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Chapter 01 – VA Debt Collection Standards

Volume XII - Debt Management

Date Approved: April 16, 2024

Financial Documents

Volume XII - Debt Management

Chapter 01 – VA Debt Collection Standards

Questions concerning this policy chapter should be directed to:

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

SectionRevisionOfficeReason for ChangeEffective Date
Appendix BAdded new appendixOFPTo provide a reference guide of commonly asked questions about debt authority.April 2025

For a complete list of previous policy revisions, see Appendix A: Previous Policy Revisions.

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 10 – 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.
  5. Appendix B contains information on frequently asked debt questions.

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 18 – Treasury Offset Program, Treasury Cross Servicing, and Enforced Collection (Litigation).
  6. For more information on collection activities, refer to Volume XII, Chapter 9 – 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 17, 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 17 – Termination of Collection Standards.

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 19 – 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

0107 Rescissions

Volume XII, Chapter 1 – VA Debt Collection Standards,  June 2024.

Appendix A: Prior Revisions

SectionRevisionOfficeReason for ChangeEffective Date
VariousApplied format updates limiting all hyperlinks to section 0106, and removing redundant reference titles.OFPFull reviewJune 2024
0105Added titles 31 and 38 references and removed P.L. 116-315 referenceOFPEnhanced coverage and 38 C.F.R. § 1.916(c) updateJune 2024
010503Added provision to sell non-tax debt upon termination of collection actionOFP31 U.S.C. § 3711(i)(2)June 2024
Appendix AMoved prior revisions down to Appendix AOFPFormat standardJune 2024
  010504Added language about reporting debt to a CRA.OFP (047G)  New memo  July 2021
  0106  Added new Public LawOFP (047G)  New law  July 2021
  VariousReformatted to new policy format and 5- year policy review.OFP (047G)Reorganized chapter layoutSeptember 2020
0103 Definitions  Updated definitionsOFP (047G)Updated and added definitions for claritySeptember 2020
0104 Roles and ResponsibilitiesChanged 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 StandardsOFP (047G)No longer applicableSeptember 2020
0108
Questions		Updated DMC and FSC MailboxesOFP (047G)New Mailbox AddressesSeptember 2020
Appendix ARemoved examples of VA Notice of Indebtedness Form LettersOFP (047G)Move to VA Financial Policy Volume XII, Chapter 8 – Notice of
Indebtedness- Billing-Invoicing		September 2020

Appendix B:  Debt Authority Frequently Asked Questions

  1. What is the Debt Collection Improvement Act of 1996?
    • The Debt Collection Improvement Act of 1996 requires Federal agencies, including VA, to aggressively and effectively collect debts owed to the U.S. Government following standards set forth in regulation, per 31 C.F.R. § 900.1 et seq, and 38 C.F.R. § 1.910 et seq.
  2. Is there any legal authority for any office in VA that generates a debt to not send a notice of indebtedness for debts?
    • No. Agencies have an obligation to attempt to collect amounts owed to them. (31 U.S.C. § 3711(a)(1) and 31 C.F.R. § 901.2)
  3. Can a waiver be requested for a VBA benefit debt?
    • A waiver request must be made within one year from the date of notification of the indebtedness. There shall be no recovery of payment or overpayments (or any interest thereon) of any benefits under the laws administered by the Secretary whenever the Secretary determines that recovery would be against equity and good conscience and the request is timely in accordance with 38 U.S.C. § 5302.
  4. Is a VHA Copay debt eligible for a waiver?
    • Yes, provided that the debt represents charges for outpatient medical care, inpatient hospitals care, medication or extended care services, copayments made under 38 C.F.R. §§ 17.108, 17.110, 17.111, or 17.4600. The claimant must request a waiver by submitting VA Form 5655 (Financial Status Report) to the Consolidated Patient Account Center (CPAC) Chief Financial Officer.
  5. Is an employee debt eligible for a waiver?
    • VA may waive a claim arising from an erroneous payment of an employee of pay, allowances, travel, transportation, or relocation expenses and allowances. Outside of a granted waiver or determination that the debt is not valid, current employee debt cannot generally be identified as uncollectible due to the possibility of salary offset. (5 U.S.C. § 5584, 38 C.F.R. § 1.9639(a)), Volume XII, Chapter 3 – Employee Debt.
  6. Does VA have the legal authority to grant a mass/group waiver for any type of debt?
    • No. VA is required to apply the waiver standards on a case-by-case basis, considering the facts of each individual debt. (38 C.F.R. § 1.963(a), 38 C.F.R. § 1.965).
  7. Does VA have the authority to initiate a waiver on behalf of a debtor (benefits/employee)?
    • Only for employee debts. VA cannot initiate a waiver for any other debtors. (38 C.F.R. § 1.963(a), 38 § C.F.R. 1.965).
  8. What elements are considered in the waiver process of a Veteran benefit debt per 38 C.F.R.  § 1.965 and 38 C.F.R. § 17.105(c)?
    • The “Equity and Good Conscience” standard is used to arrive at a fair decision, consideration will be given to the following elements:
      • Fault of debtor.
      • Balancing of faults.
      • Undue hardship.
      • Defeat the purpose.
      • Unjust enrichment.
      • Changing position to one’s detriment.
  9. What elements are considered in the waiver process of an Employee debt per 38 C.F.R. § 1963(a)?
    • In addition to Equity and Good Conscience consideration should be given to whether the employee:
      • Should they have reasonably known the payment was erroneous; or
      • Took action to resolve overpayment issue.
    • Generally, a waver is precluded when an employee receives a significant unexplained increase in pay or allowances, or otherwise knows, or reasonably should know, that an erroneous payment has occurred, and fails to make inquiries or bring the matter to the attention of the appropriate officials. Waiver under this standard will depend upon the facts existing in each case.
  10. How does the Joseph Maxwell Cleland and Robert Joseph Dole Memorial Veterans Benefits and Health Care Improvement Act of 2022 (Cleland-Dole Act) address possible processing delays of waiver requests?
    • No individual “may incur a debt” to the United States that (A) arises from the participation in a VA benefits program administered by the Under Secretary for Benefits and (B) is attributable to the VA’s failure to timely process information provided by or on behalf of the beneficiary. Temporary Timeliness Instruction was published by the Secretary on December 22, 2023, establishing timeliness standards for the processing of information in accordance with 38 U.S.C. § 5302B(a)(1)(B). The instruction limits VA’s collection period to a one-year period following the date of claim if information provided by on behalf of the beneficiary is not processed within that year and results in benefits overpayments. The instruction is temporary in nature and VBA is responsible for developing and publishing permanent timeliness regulations in accordance with Section 252(a)(3) of the Cleland-Dole Act.
  11. Can VA streamline the waiver request processing of similarly situated debtors?
    • Yes. OGC has opined that VA can prepare a single report of investigation for similarly situated debtors and submit that single report to a COWC on behalf of all similarly situated debtors.
  12.  When can collection actions be terminated?
    • Per Federal Claims Collections Standards and 31 C.F.R. § 903.3, VA may terminate a debt when all available collection efforts have been exhausted, and one of the following conditions is met:
      • Inability to collect any substantial amount.
      • Inability to locate debtor.
      • Death of debtor.
      • Cost will exceed recovery.
      • Claim legally without merit.
      • Claim cannot be substantiated by evidence; or
      • Discharge in bankruptcy.
    • Before a debt can be terminated it must first be created and collection attempts must have occurred in accordance with 38 C.F.R. § 1.942(h).
  13. Can administrative costs, fees, and penalties be terminated or waived?
    • Yes. 38 C.F.R. § 1.915(f)(1) authorizes VA to forbear collection of interest and administrative costs, and terminated further assessment of interest and administrative costs, when the collection and costs are determined to not be in the best interest of the Government. 31 C.F.R. § 901.10 and 38 C.F.R. § 1.921 authorize VA to establish guidelines at which costs will likely exceed recovery. 38 C.F.R. § 1.915(f)(1) authorizes waiver of interest and administrative costs associated with Veteran Benefit debts.
  14. What organization processes which type of debts?
    • Current Employee (Non-Pay-related) –
      • VA Servicing payroll Office will respond to inquiries or redirect an inquiry as needed to another VA office collecting overdue debt to VA through salary offset. VA servicing payroll office upon request submits VA debt and prior payment information to DFAS for collection by salary offset for overdue debt to VA not related to employee pay and allowances.
      • VA employee debt to a third-party per court order, alimony, child support, or bankruptcy, or debt to another Government agency would be handled by DFAS. Employee inquiries may be directed by DFAS to the other agency collecting a debt through DFAS.
    • Employee (Pay) – VA Servicing Payroll Office unless it is a third-party debt offset from an employee’s salary which would be handled by DFAS.
    • Vendor – FSC, unless the debt is 90 days delinquent, it is then sent to DMC for submission to Treasury Offset Program (TOP) and Cross-Servicing.
    • Co-Pay – VHA Revenue Operations (Rev. Ops) unless the debt is 120 days delinquent it is then referred to DMC for submission to TOP.
  15. Is there a de minimis collection amount?
    • Rev. Ops medical copayment billing has no de minimis exception.
    • DMC will not send a Notice of Indebtedness (NOI) if the debt is less than $5.00.
    • VA will not transfer delinquent debt to Treasury if the debt is under $25. Debts may be aggregated to achieve the $25 threshold, but VA must assign a singular delinquency date to do so. Treasury will return debts to VA whose balance has dropped below $25.

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