Citation Nr: 21004986 Decision Date: 01/28/21 Archive Date: 01/28/21 DOCKET NO. 18-21 949 DATE: January 28, 2021 ORDER The overpayment of Department of Veterans Affairs (VA) compensation benefits in the amount of $24,056.79 was validity created; the appeal is denied. Entitlement to a waiver of recovery of VA compensation benefits in the amount of $24,056.79 is denied. FINDINGS OF FACT 1. The Veteran’s entitlement to compensation benefits was reduced from 40 percent to 10 percent beginning on September 22, 2012, the 61st day of his incarceration, and this resulted in an overpayment in the amount of $24,056.79. 2. The Veteran did not commit fraud, misrepresentation, or bad faith in the creation of the debt; but is found to be at fault in the creation of the debt. 3. Repayment of the debt, which has already been repaid and/or waived, would not deprive the Veteran of the basic necessities of life, would not result in financial hardship, and recovery of the overpayment would not defeat the purpose for which benefits were intended. 4. A waiver of the debt would result in unjust enrichment to the Veteran. CONCLUSIONS OF LAW 1. The overpayment of compensation benefits in the amount of $24,056.79 was validly created. 38 U.S.C. § 5313; 38 C.F.R. § 3.665. 2. The criteria for entitlement to a waiver of VA compensation benefits have not been met. 38 U.S.C. § 5302(a); 38 C.F.R. §§ 1.963(a), 1.965, 3.666(e). REASONS AND BASES FOR FINDINGS AND CONCLUSIONS The Veteran served on active duty from June 1972 to September 1973. In July 2019, the Board remanded the claim for further development. Validity An overpayment is created when VA determines that a beneficiary or payee has received monetary benefits to which he or she is not entitled. 38 U.S.C. § 5302; 38 C.F.R. § 1.962. Overpayments created by retroactive discontinuance of benefits will be subject to recovery if not waived. 38 C.F.R. § 3.660(a)(3). The law limits the payment of compensation to persons incarcerated for a felony conviction. The law specifically provides, in relevant part, that any person entitled to compensation who is incarcerated in a state penal institution for a period in excess of 60 days for the conviction of a felony committed after October 7, 1980 shall not be paid such compensation for the period beginning on the 61st day of such incarceration and ending on the day such incarceration ends. In the case of a veteran with service-connected disability rated at 20 percent or more, he shall not be paid an amount in excess of the rate under 38 U.S.C. § 1114(a), which is at the rate of 10 percent. 38 U.S.C. § 5313; 38 C.F.R. § 3.665. In order for the Board to determine that an overpayment was not properly created, thereby invalidating the debt, the record must establish the Veteran was legally entitled to the benefits in question or if not legally entitled, then it must be shown that VA was solely responsible for the Veteran being erroneously paid compensation benefits. Administrative errors include all administrative decisions of entitlement, whether based upon mistake of fact, misunderstanding of controlling regulations or instructions, or misapplication of law. VAOPGPREC 2-90 (July 17, 1989), 55 Fed. Reg. 27,757 (1990). Sole administrative error connotes the Veteran neither had knowledge of nor should have been aware of the erroneous award. Further, neither the Veteran’s actions nor his or her failure to act must have contributed to payment pursuant to the erroneous award. 38 U.S.C. § 5112(b)(9), (10); 38 C.F.R. § 3.500(b)(2); Jordan v. Brown, 10 Vet. App. 171 (1997) (sole administrative error is not present if the payee knew, or should have known, that the payments were erroneous). An administrative error resulting in an overpayment will not be classified as a VA administrative error or error in judgment if the error is “based on an act of commission or omission by the beneficiary, or with the beneficiary’s knowledge.” Dent v. McDonald, 27 Vet. App. 362, 380 (2015) (citing 38 U.S.C. § 5112(b)(9); see 38 C.F.R. § 3.500(b)(1); VAOGCPREC 2-90 (Mar. 20, 1990)). Thus, a finding of sole administrative error requires not only error on the part of VA, but that the beneficiary is unaware that the payments are erroneous. Analysis The Veteran asserts that an overpayment of VA disability compensation in the amount of $24,056.79, based on a retroactive reduction to the 10 percent rate as of the 61st day of his felony conviction, was not properly created. In July 1980, the Veteran was granted service connection for his disabilities. In September 1996, VA provided the Veteran with VA Form 21-8764 which states, in pertinent part, that compensation is subject to future adjustment, and that “benefits will be reduced upon incarceration in a Federal, State, or local penal institution in excess of 60 days for conviction of a felony.” The Veteran was instructed to immediately notify VA if there was a change in any condition affecting his right to continued payments. Failure to immediately notify VA of these changes may result in a debt that the Veteran would have to repay. In May 2016, a VA and Bureau of Prisons Computer Match informed VA that the Veteran had been incarcerated for a felony from July 23, 2012. Based on the computer match information, VA informed the Veteran that the law requires it to reduce the Veteran’s compensation to the 10 percent compensation rate effective the 61st day after the date of conviction; so, VA proposed to reduce the Veteran’s compensation benefits to the 10 percent rate effective September 22, 2012, the 61st day of incarceration. In October 2016, VA effectuated the reduction. The reduction resulted in a $24,056.79 overpayment debt. In November 2016, the Veteran requested a waiver. The Committee on Waivers and Compromises (Committee) denied the waiver request. In April 2017, the Veteran and his spouse submitted statements. They stated that in December 2011, prior to the Veteran’s trial, both her and the Veteran took steps to ensure continued receipt of the Veteran’s VA benefits. His spouse stated that she has multiple health issues, a disabled child, and many bills to pay; so, the income was vital. The couple told the representative that they needed to obtain a “hardship exemption to normal VA policy.” The couple completed paperwork and was told that the representative would keep the paperwork until the Veteran was sentenced. The Veteran was incarcerated in July 2012. His wife contacted the representative so that the representative could submit the paperwork. The Veteran’s wife stated that they could not repay the debt. In October 2017, the Veteran appealed the waiver denial. In July 2019, the Board noted that the Veteran had questioned the validity of the debt. However, the issue had not been adjudicated. The Board remanded the claim for further development. In February 2020, the Committee waived $9,789.21 of the Veteran’s debt and denied $14,267.58. The Committee stated that it placed significant weight on the Veteran’s statement detailing his income, expenses, disabilities, and inability to repay the entire debt. The Veteran also assumed that he was being paid the correct amount. The Committee noted that the Veteran’s disability benefits are a large source of income, and repayment of the entire debt would result in financial hardship and defeat the purpose of the Veteran’s compensation benefit. As such, the Committee waived $9,789.21 of the Veteran’s debt and denied $14,267.58, i.e., the amount that had already been recouped. The Committee informed the Veteran that “it is not the policy of the Committee to return funds to the claimant they are not entitled to, therefore these funds will not be returned. This grant eliminates the balance of your VA debt.” Based on the evidence of record, the Board finds that the creation of the debt is valid. The record shows, and the Veteran does not dispute, that he was incarcerated for a felony conviction in July 2012. There can be no dispute that the Veteran was not legally entitled to benefits beginning the 61st day of his incarceration. See 38 C.F.R. § 3.666. However, for a valid debt to be created, the overpayment must not have been solely due to administrative error. The evidence shows that VA’s overpayment to the Veteran was not the result of sole VA administrative error. Sole administrative error entails no knowledge or fault on the part of the debtor. See Jordan, 10 Vet. App. 171. In September 1996, the Veteran received a Notification Letter stating that a veterans’ benefits would be reduced upon incarceration in a Federal, State, or local penal institution in excess of 60 days for conviction of a felony. Therefore, the Board finds that the Veteran knew or should have known that his compensation award should have been reduced on the 61st day of his incarceration and that he was aware or should have been aware that the full payments he continued to receive following the 61st day of his incarceration were erroneous. Accordingly, the Board finds the creation of the overpayment was valid. The Board is bound by the law and is without authority to grant benefits on an equitable basis. See 38 U.S.C. §§ 503, 7104; Harvey v. Brown, 6 Vet. App. 416, 425 (1994). The application of the law to the facts in this case is dispositive. Entitlement to waiver of recovery A Veteran has the right to dispute the existence and amount of the debt. 38 C.F.R. § 1.911(c). The preliminary issue of the validity of a debt is a threshold determination that must be made prior to a decision on a request for waiver of the indebtedness. See Schaper v. Derwinski, 1 Vet. App. 430, 437 (1991). First, VA must determine if the overpayment at issue was validly created. See Schaper v. Derwinski, 1 Vet. App. 430, 434-35 (1991) (noting that before adjudicating a waiver application, the lawfulness of the overpayment must first be decided). The term “overpayment” refers only to those benefit payments made to a designated living payee or beneficiary in excess of the amount due or to which such payee or beneficiary is entitled. See 38 U.S.C. § 5302; 38 C.F.R. § 1.962. Second, if the debt is valid, VA must determine if fraud, misrepresentation, or bad faith played a role in its creation. If it did, waiver of the overpayment is automatically precluded, and further analysis is not warranted. See 38 U.S.C. § 5302(a); 38 C.F.R. §§ 1.963(a), 1.965(b); see also Ridings v. Brown, 6 Vet. App. 544 (1994) (holding that the Board must independently address the matter of bad faith before addressing whether waiver would be appropriate). Finally, if VA determines that the debt is valid, and that fraud, misrepresentation, and/or bad faith had no part in its creation, VA must then consider whether collection of the debt would be against equity and good conscience. See 38 U.S.C. § 5302(b); 38 C.F.R. §§ 1.962, 1.963, 1.965. Analysis Despite the validity of the overpayment debt, the Veteran may still receive a waiver for the debt created. 38 C.F.R. § 1.962. Recovery of overpayments of any benefits made under the laws administered by VA shall be waived if there is no indication of fraud, misrepresentation, or bad faith on the part of the person or persons having an interest in obtaining the waiver and if the recovery of the indebtedness from the payee who received such benefits would be against equity and good conscience. 38 U.S.C. § 5302; 38 C.F.R. §§ 1.962, 1.963(a), 1.965. In this case, the Board has not found any evidence of fraud, misrepresentation, or bad faith on the part of the Veteran in the creation of the overpayment. The next question is whether the facts dictate that a waiver should be granted under the standard of “equity and good conscience.” The phrase “equity and good conscience” means the arrival 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 the debtor, (2) balancing of faults between the debtor and VA, (3) undue hardship of collection on the debtor, (4) defeat of the purpose of an existing benefit to the appellant, (5) unjust enrichment of the appellant, and (6) whether the appellant changed positions to his or her detriment in reliance upon a granted VA benefit. 38 U.S.C. § 5302; 38 C.F.R. § 1.965(a). After reviewing all the evidence of record, the Board finds that recovery of the debt would not violate principles of equity and good conscience. The first and second elements pertain to the fault of the debtor versus the fault of VA. As noted above, the fault in creating the debt is entirely with the Veteran. There is no evidence that VA is at fault for the incurrence of this debt. With respect to the third factor, financial hardship, the pertinent regulation provides that consideration should be given to whether collection of the indebtedness would deprive the debtor of basic necessities. 38 C.F.R. § 1.965(a)(3). “Financial hardship” is primarily intended to mean that he or she would be deprived of basic necessities, such as food, clothing, and shelter. The Board has considered whether the Veteran would suffer undue financial hardship if forced to repay the debt. In November 2016, the Veteran submitted a Financial Status Report. The Veteran indicated net household monthly income of $651.36. His average monthly expenses and monthly payments on installment contracts and other debts totaled $1,440.24. The Veteran’s household monthly expenses exceeded his income by $788.88 per month. He reported $200.00 in the bank, $6.00 cash on hand, two vehicles worth a total of $1,000.00, and real estate owned worth $30,000.00. He also owned a mobile home worth $1,000.00. The Veteran’s assets totaled $32,206.00. In May 2017, the Veteran submitted another Financial Status Report. The Veteran indicated net household monthly income of $1,700.64. His average monthly expenses and monthly payments on installment contracts and other debts totaled $1,622.28. The Veteran’s household monthly income exceeded his expenses by $77.72 per month. The Veteran reported $200.00 in the bank, $29.00 cash on hand, two vehicles worth a total of $700.00, real estate owned worth $30,000.00, and a mobile home worth $1,000.00. The Veteran’s assets totaled $31,929.00. The Board finds that collection of the debt would not impair the Veteran’s ability to provide for basic necessities. As to whether collection of this debt would defeat the purpose for which the benefits were intended, the rating schedule is intended to compensate a claimant for average impairments in earning capacity resulting from service-connected disability in civil occupations. 38 U.S.C. § 1155. However, as the Veteran was incarcerated, he had no earning capacity. Therefore, the Board finds that collection of this debt would not defeat the purpose of paying the benefits. Additionally, because the debt has already been repaid and/or waived, a waiver of such an overpayment would essentially require VA to pay the Veteran additional benefits that were not due to him and would result in unjust enrichment. The Board also notes that there is no indication that the Veteran detrimentally changed his position in reliance on the overpayment or incurred a legal obligation. Based on the above, the Board finds the weight of the elements of equity and good conscience are not in the Veteran’s favor. Accordingly, waiver of recovery of the overpayment is not warranted, and the claim must be denied. MICHAEL LANE Veterans Law Judge Board of Veterans’ Appeals Attorney for the Board T. Moore The Board’s decision in this case is binding only with respect to the instant matter decided. This decision is not precedential and does not establish VA policies or interpretations of general applicability. 38 C.F.R. § 20.1303.