on the part of the veteran in the creation of the overpayment, a finding that allowed the consideration of whether the collection of the overpayment from the veteran would be against the principles or equity and good conscience. See 38 C.F.R. §§ 1.963, 1.965 (2007). In the interest of clarity, the Board will initially present a factual background. Thereafter, the Board will analyze the appellant's claim and render a decision. Factual Background The evidence in the claims file supports the following factual summary: In June 1990, the veteran was awarded VA service-connected disability compensation benefits at the 20 percent rate based upon a January 1990 application for such benefits. In conjunction with the formal notice of the award to the veteran, the RO enclosed two VA Form documents (VA Form 1- 4107 and 29-4364) and VA Pamphlet 29-9. None of these documents provided the veteran with information regarding his obligation to notify VA immediately of any incarceration, or that his compensation benefits would be reduced to 10 percent if he were incarcerated for more than 60 days as the result of conviction of a felony. There is no indication that the veteran was provided with a copy of VA Form 21-8764, the document that is normally used by VA for such disclosure purposes. Further, there is no indication that the veteran was ever notified by VA at any time thereafter of the obligation to notify VA immediately of any incarceration, or that his compensation benefits would be reduced as the result of conviction of a felony. In March 2005, VA conducted a prisoner computer match with the Social Security Administration (SSA) thereby discovering that the veteran had been convicted of a felony and had been incarcerated since October [redacted], 2001, and that he would not be released until September 2012. Based upon this information, VA proposed to reduce the veteran's VA disability compensation to 10 percent, effective from December 15, 2001. In May 2005, the veteran's disability compensation benefits were reduced to 10 percent effective from December 15, 2001, based on his incarceration. This action created an overpayment of $4,173.00. In September 2005, the veteran requested a waiver of that overpayment. In making the request, he stated that he had no idea that his incarceration would lead to the reduction of his VA compensation benefits, and that those benefits are his only source of income, representing the only money he has to provide child support to his ex-spouse for the support of his two minor children. The veteran indicated that he gave all of his benefits to his ex-spouse based upon a Court-ordered child-support plan, and argued that the full recovery of the overpayment by VA would allow no support for his children and result in an undue hardship to them and his ex-spouse. Pursuant to his request for a waiver, the veteran has submitted two financial status reports, one in September 2005, and the other in December 2005. In those reports, he stated that his only monthly income was his VA compensation benefits of $108, representing the amount provided by the reduced 10 percent disability rating. He reported monthly expenses of $199 for child support for his two minor children, ages 11 and 12, leaving him a monthly deficit of $92. He reported no assets and no debts. In the September 2005 waiver decision, the veteran was denied a waiver of his overpayment debt. The decision was based upon a finding that the granting of a waiver would be against the principles of equity and good conscience. The Committee explained that the veteran was at fault because VA had informed him at the time that he received the compensation award of the requirement to immediately report any change of his status including his incarceration of his failure to inform VA of his incarceration. The Committee also found that failure to make restitution would result in an unfair gain and unjust enrichment to the veteran because he would retain money at the expense of the government while he was being maintained at the expense of the government. In his notice of disagreement filed in September 2005, the veteran reiterated that he was never informed that his compensation would be reduced upon his incarceration, and that he has Court-ordered child support payments that he must make in the amount of $200 per month. In arguing that denial of a waiver would result in undue hardship to his ex-spouse and children, the veteran stated that none of his VA disability compensation is used by him. He provided the phone number of his ex-spouse and invited VA to contact her to verify his allegations. In his December 2005 substantive appeal, the veteran alleged that the Court Order that awarded his ex-spouse child-support in the amount of $199 expressly stated that it was because of his receipt of VA compensation benefits in the amount of $206. The veteran provided specific information relating to the location of that Court Order. He continued to argue that denial of a waiver would result in undue hardship to his ex- spouse and children. Analysis The veteran requests a waiver of the recovery of the overpayment of VA service-connected compensation benefits in the amount of $4,173.00. The law precludes waiver of recovery of an overpayment or waiver of collection of any indebtedness where any one of the following elements is found to exist: (1) Fraud, (2) misrepresentation, (3) bad faith. 38 U.S.C.A. § 5302 (West 2002). The Board's review of the record reflects that in its September 2005 waiver decision, the Committee determined that there was no indication of fraud, misrepresentation or bad faith on the part of the veteran in this case, and the Board concurs with that preliminary finding. Given that preliminary finding, the dispositive question before the Board for review is the issue of whether the evidence establishes that recovery of the overpayment indebtedness would be against equity and good conscience, in which case recovery of that overpayment may be waived. 38 U.S.C.A. § 5302; 38 C.F.R. §§ 1.963, 1.965. The following is pertinent to this matter: The standard "equity and good conscience" will be applied when the facts and circumstances in a particular case indicate a need for reasonableness and moderation in the exercise of the Government's rights. The decision reached should not be unduly favorable or adverse to either side. The phrase "equity and good conscience" means arriving at a fair decision between the obligor and the Government. In making this determination, consideration will be given to the following elements, which are not intended to be all- inclusive: 1. Fault of debtor. Where actions of the debtor contribute to creation of the debt. 2. Balancing of faults. Weighing fault of the debtor against VA fault. 3. Undue hardship. Whether collection would deprive debtor or family of basic necessities. 4. Defeat the purpose. Whether withholding of benefits or recovery would nullify the objective for which the VA benefits were intended. 5. Unjust enrichment. Failure to make restitution would result in unfair gain to the debtor. 6. Changing position to one's detriment. Reliance on VA benefits results in relinquishment of a valuable right or incurrence of a legal obligation. 38 C.F.R. § 1.965(a). The veteran an his representative contend that the principles of equity and good conscience would support his request for a waiver, since according to them, he was not at fault in the creation of the overpayment and its collection would impose an undue hardship. In general, they argue that the veteran was not at fault since he was never provided with adequate notice of the obligation to notify VA immediately of any incarceration, or that his compensation benefits would be reduced to 10 percent if he were incarcerated for more than 60 days as the result of conviction of a felony. They also contend that insistence by VA upon repayment would impose an undue hardship, not upon the veteran, but upon the veteran's ex-spouse and his two minor children who are relying upon the child-support payments from the veteran whose sole source of income is his VA disability compensation benefits. In the evaluation of whether equity and good conscience necessitates a favorable waiver decision, the Board must and has considered all of these specifically enumerated elements. However, the Board finds that the issues of fault, unjust enrichment, undue hardship, and whether there would be a defeat of the purpose of an existing benefit to the veteran are more significant to the case before the Board. VA's working definition of "fault" is "The commission or omission of an act that directly results in the creation of the debt" (Veteran's Benefits Administration Circular 20-90- 5, February 12, 1990). Fault should initially be considered relative to the degree of control the veteran had over the circumstances leading to the overpayment. If control is established, even to a minor degree, the secondary determination is whether the debtor's actions were those expected of a person exercising a high degree of care, with due regard for the debtor's contractual responsibility to the Government. The age, financial experience, and education of the debtor should also be considered in these determinations. The Board has carefully reviewed the entire record, in light of the veteran's contentions and the applicable law and regulations. Essentially, in terms of fault, the veteran alleges that he was not at fault because he was not provided notice of his obligation to inform VA of his obligation to notify them of his incarceration. The evidence of record, particularly, the June 1990 VA disability compensation award letter to the veteran supports this allegation. There is no indication that VA notified the veteran in that initial compensation award letter, or at any time thereafter, of the obligation to notify VA immediately of any incarceration, or that his compensation benefits would be reduced to 10 percent if he were incarcerated for a felony. Significantly, there is no indication that VA Form 21-8764, the form used for such purposes by VA, was ever sent to the veteran. Although the veteran is technically considered at fault by virtue of the simple failure to properly notify VA of his incarceration, after consideration of the record, the Board finds that the veteran was not knowingly at fault in the creation of the overpayment. He had not been properly advised of his obligations, and as such his fault was substantially mitigated. Conversely, based upon VA's failure to adequately notify the veteran of his obligations to report his change of status at the time of the award of compensation benefits, compounded by their failure to timely discover the veteran's incarceration after a five year period, the Board further finds that VA was not without fault in the creation of the overpayment. By the same token, however, the veteran is technically presumed to know the law, including his obligations to report any change of status. Thus, with regard to the balancing of faults between the veteran and VA, neither the veteran nor VA can be considered wholly at fault. The Board has also considered whether recovery of the overpayment would defeat the original purpose of the benefit by nullifying the object for which it was intended. Compensation is intended to provide a replacement level of support for veterans with service-connected disabilities. Recovery of those amounts to which the veteran was not entitled in view of the fact that he had exhausted the compensation in question solely for the support of his children would defeat the purpose of the benefit. By the same token, since the veteran is not considered wholly at fault, and since his payments have gone wholly to his dependent children, the failure of the Government to insist upon its right to repayment of the debt would not result in an unjust enrichment to the veteran at the expense of the Government. The veteran in this case did not, according to the available record, change his position due to his detriment and as a result of the award of compensation. Finally, the Board must analyze whether recovery of the overpayment from the veteran would result in undue financial hardship. In evaluating the evidence and rendering a decision on the merits, the Board is required to assess the credibility, and therefore the probative value, of proffered evidence in the context of the record as a whole. See Madden v. Gober, 125 F.3d 1477, 1481 (Fed. Cir. 1997). In this case, there is written evidence from the veteran asserting that all of his service-connected disability compensation has been and will be used toward court-enforced child support payments to his ex-spouse for the support of his two minor children. The veteran has also asserted that they will be faced with an undue hardship if he does not make these payments in full. Significantly, the veteran is found to be credible in making these statements. See Cartright v. Derwinski, 2 Vet. App. 24, 25 (1991) [VA cannot ignore a veteran's testimony simply because the veteran is an interested party; personal interest may, however, affect the credibility of the evidence]. In this case, the veteran was consistent in his statements; he offered explicit details; and he provided the means of credible verification that his compensation was being used for the support of his children. Further, the explanation of the veteran was quite plausible, particularly given his circumstances an the resulting circumstances of his dependent children. Thus, the Board concludes that the veteran's assets and income, with consideration of the costs of life's basic necessities, is not sufficient to permit repayment of the overpayment indebtedness of $4,173.00 without resulting in undue hardship to the veteran's dependent children, and the collection of that indebtedness would defeat the purpose of the compensation benefit program, and otherwise be inequitable. Based on the record in this case, the Board is persuaded that recovery of the overpayment at issue would be unjust. This is so because the finding of no intentional fault on the part of the veteran and the potential for imposed hardship must be accorded significantly greater weight than other elements in this analysis. The Board finds, therefore, that under the principles of equity and good conscience, taking into consideration all of the specifically enumerated elements of 38 C.F.R. § 1.965(a), it would be unfair to recover the veteran's service-connected disability compensation overpayment indebtedness in the amount of $4,173.00. The end result would not be unduly favorable or adverse to either the Government or the veteran. 38 U.S.C.A. § 5107(b). Accordingly, the veteran's request for a waiver of his overpayment debt is granted. ORDER Entitlement to a waiver of recovery of an overpayment of service-connected compensation benefits, in the calculated amount of $4,173.00, is granted. ____________________________________________ M. E. LARKIN Veterans Law Judge, Board of Veterans' Appeals Department of Veterans Affairs