Debt Management and Collection
Providing insight into the Debt Management Center (DMC) located in St. Paul, MN, offering debt collection services for various VA programs. Learn about common reasons for debts, notification processes, and how the DMC handles debt related to education, compensation/pension, home loans, and medical copays.
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Presentation Transcript
Debt Management and Collection
Objectives What is the DMC? Common reasons for debts Notification process Audits of indebtedness Requests for waiver/compromise Time standards Tax consequences of waiver/compromise Garnishments 2
What is the DMC? The Debt Management Center is located in the VA Regional Office in St. Paul, MN Provides debt collection services for: Veterans Benefits Administration (VBA) Compensation Pension Vocational Rehabilitation Education Home Loan Guaranty Veterans Health Administration (VHA) National Cemetery Administration (NCA) 3
Common reasons for debt Education Compensation/Pension Changes in income or net worth Return to active duty Failure to report changes in dependency Fugitive felon status or incarceration Payments issued after death of beneficiary Withdrawal from class Not attending class Class did not count towards graduation Duplicate or erroneous payments issued 4
Common reasons for debt Debt due to home loan indebtedness Medical copays 5
Notification process Notification Letter explaining debt first sent 10 - 30 days after DMC is notified of debt depending on type of debt This letter includes: Right to request waiver or offer compromise Time limits to make request/offer How to dispute the debt 6
Initial Debt Notification from DMC Compensation/Pension Address information comes from RO or Pension Center Letter is sent 10 days after DMC receives debt If debtor has active benefits, letter notifies benefits will be offset in 60 days If debtor is not receiving benefits, letter advises debtor to contact DMC Education Address information comes from Education Center Letter is sent 10-30 days after DMC receives debt Education benefit offset can begin 30 days after debt created If education benefits not available, DMC provides 60 day notice before offset of other benefits If debtor is not receiving benefits, letter advises debtor to contact DMC 7
Subsequent Debt Notifications from DMC If the debtor does not respond to the initial debt letter, the DMC will send a second letter after 30 days If still no response, the DMC will send a third notice after another 30 days If after 60 days from the 2nd notice there still has been no response from the debtor, the debt will be referred to credit reporting agencies If after 60 days from the 3rd notice there has still been no response, the debt is referred to the treasury for collection 8
Challenging validity of debt Request audit of overpayment Written request Send letter to: U.S. Department of Veterans Affairs Debt Management Center P.O. Box 11930 St. Paul, MN 55111 **VSO only DMC line: (612) 970-5737 9
Challenging validity of debt Claimant must explain clearly that they want an audit of overpayment Once an audit is completed, it will include repayment options 10
Requesting waiver Waiver grant releases debtor of liability Overpayment may be waived if no indication of fraud, misrepresentation, or bad faith, on part of person/persons requesting waiver, and recovery of such indebtedness would be against equity and good conscience. See 38 USC 5302 (c); 38 CFR 1.962, 1.963 11
Waiver prohibited A waiver cannot be granted if determined that the debtor s actions led to creation of debt due to: Fraud Misrepresentation Bad faith 12
Waiver criteria Consider whether recovery of overpayment would be against equity and good conscience Equity and good conscience" applies when facts and circumstances indicate need for reasonableness and moderation in the exercise of the Government's rights Decision should not be unduly favorable or adverse to either side 13
Equity and good conscience Arriving at a fair decision between obligor and Government Consideration given to these elements: (1) fault of the debtor (2) balancing of faults between debtor and VA (3) undue hardship of collection on debtor (4) whether collection would defeat the purpose of benefit (5) whether failure to collect debt would result in unjust enrichment of the debtor (6) whether debtor changed positions to his or her detriment in reliance upon a granted VA benefit 38 USC 5302 38 CFR 1.965 (a) Ridings v. Brown (1994) 14
Who can apply for a waiver Veteran Payee Beneficiary Fiduciary Representative acting on behalf of a debtor such a parent, sibling Representative of estate of deceased payee 15
How to apply for a waiver Written letter explaining why requesting waiver explain reasons why debtor should not be held responsible for payment of debt or why collection of debt would be unfair and create financial hardship Complete/sign Financial Status Report Form, VA Form 5655 Mail waiver request and completed/signed Financial Status Report form to: US Department of Veterans Affairs Debt Management Center P.O. Box 11930 St. Paul, MN 55111 16
Hearing Right to hearing in conjunction with waiver request If the debtor wants a hearing, state so in request for waiver Debtor will be notified of date, time, and location of hearing prior to the waiver request being referred for consideration 17
Time standards Education, Pension and Disability Waiver Request must submit request within 180 days of date originally notified of debt Loan Guaranty Waiver Requests one year from the date of signing certified mail receipt for original notification letter Note: If VA receives request for waiver within 30 days of date of notification, offset action from current benefits will be suspended until decision regarding request for waiver is rendered 18
Notice of waiver decision Debtor will be notified in writing when decision regarding waiver request rendered If the request is denied, provides appeal rights If request granted in full, no further collection action will be taken If partial waiver granted, notice of balance and appeal rights will be included Note: If balance exists after waiver action completed, the debtor must contact VA to make arrangements to pay Action will be taken to begin offsetting any VA benefits in order to recoup any balance not waived 19
Offering a compromise If the debtor is unable to pay debt in full or clear the debt in a reasonable timeframe through monthly payments, VA can consider a compromise offer A compromise means VA can accept a lesser amount of money as full settlement of debt 20
How to submit compromise offer Write letter explaining why requesting a compromise offer Specify the amount of money wish to pay Complete and include Financial Status Report along with letter and send by mail or fax to: U.S. Department of Veterans Affairs Debt Management Center P.O. Box 11930 St Paul, MN 55111 1-612-970-5688 (fax) 21
Bases for compromise VA may compromise debt if it cannot collect full amount because: debtor is unable to pay full amount in a reasonable time, as verified through credit reports or other financial information; VA unable to collect debt in full within a reasonable time by enforced collection proceedings; cost of collecting debt does not justify enforced collection of full amount; or significant doubt concerning VA s ability to prove its case in court. 22
Bases for compromise In determining the debtor s inability to pay, VA will consider: age and health of debtor; present and potential income; inheritance prospects; possibility that assets have been concealed or improperly transferred by debtor; and availability of assets or income that may be realized by enforced collection proceedings. 23
Decision process Considered by Committee on Waivers and Compromises Notice of decision If offer accepted, VA will advise on terms of acceptance and how to make payment Compromise offers should be paid in lump sum within 30 days of acceptance 24
Payment plans Monthly Payments Mail letter indicating amount debtor can pay on monthly basis along with completed Financial Status Report Complete Block 24B on the Financial Status Report to indicate the amount proposed to pay monthly VA will advise if proposed monthly payment plan is acceptable 25
Payment plans Mail all to U.S. Department of Veterans Affairs Debt Management Center P.O. Box 11930 St. Paul, MN 55111 To expedite the processing, fax letter and completed Financial Status Report to 1-612- 970-5688. 26
Payment plans Pay By Monthly Offsets If receiving monthly benefit check from VA and VA advised that they plan to offset the entire check amount to apply to debt, debtor can request a smaller offset amount If offset amount proposed can liquidate debt within a one-year timeframe or less, do not need to complete Financial Status Report 27
Payment plans If timeframe exceeds one year, need to follow same procedures as specified in pay by monthly payments section Any questions, contact VA via phone 1- 800-827-0648 or e-mail dmc.ops@va.gov 28
Tax consequences Discharges of debt require reporting to IRS 26 CFR 1.6050P-1 Debt at least $600 Form 1099-C issued Personal income tax liability depends on other IRS countable income 29
Garnishments of wages 38 CFR 1.923 30 day written notice prior to initiation of garnishment Right to hearing 30
Debt collection Permits collection of VA indebtedness from Social Security benefits If offset of both VA benefits and Social Security creates financial hardship, request reduction in total amount being withheld Complete a Financial Status Report and send to Debt Management Center 31
Debt referral Delinquent debts are referred to various private sector entities and federal agencies in effort to collect delinquent balance. Referrals include: Credit Reporting Agencies Credit Alert Interactive Verification Reporting System Department of the Treasury Department of Justice 32
Credit reporting agencies Accounts are referred to credit reporting agencies within 60 days of issuance of second collection notice if debtor does not have an approved payment plan or some other action that will lead to liquidation of debt 33
Credit Alert Interactive Verification Reporting System Accounts are referred to this service within 30 days of issuance of letter notifying debtor of referral. This is a Federal government database of delinquent Federal debtors, which allows authorized individuals from participating Federal agencies and approved private lenders to access the database for the purpose of pre-screening applicants for loans issued by, or guaranteed by, the Federal government. The information is used to determine credit worthiness. 34
Department of the Treasury Most Government agencies, including VA, refer debts delinquent more than 120 days to the Department of the Treasury for collection under the Treasury Offset Program and Treasury Cross-Servicing Program. 35
Treasury Offset Program The Department of the Treasury collects debts by reducing or withholding Federal and State payments. These offsets are authorized by the Debt Collection Improvement Act of 1996. Government-wide Cross-Servicing is the referral of debts to other Federal agencies for specialized handling or to private collection agencies under contract with the Department of the Treasury. Debt Collection Improvement Act of 1996 also provides for administrative wage garnishment against debtors employed in the private sector and publication of debtor information. Visit Department of Treasury s Administrative Wage Garnishment site for additional information. 36
Department of Justice If the collection tools are not successful, VA may refer accounts for litigation by U.S. Attorneys or VA regional counsel. 37
