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Chapter 02 – Benefit Debts

Volume XII - Debt Management

Date Approved: June 12, 2024

Financial Documents

Volume XII - Debt Management

Chapter 02 – Benefit Debts

Questions concerning this policy chapter should be directed to:

0201 Overview

This chapter establishes the Department of Veterans Affairs’ (VA) financial policies relating to the collection of benefit debts owed to VA as a result of participating in VA-administered benefit programs.

Key points covered in this chapter:

  • VA will notify VA beneficiaries of benefit debt, rights, available remedies, and collection processes;
  • VA may collect overdue benefit debt from regular payments VA issues to the debtor;
  • VA may delay involuntary collection of benefit debt for up to 90 days when that debt is caused by VA overpayment error;
  • VA must refer eligible benefit debts delinquent over 120 days to Treasury for collection by offset from non-VA government payments;
  • Some overdue benefit debt will incur additional charges; however, disability compensation, pension, and educational assistance program benefit debts are exempt from addition of interest, administrative costs, and penalties; and
  • VA will terminate collection action and may discharge a debt when collection efforts are exhausted, or it is no longer cost effective to pursue collection activities.

0202 Revisions

Section Revision Requesting Office Reason for Change Effective Date
Various Reformatted to new policy format OFP Completed full review June 2024
0201 and 0203 Removed exclusion of employee benefits statement OFP Benefit debt definition is expanded to clarify June 2024
0205 Moved several prior policy provisions between sections OFP Better order for policy statements. June 2024
020502 Added collection delay requirement VBA 38 U.S.C. § 5302B June 2024
020503 Edited section title, and removed Principi memo reference. OFP To match 38 C.F.R. reference, and 38 U.S.C. § 5315 update June 2024
Appendices A-C Added appendix for prior revisions, re-lettering others; dropped the Principi Memo appendix OFP Format standard, and 2022 revision to 38 U.S.C. § 5315 June 2024
Appendix C Edited if/then scenario content for benefit debt collection from VA employees OFP Different offset process applies for DCPS debt recovery. June 2024

For a complete listing of policy revisions, see Appendix A.

0203 Definitions

Administrative Costs – A fixed amount which can be added to a debt for each full or partial 30-day period that the debt is delinquent.

Benefit Debt – 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 United States 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 the Internal Revenue Service (IRS) per 26 U.S.C. § 6050P, Returns relating to the cancellation of indebtedness by certain entities.

Compensation – A monthly payment made by VA to a Veteran due to a service- connected disability, or to a surviving spouse, child, or parent of a Veteran due to the service-connected death of the Veteran occurring before January 1, 1957 per 38 U.S.C. § 101, Definitions.

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.

Debt – Money or property owed to VA.

Debtor – A person, company, or other organization that owes money.

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

Dependency and Indemnity Compensation (DIC) – A monthly payment made by VA to a surviving spouse, child, or parent (A) because of a service-connected death occurring after December 31, 1956, or (B) pursuant to the election of a surviving spouse, child, or parent, in the case of such a death occurring before January 1, 1957, per 38 U.S.C. § 101, Definitions.

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.

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

Enforced Collection – 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-Service-Connected – With respect to disability or death means such disability was not incurred or aggravated, or the death did not result from a disability incurred or aggravated, in line of duty in the active military, naval, or air service per 38 U.S.C. § 101, Definitions.

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.

Offset – The collection of a debt, in part or in full, from monies a debtor is currently receiving or may receive in the future from the Government.

Pension – A monthly or other periodic payment made by VA to a Veteran because of service, age, or non-service-connected disability, or to a surviving spouse or child of a Veteran because of the non-service-connected death of the Veteran per 38 U.S.C. § 101, Definitions.

Salary Offset – Mechanism used to collect a debt under 5 U.S.C. § 5514, Installment deduction for indebtedness to the United States, by deduction(s) at one or more officially established pay intervals from the current pay account of any VA employee.

Service-Connected – With respect to disability or death means such disability was incurred or aggravated, or the death resulted from a disability incurred or aggravated, in line of duty in the active military, naval, or air service per 38 U.S.C. § 101, Definitions.

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 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, 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.

0204 Roles and Responsibilities

Administrations and Staff Offices are responsible for notifying the debtor of a debt and in some instances for collection of debts.

Office of General Counsel (OGC) is responsible for providing legal advice to help VA staff comply with laws and regulations impacting debt management activity, and for liaison with the Department of Justice (DOJ) regarding litigation involving VA.

Board of Veterans’ Appeals (BVA) is responsible for review of benefit claim determinations made by local VA offices and issuing decisions on appeals of those determinations; see 38 U.S.C. § 7103.

Debt Management Center (DMC) is responsible for debt management services including benefit debt resolution activities, (waivers, compromises, etc.) and is responsible for debt referral to the Treasury Cross-Servicing program.

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).

0205  Policies

020501 General Policies

  1. VA will adhere to debt collection standards specified in laws, regulations, and guidance. Refer to Volume XII, Chapter 1 – Debt Collection Standards.
  2. A person will not be eligible for Federal financial assistance, including a new VA loan or loan guarantee, if they have a delinquent (over 90 days) VA debt. However, this prohibition may be waived by VA’s Chief Financial Officer (VA CFO) or Deputy Chief Financial Officer, as delegated by the Secretary of VA (31 U.S.C. § 3720B, 38 C.F.R. § 1.924(e), and 31 C.F.R. § 285.13(g)).

020502 Collection Activities

  1. VA will take collection actions to recover monies owed from debts arising out of participation in a VA benefits program.
  2. VA will promptly demand, in writing, payment of benefit debt by providing an initial Notice of Indebtedness (NOI) to the debtor. Per 38 CF.R. § 1.911(d), the letter will include a clear explanation of the debt, rights, available remedies, and collection processes. For more information regarding NOIs, refer to Volume XII, Chapter 8 – Notice of Indebtedness-Billing-Invoicing, and 38 C.F.R. §§ 1.911(b)-(d).
  3. VA will use all available collection tools to recover outstanding benefit debts; specifically, VA will:
    • Offset future payments made to the debtor from any benefits program administered by VA (38 U.S.C. § 5314, and 38 C.F.R. § 1.912a);
    • Refer eligible delinquent benefit debts over 120 days to TOP (31 U.S.C. § 3716);
    • Refer eligible delinquent benefit debts over 180 days to CS (Debt Collection Improvement Act (DCIA));
    • Refer eligible debts to OGC for enforced collection (38 C.F.R. §§ 1.950-1.953); and/or
    • Compromise, terminate, or write-off uncollectible benefit debts.
  4. When VA error causes benefit overpayment, VA will generally delay active involuntary collection activity under 31 U.S.C. § 3711 until at least 90 days following NOI. See 38 U.S.C. § 5302B(c)(2) for exceptions to the 90-day delay.
  5. For more information on the following collection topics, refer to:
    • Volume XII, Chapter 10 – Collection of Debts;
    • Volume XII, Chapter 11A – Waiver Requests and Processing;
    • Volume XII, Chapter 11B – Compromise of Debt; and
    • Volume XII, Chapter 14 – Treasury Offset Program, Treasury Cross Servicing, and Enforced Collection (Litigation).

020503 Interest, Administrative Costs, and Penalties

  1. Loan, loan-guarantee, loan-insurance, disability compensation, pension, and educational assistance program benefit debts are exempt from these additions to debt charges (38 U.S.C. § 5315(a)(1)).
  2. VA will accrue interest, administrative costs and penalties on other overdue benefit debt in accordance with Federal claims collection standards.
  3. For information on the calculation of additions to debt, refer to Volume XII, Chapter 9 – Interest, Administrative Costs, and Penalty Charges.

020504 Termination of Collection Action, Write-Off, or Close-Out

  1. VA will terminate collection activity and write-off benefit debts when all available collection efforts have been exhausted, and the criteria for termination and write-off have been met (31 C.F.R. Part 903).
  2. VA will close-out/discharge a debt when it has been determined that it is no longer cost effective to pursue any type of collection activity. Collection is prohibited after this action (31 C.F.R. § 903.5).
  3. For more information regarding debt termination, write-offs, and close-out, refer to Volume XII, Chapter 13 – Termination of Collection Action and Reporting Discharge of Debt To IRS.

020505 Recording and Reporting Benefit Debt

  1. Upon discovery of a benefit debt, VA will establish an account receivable in the appropriate system in accordance with Volume V, Chapter 6 – Accounts and Interest Receivables.
  2. VA will provide reports on benefit debt collection actions as required by 31 U.S.C. § 3719, Reports on debt collection activities, and incorporate the required data into the quarterly Treasury Report on Receivables (TROR).
  3. For more information regarding reporting debt to Treasury, refer to Volume XII, Chapter 15 – Treasury Report on Receivables.

0206  Authorities and References

0207 Rescissions

VA Financial Policy Volume XII, Chapter 2 – Benefit Debts, February 2021.

Appendix A: Prior Revisions

SectionRevisionOfficeReason for ChangeEffective Date
  VariousReformatted to new policy format and completed 5-year reviewOFP (047G)Reorganized chapter layoutFebruary 2021
Chapter NumberChapter number changed from 6 to 2OFP (047G)Reorganized chapterFebruary 2021
0203 DefinitionsUpdated definitionsOFP (047G)Updated and added definitions for clarityFebruary 2021
0204 Roles and ResponsibilitiesUpdated and streamlined roles and responsibilitiesOFP (047G)Streamlined for clarity related to policyFebruary 2021
0205 PoliciesReformatted policies into separate sections.OFP (047G)Improved flow and order of information statedFebruary 2021
0207 RescissionsRescinded Volume XII – Chapter 6, Benefit DebtsOFP (047G)Reorganized chaptersFebruary 2021
0208 QuestionsAdded and updated mailboxes for VHA, DMC, and FSCOFP (047G)New mailbox addressesFebruary 2021
Appendix AExamples of VA Benefit Debt TypesOFP (047G)Reorganized for clarityFebruary 2021
Appendix BOffset ScenariosOFP (047G)Reorganized chapter layoutFebruary 2021
Appendix CPrincipi Decision MemoOFP (047G)Added for clarityFebruary 2021

Appendix B: Examples of VA Benefit Debt Types

  1. The Compensation Program awards benefits to Veterans, spouses, and other related beneficiaries based upon the Veteran’s service in the military.
    1. Benefits may be awarded for disability resulting from a disease or injury incurred or aggravated during active military service, or as the result of death from service-connected disabilities.
    2. Compensation may be awarded for post-service disabilities, if the disabilities are determined to be related to the Veteran’s service.
    3. Compensation debts include overpayments of the following:
      • Disability Compensation;
      • Dependency and Indemnity Compensation (DIC);
      • Spina Bifida Monthly Allowance;
      • Children of Women Vietnam Veterans Born with Birth Defects Compensation;
      • Attorney Fees (38 C.F.R. § 14.636, Payment of fees for representation by agents and attorneys in proceedings before Agencies of Original Jurisdiction and before the Board of Veterans’ Appeals);
      • Adaptive and/or Automobile Grants; and
      • Clothing Allowance.
  2. The Pension Program awards needs-based benefits to wartime Veterans and eligible survivors.
    1. Pension overpayments occur when amounts paid to a VA pension beneficiary exceed the beneficiary’s entitled benefit amount.
    2. Pension debts include overpayments of the following:
      • Non-Service-Connected Disability Basic Pension;
      • Survivors’ Pension;
      • Burial Benefits;
      • Accrued Benefits; and
      • Enhanced or Special Monthly Pension (Aid & Attendance or Housebound).
  3. Education Programs provide benefits to Veterans, Servicemembers, and certain Veterans’ dependents. Education Programs provide assistance to enroll beneficiaries in educational institutions or training establishments that offer licensing and certification.
    1. The benefit awarded varies based on the program in which the beneficiary is enrolled.
    2. Tuition and fees may be paid directly to the beneficiary or the school. Post-9/11 Educational Assistance benefit payments are paid directly to the schools.
    3. Education Programs include:
      • Post-9/11 Educational Assistance;
      • Montgomery GI Bill – Active Duty;
      • Montgomery GI Bill – Selected Reserve;
      • Reserve Educational Assistance Program;
      • Survivors’ and Dependents’ Educational Assistance;
      • Post-Vietnam Era Veterans’ Educational Assistance Program;
      • National Call to Service Education Program – Chapter 34 (This program has expired, however there are still outstanding debts being collected by DMC.);
      • Veteran Retraining Assistance Program (This program expired on March 31, 2014; however, there may still be outstanding debts requiring collections.); and
      • Veteran Employment through Technology Education Courses (VET TEC) Pilot Program.
    4. Education Program Overpayments may include:
      • Direct payments to individuals for housing allowance, books and fees, tutorial assistance, licensing or certification test charges, and/or a monthly benefit based on training time depending upon the type of training in which the beneficiary is enrolled and the benefit program under which beneficiary is being awarded benefits;
      • Payments to schools for the individual’s tuition and fees, assuming proper certification is made regarding the pursuit of a program of education. For collecting overpayments made on behalf of the eligible individual directly to the school, debts are established against the individual if the beneficiary attended the term as certified by the school, and against the school if the beneficiary did not attend as certified (38 U.S.C. § 3323, Administration, and 38 C.F.R. § 21.9695, Overpayments); and
      • Yellow Ribbon is a matching program, payable under Chapter 33 that provides assistance to individuals whose net charges exceed the amount of tuition and fee benefits payable. Institutions of higher learning (degree-granting colleges and universities) may enter into a voluntary agreement with VA in order to pay for up to one-half of the unpaid net tuition and fee charges, and VA will match the same amount as the institution.
  4. VA’s Homeless Providers Grant and Per Diem Program is offered annually (as funding permits) by VA’s Health Care for Homeless Veterans (HCHV) Programs to fund community agencies providing services to homeless Veterans per 38 U.S.C. §§ 2011, Grants, and 2012, Per diem payments.
    1. The purpose is to promote the development and provision of supportive housing and/or supportive services with the goal of helping homeless Veterans achieve residential stability, increase their skill levels and/or income, and obtain greater self-determination.
      1. Grants: Limit is 65% of the costs of construction, renovation, or acquisition of a building for use as service centers or transitional housing for homeless Veterans. Renovation of VA properties is allowed, acquiring VA properties is not. Recipients must obtain the matching 35% share from other sources. Grants may not be used for operational costs, including salaries.
      2. Per Diem: Priority in awarding the Per Diem funds goes to the recipients of Grants. Non-Grant programs may apply for Per Diem under a separate announcement, when published in the Federal Register, announcing the funding for “Per Diem Only.”
    2. Per diem payments are the daily costs of caring for each homeless Veteran, as estimated by the entity, and reported to VA.
  5. The Home Loan Guaranty Program provides assistance to Veterans, certain spouses, and Servicemembers to assist them in buying, building, refinancing, remodeling, repairing, or adapting a home for personal occupancy.
    1. Veterans whose loans were closed after December 31, 1989, usually have no liability to the government following a foreclosure, except in cases involving fraud, misrepresentation, or bad faith, such as allowing an unapproved assumption, per Federal Benefits for Veterans, Dependents, and Survivors, Chapter 6, Home Loan Guaranty. However, for the entitlement to be restored or used again, any loss suffered by VA must be paid in full. Benefit payments can be withheld if the debtor defaults on the loan guaranty.
    2. Loan Guaranty debts include defaulted direct loan, loan guaranty, and guaranteed fund.
  6. Medical Care or Services are furnished to a Veteran for the treatment of a non-service-connected (NSC) disability or condition when the Veteran or VA is eligible to receive payment for such treatment from a third-party. 
    1. Veterans who receive health care at VA facilities (or non-VA facilities for which VA has paid for treatment rendered) on an inpatient or outpatient basis or for extended care services and medications may be required to pay fees referred to as co-payments. 
    2. Medical Care debt is an amount owed to VA resulting from medical program activities. VA identifies and records medical care debt through an automated or manual process. Once the debt is established, a receivable is created in the accounting system and a Notice of Indebtedness (NOI) and/or health care claim is issued to the responsible individual or party.
    3. Health care claim NOIs and bill generation for third-party receivables follow two different processes, and the claims are submitted according to industry standard 837 HIPAA transaction or via standard industry-approved medical claim form. For more information on the NOI, refer to Volume XII, Chapter 8 – Notice of Indebtedness.
    4. Refer to Volume XII, Chapter 4 – Medical Care Debt, for more specific information on this type of debt and associated collection processes.
  7. The Insurance Program offers life insurance to Veterans, Service members, and Service members’ dependents.
    1. Life Insurance debts will be associated with the following programs:
      • Servicemembers’ Group Life Insurance;
      • Veterans’ Group Life Insurance;
      • Family Servicemembers’ Group Life Insurance;
      • Servicemembers’ Group Life Insurance Traumatic Injury Protection;
      • Service-Disabled Veterans’ Life Insurance;
      • Veterans Mortgage Life Insurance; and
      • Servicemembers’ Traumatic Injury Protection.
    2. Insurance debts include advanced Payment of Insurance Premiums National Service Life Insurance or Veteran’s Mortgage Life Insurance.
  8. The VRE Program authorized under 38 U.S.C. Chapter 31 assists Veterans with service-connected disabilities to prepare for, obtain, and maintain suitable employment.
    1. For Veterans with service-connected disabilities so severe that they cannot immediately consider work, VRE offers services to improve their ability to live as independently as possible.
    2. Currently, DMC is responsible for the collection of all chapter 31 debts on active or inactive cases specific to Veteran debt.
    3. VRE debts include overpayments of the following:
      • Employment adjustment allowance; and
      • Subsistence allowance.

Appendix C: Offset Scenarios

If…Then…
The debtor, within the time period specified in the NOI , disputes, in writing, the existence or amount of the debt in accordance with 38 C.F.R. § 1.911(c)(1).VA will not commence a benefit offset until the dispute is reviewed, as provided in § 1.911(c)(1) and unless the resolution is unfavorable to the debtor.
The debtor requests a waiver of collection in writing within the time period specified in the NOI,VA will not commence a benefit offset until an initial decision has been made on the waiver request.
Note: VA may commence the benefit offset prior to a decision on the waiver request if collection of the debt would be jeopardized by deferral of the offset. In such case, notification pursuant to 38 C.F.R. § 1.911(d) will be made at the time offset begins or as soon thereafter as possible.
  A current VA employee has a benefit debt,VA will advise the employee in writing of the existence and amount of the debt and inform them of available rights and remedies.
Note: The notification for benefit debt not already overdue will indicate the employee has 30 days to pay the debt in full or arrange a satisfactory repayment plan or the appropriate payroll activity will be notified to offset current salary. When collecting a benefit debt by periodic offset from VA salary or benefit payments, the amount withheld should be sufficient (subject to statutory limits) to liquidate the debt within the period that such pay or benefit payment is expected to continue.
A current Veteran-employee has already voluntarily entered into a repayment agreement with VA and payments under such agreement are current (i.e., the debtor has made timely payments every month for the prior 12-month period),If separating from VA employment, and the repayment plan did not involve biweekly salary deduction, offset will not be made to immediately collect all available debt from final salary or lump-sum leave payment.
  The individual eventually reneges on the repayment agreement,VA will resume normal collection actions, commencing with a NOI explaining the nature and amount of the overdue debt and providing an alert to the potential immediate administrative offset from any Federal payment to the debtor for the unpaid debt amount.

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