1601 Overview

This chapter establishes the Department of Veterans Affairs’ (VA) financial policies relating to the suspension and reinstatement of collection actions on debts owed to VA.

Key points covered in this chapter:

• VA may suspend collection activity when it appears that the debtor does not have the present or future ability to pay a significant amount of the claim or the cost of collecting the claim is more than the amount that may be recovered;
• The Chief of the local Finance Activity or the Executive Director of the Debt Management Center (DMC) may suspend collection activity on debts up to $40,000;
• Administrations’ CFOs and the Deputy Assistant Secretary (DAS) for Finance have authority to suspend debt collection action for debts with principal amounts greater than $40,000 and up to $100,000;
• VA must refer debts for suspension greater than $100,000 to Department of Justice (DOJ); and
• VA will reinstate collection activity when the conditions causing the suspension action change.

1602 Revisions

Section	Revision	Office	Reason for change	Effective Date
Various	Completed full review	OFP	Updated guidance	August 2025
160501	General Policies section added	OFP	Consistency among financial policies	August 2025
160506	Section added for debts over $100,000	OFP	Provided process to refer debts to DOJ that are over $100,000	August 2025
Appendix A	Section added	OFP	Consistency among financial policies	August 2025
Appendix B	Section added	OFP	Provided example documents that are submitted in a referral to DOJ for debts over $100,000	August 2025

For a complete list of previous policy revisions, see Appendix A.

1603 Definitions

Compromise – Governed by 31 U.S.C. § 3711, 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 Collection – The process of pursuing repayment of a debt owed to VA.

Financial Status Report (VA Form 5655) – A VA form used by debtors to list their current income, expenses and financial condition.

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.

Suspension of Collection Action – Temporary delay of collection actions on a debt owed to VA.

Termination of Collection Action – A decision, under the guidance of the Federal Claims Collection Standards 31 C.F.R. § 903, 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 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).

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.

1604 Roles and Responsibilities

Debt Management Center (DMC) is a franchise fund (fee-for-service) organization of VA. DMC offers a wide range of debt management services including debt resolution activities, as well as waivers and compromises under their jurisdiction.

Secretary of Veterans Affairs has the authority, which cannot be delegated, to suspend or terminate debt collection action, or to refund amounts collected after death.

Chief of the Local Finance Activity 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 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).

1605 Policies

160501 General Policies

1. In accordance with 31 C.F.R. § 903.2, VA may suspend collection activity on a debt when:
   • It cannot locate the debtor;
   • The debtor’s financial condition is expected to improve; or
   • The debtor has requested a waiver or review of the debt.
2. In accordance with 38 C.F.R. § 1.942(a) VA may suspend collection activities when it appears that the debtor does not have the present ability to pay a significant amount of the claim or the cost of collecting the claim is more than the amount that may be recovered.
3. In accordance with 38 C.F.R. § 1.941(c) collection action may be suspended pending VA action on requests for administrative review of the existence or amount of the debt or a request for a waiver of collection of the debt. Collection action will resume once VA issues an initial decision on the administrative review or waiver request.
4. If VA has been notified that the debtor has filed a petition for bankruptcy, in most cases the collection activity on a debt must be suspended per 11 U.S.C. 362, 1201, and 1301, unless VA can clearly establish that the automatic stay does not apply, has been lifted, or is no longer in effect. VA shall seek legal advice immediately from Office of General Council (OGC) and, if legally permitted, take the necessary steps to ensure that no funds or money are paid by VA to the debtor until relief from the automatic stay is obtained.

160502 Suspension of Benefit Debt Collection

1. VA may suspend collection by offset of benefit debts, in accordance with 38 C.F.R. § 1.912a, if the debtor within the time period specified in the Notice of Indebtedness (NOI) disputes in writing the existence or any amount of the debt or requests a waiver.
2. Offset may commence prior to the resolution of a dispute or a decision on a waiver request if collection of the debt would be jeopardized by deferral of offset. In such case, notification pursuant to 38 C.F.R. § 1.911(d) shall be made at the time offset begins or as soon thereafter as possible.
3. VA will pursue the collection of debt via offset once an adverse initial decision is reached on the dispute or waiver.
4. VA will document the reason and applicable standard on the accounts receivable record when suspending collection action.

160503 Suspension of Non-benefit Debt Collection

1. For all other VA debts not governed by 38 C.F.R. § 1.911, VA will follow guidance to suspend debts in accordance with 38 C.F.R. § 1.940 and 31 C.F.R. § 903.2 for debts that do not exceed $100,000.
2. VA may suspend collection action on non-benefit debts equal to or less than $100,000, in accordance with 38 C.F.R. § 1.940.  This includes repayment plans, administrative offsets, demand letters, and interest charges.
3. In accordance with 31 C.F.R. § 903.2, VA may suspend collection action in the following situations:
   1. Cannot readily locate debtor;
   2. Debtor owns no substantial equity or assets and cannot make a payment or offer a compromise. In this case, suspension is only allowed if one or more of the following conditions apply:
      • Debtor has made written acknowledgment of the debt or made a partial payment within Statute of Limitations (SOL). The SOL is 6 years from the most recent payment or acknowledgment of debt (28 U.S.C. § 2415);
      • SOL is delayed or stopped temporarily (all periods the debtor is out of the country; is a minor, or is mentally incompetent; under diplomatic immunity; and any other period as set out in 28 U.S.C. § 2416; or
      • Debtor agrees to pay interest on the amount of the debt and the suspension is likely to enhance the debtor’s ability to pay the full amount of the principal of the debt and the interest at a later date.
   3. Debtor requested a waiver or review of the debt;
   4. Debtor has filed a bankruptcy petition; and
   5. The Secretary may suspend or terminate debt collection against the estate of a person who died while serving on active duty as a member of the Army, Navy, Air Force, Marine Corps, or Coast Guard, during a period when the Coast Guard operated as a service in the Navy, 31 U.S.C. § 3711(f)(3).
4. VA will document the reason and applicable standard on the accounts receivable record when suspending collection action.

160504 Veteran Hardship Suspension

1. Veterans experiencing a financial hardship may request a suspension of VA collection activities being carried out against them.
2. Per 38 C.F.R. § 1.941(b), based on the financial condition of the debtor, VA may suspend collection activity on a debt when the debtor’s future prospects justify retention of the debt for periodic review and collection activity and:
   1. The applicable statute of limitations has not expired; or
   2. Future collection can be affected by administrative offset, notwithstanding the expiration of the applicable statute of limitations for litigation of claims, and with due regard to the 10-year limitation for administrative offset prescribed by 31 U.S.C. § 3716(e)(1); or
   3. The debtor agrees to pay interest on the amount of the debt on which collection will be suspended, and such suspension is likely to enhance the debtor’s ability to pay the full amount of the principal of the debt with interest at a later date.
3. 38 C.F.R. § 2.6(d) delegates the VA Secretary’s authority to the Assistant Secretary for Management (Chief Financial Officer) to take appropriate action with the collection of civil claims by VA for money or property. This policy designates authority to the Executive Director of DMC to temporarily suspend a Veteran’s debt if the request demonstrates his/her poor financial condition is expected to improve.
4. The Executive Director of DMC also has the designated authority to temporarily suspend the debt in times of severe economic downturn or national emergencies when financial conditions are expected to improve.

160505 Review of Suspension Action

1. When collection action is temporarily suspended, VA will review the suspension decision at a minimum every six months.
2. In accordance with Treasury’s Bureau of the Fiscal Service, Treatise on Federal Nontax Debt Collection Law, debts in a suspended status will not be referred to TOP or CS.
3. Upon the expiration of the suspension period, VA will review the case. If the conditions causing the suspension action to have changed (i.e., VA determines the debtor’s ability to pay has changed), VA will lift the suspension action and resume collections or terminate collection as appropriate. If collection action resumes, debtors will be notified before referral to TOP or CS. If the debt is to be terminated, refer to Volume XII, Chapter 17 – Termination of Collection Standards.

160506 Suspension Approval Thresholds

1. Chief of the Local Finance Activity or Executive Director of the Debt Management Center (DMC) may suspend collection action on debts with a principal amount up to $40,000.
2. The Administrations’ CFOs and the Deputy Assistant Secretary (DAS) for Finance have authority to suspend debt collection action for debts with principal amounts between $40,000 and $100,000. The CFOs and the DAS may re-delegate this authority, as they deem appropriate, to Chiefs of the Local Finance Activity.
3. In accordance with 31 C.F.R. § 903.1(b), a request for the suspension of a debt greater than $100,000 must be referred to the Department of Justice (DOJ).
4. DMC will prepare a referral packet to be sent to DOJ via email at CorpFin.DebtCollection@usdoj.gov. A referral packet consists of the following documents:
   • DOJ Letter;
   • Collection Claims Litigation Report;
   • Certificate of Indebtedness;
   • Summary of Debt; and
   • Checklist/Summary Request for Termination of Debt.
5. Referral packets may also include the following documents:
   • Waiver request with decision;
   • Most recent VA Form 5655 Financial Status Report;
   • Award letter, Award action, or Master record showing creation of the debt;
   • Probate letter or internet probate search;
   • Corporate Inquiry screen from SHARE reflecting current benefit status;
   • DMC first demand letter;
   • Regional office first Notice of Death letter;
   • Clear report showing assets; or
   • Other pertinent information.

An example of a DOJ referral packet can be found in Appendix B.

1606 Authorities and References

• United States Code (U.S.C.)
  • 11 U.S.C. § 362, Automatic Stay
  • 11 U.S.C. § 1201, Stay of Action Against Codebtor
  • 11 U.S.C. § 1301, Stay of Action Against Codebtor
  • 28 U.S.C. § 2415, Time for Commencing Actions Brought By the United States
  • 28 U.S.C. § 2416, Time for Commencing Actions Brought By the United States – Exclusions
  • 31 U.S.C. § 3711, Collection and Compromise
  • 31 U.S.C. § 3716, Administrative Offset
• Code of Federal Regulations (C.F.R.)
  • 31 C.F.R. Part 903, Standards for Suspending or Terminating Collection Activity
  • 31 C.F.R. § 903.1 Scope and Application
  • 31 C.F.R. § 903.2 Suspension of Collection Activity
  • 31 C.F.R. § 903.3, Termination of Collection Activity
  • 38 C.F.R. § 1.911 Collection of Debts Owed By Reason of Participation in a Benefits Program
  • 38 C.F.R § 1.912 Collection by Offset – From VA Benefit Payments
  • 38 C.F.R. § 1.940 Scope and Application
  • 38 C.F.R. § 1.941, Suspension of Collection Activity
  • 38 C.F.R. § 1.942, Termination of Collection Activity
  • 38 C.F.R. § 1.955, Regional Office Committees on Waivers and Compromises
  • 38 C.F.R. § 1.969, Revision of Waiver Decisions
  • 38 C.F.R. § 2.6, Secretary’s Delegations of Authority to Certain Officials
  • 38 C.F.R. § 17.105, Waivers
• Bureau of the Fiscal Service, Treatise on Federal Nontax Debt Collection Law
• Debt Collection Improvement Act of 1996
• VA Financial Policy Publications
  • Volume XII, Chapter 17 – Termination of Collection Standards

1607 Rescissions

Volume XII, Chapter 16 – Suspension of Debt Collection, June 2023.

Appendix A: Previous Policy Revisions

Section	Revision	Office	Reason for Change	Effective Date
120504	Revised suspension per Treasury Debt Treatise	OFP (047G)	Leadership directed	June 2023
120503	Added a new section to address hardship suspensions	OFP (047G)	Leadership directed	March 2023
1206	Updated Authorities and References to add 38 C.F.R. 1.941(a-b) that provides VA authority to suspend collection activity.	OFP (047G)	Leadership directed	March 2023
All	New Chapter	OFP (047G)	Provide policy on suspension of debt collection	February 2021

Appendix B:  Example Documents in DOJ Referral Packet

Example of DOJ Letter

February 11, 2025

Department of Justice Assistant Attorney General Civil Division Washington, DC 20530

Dear Sir/Madam:

The Department of Veterans Affairs (VA), in accordance with 31 CFR §903.1(b), is requesting that you authorize the termination of collection action on a debt of more than $100,000. We have enclosed supporting documents that indicate termination is warranted in the case of [NAME] for an overpayment in the amount of $xxx,xxx.00.

[NAME] was receiving benefit payments from March 2010 through April 2021. [NAME] died on June 4, 1944. A letter was sent to next-of-kin, but no response was received. Probate Court records from Boone County, MO show no probate was found.

The Debt Management Center has exhausted all collection efforts and has no further recourse to recoup this overpayment. Based on the actions taken and our findings, we are requesting that you grant the authority to terminate collection action on this account through write-off.

If you have any questions, please contact Amanda Schmiesing, Assistant Chief of Operations at (612) 713-6368.

Sincerely,

Joseph G. Schmitt

Executive Director

Enclosures

Example of Collection Claims Litigation Report

Example of Certificate of Indebtedness

Example of Summary of Debt

Example of Checklist/Summary Request for Termination of Debt