0101 Overview

This chapter establishes the Department of Veterans Affairs’ (VA) financial policies for debt collection standards.

Key points covered in this chapter:

• VA will apply debt collection standards in all recovery efforts as specified in laws, regulations, authorities, and guidance;
• VA will process hearing and waiver requests and compromise offers in accordance with regulatory requirements;
• VA will apply interest, administrative costs, and penalties to overdue debt when applicable;
• VA will comply with mandate to transfer debt collection responsibility to Treasury for debt delinquent over 120 days;
• VA will report certain Currently Not Collectible (CNC) debts to Consumer Reporting Agencies (CRA) when those debts meet criteria in 38 C.F.R. § 1.916(c); and
• VA will report discharge of non-benefit indebtedness exceeding $600 to the IRS in the calendar year in which the obligation is closed-out or satisfied at less than face value.

0102 Revisions

Section	Revision	Requesting Office	Reason for Change	Effective Date
Various	Applied format updates limiting all hyperlinks to section 0106, and removing redundant reference titles.	OFP	Full Review	June 2024
0105	Added titles 31 and 38 references and removed P.L. 116-315 reference	OFP	Enhanced coverage and 38 C.F.R. § 1.916(c) update	June 2024
010503	Added provision to sell non-tax debt upon termination of collection action	OFP	31 U.S.C. § 3711(i)(2)	June 2024
Appendix A	Moved prior revisions down to Appendix A	OFP	Format standard	June 2024

0103 Definitions

Benefit Debts – Debts arising out of participation in a VA benefit program (e.g., compensation, education, life insurance, loan guaranty, medical care and services, pension, Veteran Readiness and Employment (VRE), etc.) under the authority of Title 38 of the U.S. Code.

Close-out – A classification after write-off, also referred to as a Discharge of Indebtedness, when the agency has determined that no further debt collection action will be taken and the debt will be discharged, in accordance with 31 C.F.R. § 903.5, Discharge of Indebtedness; reporting requirements, 38 C.F.R. § 1.944, Discharge of indebtedness; reporting requirements, and Office of Management and Budget (OMB) Circular A-129. A non-benefit debt close-out of $600 or more must be reported to IRS per 26 U.S.C. § 6050P, Returns relating to the cancellation of indebtedness by certain entities.

Compromise – Governed by 31 U.S.C. § 3711, Collection and compromise, a compromise is an offer and acceptance of a partial payment in settlement and full satisfaction of the offeror’s indebtedness as it exists at the time the offer is made. It is a final settlement, binding on the parties to the compromise, unless procured by fraud, misrepresentation of a material fact, or mutual mistake of fact.

Currently Not Collectable (CNC) – A classification of a debt after write-off whereupon cost effective debt collection efforts should continue if an agency determines that continued collection efforts are likely to yield a return. In such cases, the written-off debt is not closed out but classified as CNC.

Debt – Money or property owed to VA.

Delinquent – Delinquency occurs when payment is not made by the due date specified in the initial billing notice.

Discharge of Indebtedness – In accordance with 31 C.F.R. § 903.5, Discharge of indebtedness; reporting requirements, and 38 C.F.R. § 1.944, Discharge of indebtedness; reporting requirements, a “discharge” of a debt (also referred to as a “close-out” of the debt) is the classification of a write off determination action that concludes a debt is no longer collectible.

Dispute – Right of a debtor to contest the legitimacy of a debt, both as to its existence and its amount.

Due Process – Providing debtors with notice of intended debt collection actions and the opportunity to dispute the debt or the amount of the debt, request a waiver when applicable, or negotiate a compromise of the debt.

Enforced Collections – The referral of a delinquent debt to the Office of General Counsel (OGC) or the Department of Justice (DOJ) for collection by securing a judgement against the debtor through litigation.

Non-Benefit Debts – Any debt not arising as a result of participation in a VA benefits program administered under authority of Title 38 of the U.S. Code, Veterans’ Benefits. Examples include salary overpayments; the recovery for the value of lost Government property, such as: lost keys, books, and equipment.

Notice of Indebtedness (NOI) – Written communication sent by VA providing the debtor with notification of the existence and amount of the debt, payment remittance information, accrual of interest, penalties, and administrative costs, and due process rights. A NOI is sometimes referred to as a demand letter.

Termination of Collection Action – A decision, under the guidance of the Federal Claims Collection Standards 31 C.F.R. Part 903, Standards for Suspending or Terminating Collection Activity, to cease active collection action on a debt when it appears that no person liable on the claim has the present or prospective ability to pay a significant amount of the claim or the cost of collecting the claim is likely to be more than the amount recovered.

Treasury Cross-Servicing Program (CS) – A consolidated Governmentwide program operated by the Bureau of Fiscal Service’s Debt Management Services (DMS) fulfilling the requirement of the Debt Collection Improvement Act of 1996. The program consists of collection tools including Treasury demand letters, telephone calls to debtors, administrative wage garnishment (AWG) and the use of Private Collection Agencies (PCAs).

Treasury Offset Program (TOP) – A centralized offset program, administered by the Bureau of the Fiscal Service’s Debt Management Services (DMS), to collect delinquent debts owed to federal agencies and states (including past due child support).

Waiver – A decision that conditions exist which should result in cancellation, forgiveness, or non-recovery of a debt owed, including interest and other late payment charges assessed on such debts under the applicable statutes and implementing regulations, 38 C.F.R. § 1.955, Regional office Committees on Waiver and Compromise, through 38 C.F.R. § 1.969, Revision of waiver decisions, and 38 C.F.R. § 17.105, Waivers.

Write-off – An accounting action that results in reporting the debt as having no value on the agency’s financial and management report. Write-off may occur before, concurrently with, or after the agency determines that collection action should be terminated. A write-off must be classified as either Currently Not Collectible (CNC) or as a close-out per OMB Circular A-129 guidance.

0104 Roles and Responsibilities

Chief of the Local Finance Office is responsible for ensuring that compliance with the policies and appropriate procedures are followed for the administration of VA’s debt collection activities. Any reference to the Chief of the Local Finance Office also includes the: Executive Director of the Debt Management Center (DMC), Director of the Financial Service Center (FSC) where appropriate, as well as Chief Fiscal Officers in VA Medical Centers, Chief Finance Officers in Regional Offices, and Chief Fiscal Officers in the Consolidated Patient Account Centers (CPAC).

Committee on Waivers and Compromises (COWC) is responsible for making decisions on a request for a waiver or compromise. For more information, refer to Volume XII, Chapter 11 – Committees on Waivers and Compromises (COWC).

0105 Policies

010501 General Policies

1. VA will apply debt collection standards in all recovery efforts as specified in the laws, regulations, and guidance identified below.
2. Statutory references include:
   • 5 U.S.C. § 5514, Installment deduction for indebtedness to the United States;
   • 31 U.S.C. § 3711, Collection and compromise;
   • 31 U.S.C. § 3716, Administrative offset;
   • 31 U.S.C. § 3717, Interest and penalty on claims;
   • 38 U.S.C. § 5315, Interest and administrative cost charges on delinquent payments of certain amounts due the United States; and
   • The Debt Collection Improvement Act of 1996 (DCIA).
3. Regulatory references include:
   • 5 C.F.R. §§ 550.1101-1110, Collection by Offset From Indebted Government Employees;
   • 31 C.F.R. § 285, Debt Collection Authorities under the Debt Collection Improvement Act of 1996;
   • 31 C.F.R. Parts 900-904, Federal Claims Collection Standards; and
   • 38 C.F.R. §§ 1.910-1.929, Standards for the Collection of Claims.
4. Other guidance:
   • OMB Circular A-129, Policies for Federal Credit Programs and Non-Tax Receivables; and
   • Treasury Debt Management – Managing Federal Receivables.

010502 Collections and Offsets

1. VA will pursue collection actions in accordance with the following administrative laws, regulations, and guidance when standard collection actions fail to recover the debts, or the debtor has not taken appropriate action to satisfy the indebtedness.
2. VA administrative offset references include:
   • 31 U.S.C. § 3716, Administrative offset;
   • 31 C.F.R. § 901.3, Collection by administrative offset; and
   • 38 C.F.R. § 1.912, Collection by offset.
3. Employee salary offset references include:
   • 5 U.S.C. § 5514, Installment deduction for indebtedness to the United States;
   • 5 C.F.R. §§ 550.1101-1110, Collection by Offset from Indebted Government Employees;
   • 38 C.F.R. §§ 1.980-1.995, Salary Offset Provisions; and
   • Volume XII, Chapter 3 – Employee Debt.
4. VA benefit payment offset references include:
   • 38 U.S.C. § 5314, Indebtedness Offsets;
   • 38 C.F.R. § 1.911, Collections of debts owed by reason of participation in a benefits program;
   • 38 C.F.R. § 1.912a, Collection by offset–from VA benefit payments; and
   • Volume XII, Chapter 2 – Benefit Debts.
5. References for mandatory referral of delinquent debt over 120 days to TOP for offset, 180 for CS, and referral for enforced collection (litigation):
   • Public Law 113–101, Digital Accountability and Transparency Act (DATA) 2014;
   • 31 U.S.C. § 3711 (g)(1), Collection and compromise;
   • Debt Collection Improvement Act of 1996 (DCIA);
   • 31 C.F.R. § 285.12, Transfer of debts to Treasury for collection;
   • Treasury Debt Management – Managing Federal Receivables; and
   • Volume XII, Chapter 14 – Treasury Offset Program, Treasury Cross Servicing, and Enforced Collection (Litigation).
6. For more information on collection activities, refer to Volume XII, Chapter 10 – Collection of Debts.

010503 Termination of Collection Action/Write-off and Close-out

1. VA will terminate collection activity when all available collection efforts are exhausted, and the criteria for termination are met per 31 C.F.R. § 903.3 and 31 U.S.C. § 3711.
2. VA will generally write-off delinquent debt older than two years unless documented and justified. Once the debt is written-off, VA will classify the debt as either CNC or close-out per OMB Circular A-129 guidance.
3. VA will close-out a debt (also referred to as discharge of a debt) when VA determines it is no longer cost effective to pursue any type of collection activity. The authority to close-out or discharge a debt follows the same authority as termination. Before close-out, 31 U.S.C. § 3711(i)(2) requires VA to sell delinquent nontax debts upon termination of collection action if the Treasury Secretary determines such a sale is in the best interests of the United States. See Volume XII, Chapter 13, Appendix A, Quick Reference Guide for Criteria, Authority, Thresholds, and Actions for Debt Termination.
4. VA will report discharge of non-benefit indebtedness exceeding $600 to the IRS in the calendar year in which the obligation is closed-out or satisfied at less than face value per 26 U.S.C. § 6050P.
5. For more information regarding debt termination, write-off, and close-out, refer to Volume XII, Chapter 13 – Termination of Collection Action and Reporting Discharge of Debt to IRS.

010504 Reporting Debt

1. In accordance with 38 U.S.C. § 5320 and 38 C.F.R. § 1.916, VA will report certain CNC debts to Consumer Reporting Agencies when those debts meet criteria identified in 38 C.F.R. § 1.916(c).
2. VA will provide reports on debt collection actions as required by 31 U.S.C. § 3719 and incorporate the required data into the quarterly Treasury Report on Receivables. For more information regarding reporting debt, refer to Volume XII, Chapter 15 – Treasury Reporting on Receivables.

010505 Record Retention

1. VA will maintain vendor debt documentation for a minimum period of 6 years after final payment or close-out of the debt; longer retention is authorized if required.
2. For more information regarding Record Retention, refer to National Archives and Records Administration General Records Schedule and VA Handbook 6300.1, Records Management Procedures.

0106 Authority and References

• United States Code (U.S.C.)
  • 5 U.S.C. § 5514, Installment deduction for indebtedness to the United States
  • 26 U.S.C. § 6050P, Returns relating to the cancellation of indebtedness by certain entities
  • 31 U.S.C. § 3711, Collection and compromise
  • 31 U.S.C. § 3716, Administrative offset
  • 31 U.S.C. § 3717, Interest and penalty on claims
  • 31 U.S.C. § 3719, Reports on debt collection activities
  • Title 38 of the United States Code, Veterans’ Benefits
  • 38 U.S.C. § 5314, Indebtedness offsets
  • 38 U.S.C. § 5315, Interest and administrative cost charges on delinquent payments of certain amounts due the United States
  • 38 U.S.C. § 5320, Threshold for reporting debts to consumer reporting agencies
• Code of Federal Regulations (C.F.R.)
  • 5 C.F.R. §§ 550.1101-1110, Collection by Offset From Indebted Government
  • Employees
  • 31 C.F.R. Part 285, Debt Collection Authorities under the Debt Collection Improvement Act of 1996 (This encompasses specific reference to § 285.12, Transfer of debts to Treasury for collection.)
  • 31 C.F.R. Chapter IX, Parts 900-904, Federal Claims Collection Standards (Department of the Treasury – Department of Justice) (This encompasses specific reference to §§ 901.3, 903.3, 903.5, and Part 903.)
  • 38 C.F.R. §§ 1.910-1.929, Standards for the Collection of Claims (This encompasses specific reference to §§ 1.911, 1.912, 1.912a, 1.916 and 1.916(c) regarding debt collection and use of consumer reporting agencies for delinquent debt reporting.)
  • 38 C.F.R. § 1.944, Discharge of indebtedness; reporting requirements  
  • 38 C.F.R. §§ 1.950-1.970, Referrals to GAO, Department of Justice, or IRS
  • 38 C.F.R. §§ 1.980-1.995, Salary Offset Provisions
  • 38 C.F.R. § 17.105, Waivers
• Debt Collection Improvement Act of 1996 (DCIA)
• OMB Circulars
  • A-129, Policies for Federal Credit Programs and Non-Tax Receivables
• National Archives and Records Administration, General Records Schedule
• Public Law 113–101, Digital Accountability and Transparency Act (DATA) of 2014
• Treasury Debt Management – Managing Federal Receivables
• VA Financial Policy Library
• VA Handbook 6300.1, Records Management Procedures (VA Intranet Access Only)

0107 Rescissions

Volume XII, Chapter 1, approved July 2021.

Appendix A: Prior Revisions

Section	Revision	Office	Reason for Change	Effective Date
010504	Added language about reporting debt to a CRA.	OFP (047G)	New memo	July 2021
0106	Added new Public Law	OFP (047G)	New law	July 2021
Various	Reformatted to new policy format and 5- year policy review.	OFP (047G)	Reorganized chapter layout	September 2020
0103 Definitions	Updated definitions	OFP (047G)	Updated and added definitions for clarity	September 2020
0104 Roles and Responsibilities	Changed title of Chief of Finance Activity to Chief of Local Finance Activity	OFP (047G)	Updated role titles for clarity	September 2020
0105 Policies	Reformatted policies into separate sections.	OFP (047G)	Improved flow and order of information stated	September 2020
0107 Rescissions	VA Handbook 4800.1, VA Collection Standards	OFP (047G)	No longer applicable	September 2020
0108 Questions	Updated DMC and FSC Mailboxes	OFP (047G)	New Mailbox Addresses	September 2020
Appendix A	Removed examples of VA Notice of Indebtedness Form Letters	OFP (047G)	Move to VA Financial Policy Volume XII, Chapter 8 – Notice of Indebtedness- Billing-Invoicing	September 2020