1401 Overview

This chapter establishes the Department of Veterans Affairs’ (VA) financial policies relating to the referral of delinquent debts to the U.S. Department of the Treasury Bureau of the Fiscal Service for inclusion in the Treasury Offset Program (TOP) or Treasury Cross-Servicing (CS) program.

Key points covered in this chapter:

• VA is required to refer all eligible outstanding delinquent debts when they reach 120 days to TOP and when they reach 180 days to CS. However, if VA organizations rely on Fiscal Service to submit debts for administrative offset on their behalf, then VA must transfer the debts at 120 days delinquent to Fiscal Service for cross-servicing.
• VA will send the debtor a final notice at least 30 days prior to the referral of VA’s intent to refer the debt for enforced collection per 38 C.F.R. § 1.911a.
• If other collection efforts have been exhausted and the debt remains outstanding, VA must refer the debt to Office of General Counsel (OGC), or Department of Justice (DOJ) based on the principal amount of debt for enforced collection (litigation).
• OGC will forward all payments received (on the date of receipt) to the applicable VA office (regional office, Debt Management Center (DMC), or medical center) depending on the type of debt for deposit and application to the debt.

1402 Revisions

Section	Revision	Office	Reason for Change	Effective Date
Various	Reformatted to new policy format and completed 5-year review.	OFP (047G)	Reorganized chapter layout	August 2024
140502	Added statement that TOP can offset Federal payments, including tax refunds, to collect delinquent debt for agencies.	OFP (047G)	Full Review	August 2024
140502	Clarified VA will notify Treasury immediately, if VA receives information that changes enforceability of the debt.	OFP (047G)	Full Review	August 2024
140506	Clarified the responsibility for handling the collection of fees received by FSC via IPAC.	OFP (047G)	Full Review	August 2024
Appendix A: Previous Policy Revisions	Moved revisions table to appendix A	OFP (047G)	Full Review	August 2024

1403  Definitions

Debt in Litigation – A debt referred to either VA District Counsel (VADC) or DOJ for litigation. The debt is also in litigation if it is the subject of proceedings pending in a court of competent jurisdiction, including bankruptcy proceedings, whether initiated by VA, the debtor, or any other party.

Debt – Money or property owed to VA.

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

Disposable Pay –The part of current basic pay, special pay, incentive pay, retired pay, retainer pay, or in the case of an employee not entitled to basic pay, other authorized pay remaining after the deduction of any amount required by law to be withheld (other than deductions to execute garnishment orders in accordance with 5 C.F.R. § 581 through § 582,). Among the legally required deductions that must be applied first to determine disposable pay are levies pursuant to the Internal Revenue Code (Title 26, United States Code, Internal Revenue Code) and deductions described in 5 C.F.R. §581.105(b)-(f).

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

Foreclosure – Judicial proceedings in a court of competent jurisdiction to take possession of collateral securing a debt. This includes if a notice is issued that collateral securing the debt will be liquidated, sold, or otherwise transferred pursuant to applicable law in a nonjudicial proceeding and VA anticipates proceeds will be available from the liquidation of the collateral for application to the debt.

Garnishment – The process of withholding amounts from an employee’s disposable pay and the paying of those amounts to a creditor to satisfy a withholding order, as authorized by 31 U.S.C. § 3720D, and in accordance with 31 C.F.R. § 285.11.

Jurisdiction – an assignment via regulation or delegation that gives an entity the authority to make decisions regarding the waiver or compromise of debt.

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.

Private Collection Agency (PCA) – A private sector company specializing in the collection of a delinquent debt. Collection efforts by PCAs are governed by various Federal and State laws, including, but not limited to, the Fair Debt Collection Practices Act, the Federal Claims Collection Standards and the Privacy Act.

Treasury Cross-Servicing Program (CS) – A consolidated government-wide 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 (DMS), to collect delinquent debts owed to Federal agencies and states (including past-due child support). TOP can offset Federal payments, including Federal tax refunds, to collect delinquent non-tax debts on behalf of Federal agencies.

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 through 38 C.F.R. § 1.969 and 38 C.F.R. § 17.105, Waivers.

1404 Roles and Responsibilities

Debt Management Center (DMC) is responsible for debt referral to the Treasury CS program.

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 Activity 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).

District Counsel (DC), formally known as Regional Counsel, is authorized, in matters within the jurisdiction of VA’s General Counsel, delegated or otherwise assigned, to conduct investigations, examine witnesses, take affidavits, administer oaths and affirmations and certify copies of public or private documents.

1405 Policies

140501 General Policies

1. Debts become delinquent after the date specified in the NOI if payment in full has not been received or if the debtor has defaulted on an agreed-upon payment plan.
2. After the original NOI, VA sends an additional notice every 30 days, advising the debtor of VA’s intent to refer the debt to Treasury. This notice will advise the debtor that referral may be avoided by contacting VA and arranging to pay the debt. However, per 31 C.F.R. § 285.12, VA is only required to send one letter to the debtor to properly notify the debtor of the referral. For more information on the NOI process, refer to VA Financial Policy Volume XII, Chapter 8 – Notice of Indebtedness.
3. This chapter does not apply to debts or claims arising under the IRS Code of 1954, as amended, Social Security Act, tariff laws of the United States, or any case where collection of a debt by offset is explicitly provided for or prohibited by another statute (e.g., travel advances in 5 U.S.C. § 5705 and employee training expenses in 5 U.S.C. § 4108).
4. The following debts are exempt from referral or CS under 31 U.S.C. § 3711, and 31 C.F.R. § 285.12:
   • Debts in bankruptcy proceedings;
   • Debts for third-party medical insurance claims;
   • Debts in a suspended status;
   • Home loan debts in foreclosure proceedings;
   • Debts in litigation;
   • Debts with a balance of less than $25;
   • Debts for which VA has not provided the debtor due process; and
   • Debts that are not legally enforceable.
5. VA will seek approval from Treasury for any exemptions for debt referrals not listed above pursuant to 3 T.F.M. § 5200 and 3 T.F.M. § 6200. The Secretary of VA, Chief Financial Officer, Deputy Chief Financial Officer, or the Executive Director of DMC will request exemptions in writing, clearly identifying the class of the debt in which VA is seeking an exemption.
6. Treasury may charge VA fees sufficient to cover the full cost of providing debt collection services and is authorized to retain fees from amounts collected.

140502 Treasury Offset Program

1. VA will refer all eligible debts greater than 120 days delinquent to Treasury for collection via TOP as set forth in 31 C.F.R. § 285.12. See TOP Payment Exemption Chart and 38 U.S.C. § 5301.
2. Refer to 31 C.F.R. § 285.5 for details and other applicable laws on the centralized offset of Federal payments. 
3. In accordance with 1 T.F.M § 4035.40, VA will provide the following information when referring debts to TOP:
   • Debtor’s name;
   • Debtor’s address of record, if available;
   • Taxpayer identification number;
   • Principal balance of the debt;
   • Date on which the debt became delinquent;
   • Any applicable statute of limitations for pursuing litigation, if available; and
   • Any other applicable information, such as information to support the validity of the debt.
4. VA will notify Treasury immediately if, after referring a debt to TOP, it receives information that changes the legal enforceability of that debt.
5. DMC Executive Director will sign a Certification Agreement annually with Treasury thereby certifying that debts referred to TOP for collection before, on, or after the certification date are valid and legally enforceable, that there are no bars to collection, and that due process has been completed.
6. VA will recall, inactivate or close a debt referred to TOP as required under the Certification Agreement, if the:
   • Debtor has filed for bankruptcy;
   • Debt is not enforceable;
   • Debt is not valid or has been paid in full;
   • VA discovers the debt was incorrectly certified; or
   • Debt is not delinquent. 

140503 Treasury Cross-Servicing

1. VA must refer any eligible debt greater than 180 days delinquent to Fiscal Service for cross-servicing as set forth in 31 C.F.R. § 285.12. However, if VA organizations rely on Fiscal Service to submit debts for administrative offset on their behalf, then VA must transfer the debts at 120 days delinquent to Fiscal Service for cross-servicing. Exceptions for mandatory referrals to CS under 31 U.S.C. § 3711(g)(2)(A) include debt:
   • In litigation or foreclosure;
   • Scheduled for sale;
   • At a PCA;
   • At a Treasury-designated debt collection center; or
   • Being collected by internal offset, if VA expects full collection within three years.
2. In accordance with 1 T.F.M § 4035.40, VA will provide the following information when referring debts to CS:
   • Debtor’s name;
   • Debtor’s address, if available;
   • Taxpayer identification number, if available;
   • Principal balance of the debt;
   • Date on which the debt became delinquent;
   • Any applicable statute of limitations for pursuing litigation, if available; and
   • Any other applicable information to support the validity of the debt.
3. Treasury may garnish wages from an employee’s non-Federal disposable pay by initiating AWG proceedings for delinquent debts referred to CS, as authorized by 31 U.S.C. § 3720D and in accordance with 31 C.F.R. § 285.11 through 31 C.F.R. § 285.12 and 38 C.F.R. § 1.923
   Debts are exempt from these proceedings under 31 U.S.C. § 3711(g)(2)(B) and as outlined in the CS Transfer Exemption Chart, if VA:
   • Initiates AWG prior to referral to CS;
   • Receives collections prior to debt becoming eligible for mandatory referral to CS; and
   • Expects debt to be collected in full within three years of the first AWG collection.
4. VA will notify Treasury immediately if, after referring a debt to CS, VA receives information that changes the status of the legal enforceability of the debt.
5. DMC Executive Director will sign a Certification Agreement annually with Treasury thereby certifying that debts referred to CS for collection before, on, or after the certification date are valid and legally enforceable, that there are no bars to the collection, and that due process has been completed.
6. VA will recall, inactivate or close a debt referred to CS as required under the Certification Agreement, if the:
   • Debtor has filed for bankruptcy;
   • Debt is not enforceable;
   • Debt is not valid or has been paid in full;
   • VA discovers the debt was incorrectly certified; or
   • Debt is not delinquent.
7. Treasury’s CS website provides access to the CS Implementation Guide, which is a useful information source covering all aspects of CS.

140504 Enforced Collection (Litigation)

1. VA will refer debts for enforced collection action only when other collection methods have been exhausted and circumstances indicate that legally pursuing the debt will be monetarily beneficial in accordance with 38 U.S.C. § 5316(a) and 38 C.F.R. § 1.950.
2. Debts that are not paid or resolved upon initial contact may be referred either to OGC for principal amounts between $600 to $2,500 (or $5,000 depending on the jurisdiction.  See Appendix A) or DOJ for principal amounts between $2,500 to $1,000,000 for enforced collection (litigation).
3. VA will send the debtor a final notice at least 30 days prior to the referral of VA’s intent to refer the debt for enforced collection per 38 C.F.R. § 1.911a.
4. The Chief of the Local Finance Activity or Director of DMC can refer debts to OGC or DOJ for enforced collection when all the following conditions exist:
   • The debtor has been located;
   • All demand letters were sent, and the debtor was not granted a compromise;
   • The debtor was notified within 30 days of VA’s intent to refer the debt and no satisfactory response was received;
   • Financial data indicates that the debtor can pay the debt in full or in regular monthly installments;
   • Fraud is not an issue;
   • The debtor does not have VA benefits that could be offset;
   • The Statute of Limitations (SOL) has not expired; and
   • Collection has not been suspended.
5. Debts with principal amounts less than $600 are generally not referred for enforced collection.  However, per 38 C.F.R. § 1.953, the following may be referred even if the amounts are less than $600:
   • The referral is important to a significant enforcement issue or Departmental policy;
   • The debtor not only has the clear ability to pay the claim, but the Government can effectively enforce payment; or
   • The claim is being referred solely for the purpose of securing a judgment against the debtor, which will be filed as a lien against the debtor’s property and returned to the Local Finance Activity for enforcement.

140505 Referrals to OGC

1. VA will refer debts with principal amounts over $600 up to $2,500 to OGC for enforced collection per 31 C.F.R. § 904.4. DOJ has delegated authority to OGC to collect on debts up to $5,000 in some districts (see Appendix A).
2. The Local Finance Activity will prepare and forward the referral package directly to OGC of jurisdiction, where the debtor resides, to include the following:
   • VA Form 5285, Certificate of Indebtedness;
   • Other pertinent documentation. At a minimum, VA Form 4-5244 or VA Form 5319 will be furnished. Other documents will be furnished upon request; and
   • Commercial Credit Reports, no more than six months old.
3. OGC will be notified promptly of the receipt of any collections or changes in an account.
4. OGC will forward all payments received (on the date of receipt) to the applicable VA office (regional office, DMC, or medical center) depending on the type of debt for deposit and application to the debt.

140506 Referrals to DOJ

1. VA will refer debts for collection to DOJ as described below:
   1. Debts with principal amounts between $2,500 and $1,000,000 will be referred to DOJ Nationwide Central Intake Facility (NCIF).
   2. Debts with principal amounts over $1,000,000 will be referred to the DOJ Civil Division or other responsible division, under the guidance of the NCIF Briefing Material for Federal Agencies and as prescribed by 31 U.S.C. § 3711 and 31 C.F.R. § 904.4.
2. The Local Finance Activity will include the following information in the referral package sent to DOJ per 38 C.F.R. § 1.951:
   • VA Form 9996, Claims Collection Litigation Report (CCLR);
   • VA Form 5285, Certificate of Indebtedness signed by the Chief of the Local Finance Activity or the Director of DMC;
   • Proper documentation to support the debt (e.g., VA Form 26-1833, Advice Regarding Indebtedness of Obligors on Guaranteed or Insured Loans and VA Form 10-10EZ, Application for Medical Benefits);
   • Commercial Credit Report and VA Form 5655, Financial Status Report, if available, and other evidence of the debtor’s ability to pay the debt – no more than six months old; and
   • If the debt is maintained by DMC, DMC will provide documentation of the overpayment from the regional office.
3. VA should not have any contact with the debtor once a debt is referred to DOJ. Any communication from the debtor concerning the debt will be referred to the appropriate U.S. Attorney for a response. However, VA will notify DOJ immediately if any payments are received from the debtor pursuant to 31 C.F.R. § 904.1 and 38 C.F.R. § 1.950.
4. DOJ may withhold a three percent collection fee before forwarding the collections to VA as authorized by DOJ 1994 Appropriation Act (P.L. 103-121).
5. Collections and fees, related to debts referred by VA for TOP or cross servicing, will be received by the FSC via the Intra-Governmental Payment and Collection (IPAC) system. If there is enough information to match the collection to the appropriate fund, FSC will post the transaction. If not, collections will be posted to a suspense account. While in suspense, FSC will identify the proper recipient of funds.
6. Depending upon where the debt was originated either DMC or the local finance office will apply the funds to the proper receivable.

1406  Authorities and References

• United States Code (U.S.C)
  • 5 U.S.C. § 4108, Employee agreements; service after training
  • 5 U.S.C. § 5584, Claims for overpayment of pay and allowances, and of travel, transportation and relocation expenses and allowances
  • 5 U.S.C. § 5705, Advancements and deductions
  • 26 U.S.C. § 6402(d), Collection of debts owed to Federal agencies
  • 26 U.S.C, Internal Revenue Code
  • 31 U.S.C. § 3711, Collection and compromise
  • 31 U.S.C. § 3720A, Reduction of tax refund by amount of the debts
  • 31 U.S.C. § 3720D, Garnishment
  • 38 U.S.C. §§ 5301-5319, Special provisions relating to benefits
• Code of Federal Regulations (CFR)
  • 5 C.F.R. § 581, Processing Garnishment Orders for Child Support and/or Alimony
  • 5 C.F.R. § 582, Commercial Garnishment of Federal Employees’ Pay
  • 31 C.F.R. § 285, Debt Collection Authorities under the Debt Collection Improvement Act of 1996
  • 31 C.F.R. § 904, Referrals to the Department of Justice
  • 38 C.F.R. § 1.910-1.929, Standards for Collection of Claims
  • 38 C.F.R. § 1.950-1.970, Referrals to GAO, Department of Justice, or IRS
  • 38 C.F.R. § 17.105, Waivers
• Debt Collection Improvement Act of 1996
• DOJ 1994 Appropriation Act (P.L. 103-121)
• Digital Accountability and Transparency Act (DATA Act) Pub. L. 113-101
• Department of the Treasury
  • Annual Debt Certification Agreement
  • Cross Service (CS) Homepage
  • CS Transfer Exemption Chart
  • Debt Collection Legal Authorities Quick Reference Charts
  • Managing Federal Receivables
  • TOP Homepage
  • TOP Legal Authorities Quick Reference
  • TOP Payment Exemption Chart
• Treasury Financial Manual (T.F.M)
  • 1 T.F.M § 4035.40
  • 3 T.F.M. § 5200, Exemption of a Class of Debt from Transfer to the Treasury Cross-Servicing Program
  • 3 T.F.M. § 6200, Exemption of a Class of Federal Payments from Treasury Offset Program (TOP)
• Nationwide Central Intake Facility Briefing Material for Federal Agencies

1407 Rescissions

Volume XII, Chapter 14-Treasury Offset Program, Treasury Cross-Servicing and enforce Collection (Litigation), February 2021.

Appendix A:  Previous Policy Revisions

Section	Revision	Office	Reason for Change	Effective  Date
All	New Chapter	OFP (047G)	Provide policy on referring  delinquent debt to Treasury  and VADC or DOJ	February 2021

Appendix B: DOJ Judicial Districts Delegating Responsibility to VA for Collection of Debts $5,000 or Less

The following are DOJ established Judicial Districts where DOJ has delegated primary responsibility to VA for collection of debts $5,000 or less.