The DCIA requires agencies to "transfer" their delinquent non-tax debt over 180 days delinquent to Treasury. What does "transfer" of debts mean? If an agency transfers a debt to Treasury or to another Debt Collection Center for collection, where is the record for the debt maintained?
"Transfer" is the mandatory referral of delinquent debts to Treasury or another Debt Collection Center for purposes of collection. The agency retains responsibility for reporting the debts on the Treasury Report on Receivables and Debt Collections Activities. The agency is also responsible for removing accounts from its receivables when Treasury directs it to write off the debt.
Are any delinquent debts excluded from transfer to Treasury?
Yes, there are five specific instances where debts are excluded from transfer. They are:
Debts that are in litigation or foreclosure;
Debts that will be disposed of under an asset sales program within 1 year after becoming eligible for sale, or later than 1 year if consistent with an asset sales program and a schedule established by the agency and approved by the Director of the OMB;
Debts that have been referred to a private collection contractor for collection for a period of time determined by Treasury;
Debts that have been referred to a Debt Collection Center with the consent of Treasury and for a period of time determined by Treasury; and
Debts that will be collected under internal offset if such offset is sufficient to collect the debt within 3 years after the debt is first delinquent.
In addition, a specific class of debt may be excluded by the Secretary of the Treasury at the request of the head of an executive, legislative or judicial agency.
After 5 years of inaction, is there anything that would preclude DMS from collecting on a debt?
There is nothing that would preclude referral of a debt after 5 years of inaction provided that the debt is still valid and legally enforceable. If, however, the debtor has not been afforded due process in over 5 years, we recommend that additional due process notices be sent before using any debt collection tools that require due process such as offset or credit bureau reporting.
How will Treasury ensure that debts it directs an agency to write off are actually removed from an agency's accounting records?
Treasury will rely on audits by the Inspector General community to ensure that the agency is taking such action.
When is a debt considered to be in litigation?
"In litigation" means that the debt has been referred to the Department of Justice or a complaint has been filed, if the agency has its own litigation authority.
When is a debt considered to be in foreclosure?
"In foreclosure" means that a notice of default has been issued.
What about debts in appeal?
Debts in an administrative appeal process would be transferred once the appeal process is completed and the amount due has been fixed. The date of delinquency would still be the date that the original payment was due. Treasury realizes that, for these debts, the 180-day period for mandatory referral may be substantially passed when such debts are transferred.
What happens to a debt when it comes out of an exception status (i.e., in litigation, foreclosure, appeal)?
If the debt remains valid and delinquent, then the agency immediately transfers the debt to Treasury (within 30 days of its return to the agency).
Can post-petition civil penalties be referred for Cross-Servicing when there is a bankruptcy?
If the individual is still in bankruptcy, debts owed by that individual should not be referred to DMS even if the debt is not included in the bankruptcy, unless the agency has obtained relief from the automatic stay.
How does an agency get the consent of Treasury for referral of debts to a Debt Collection Center?
Treasury's consent for types of accounts to be referred to Debt Collection Centers will be given when Treasury designates a Debt Collection Center.
Federal agencies must notify Treasury of all non-tax debt over 180 days delinquent, including debt administered by a third party acting as an agent for the government. What is meant by third party?
A third party acting as an agent for the federal government may include a contractor, a State agency, or another federal agency.
What is the status of Treasury's standards for all of the Cross-Servicing provisions of the DCIA?
Treasury standards are under development and will be published after consultation with the agencies.
What kind of authority does Treasury have to act on delinquent debts over 180 days that have been transferred to it?
Treasury has authority to act in the government's best interest to service, collect, compromise, suspend or terminate collection action in accordance with existing laws under which the debts arise.
When an agency sends their debt separately to TOP and there is a compromise, the agency stated that they are not aware of the compromise and therefore have not recalled the debt from TOP.
For agencies that refer their debt directly to TOP, they can contact Charleita Dunmore on (202) 874-7607 to request a faxed copy of the compromise report on a biweekly basis.
Please define the terms "write off", "termination of collection action", "close out", and "discharge" as they relate to debt collection.
The definitions provided here are those currently provided in "Managing Federal Receivables" or in other Treasury publications:
Write off occurs when an agency official determines, after using all appropriate collection tools, that a debt is uncollectible. The debt is then removed from an agency's accounting and financial records, with the agency terminating its efforts to collect the debts.
Termination of collection action means to cease active efforts to enforce recovery of a debt. Generally, this would occur concurrently with the write off of the debt. The criteria in the Federal Claims Collection Standards for termination have also been used as the criteria for write off.
Close out occurs when an agency decides to stop all efforts to collect on a debt and may occur concurrently with the agency's decision to write off the debt. To close out a debt, the agency reports to the IRS the amount of the debt as income to the debtor.
Discharge is to satisfy a debt as a legal obligation through the performance of the obligation imposed under the debt instrument, such as payment in full or compromise. A debt is discharged at the time an agency stops all efforts to recover the debt because, in effect, the agency is terminating the debt as a legal obligation of the debtor's to repay. Before discharging a debt, the DCIA requires agencies to take appropriate steps to collect the debt including offset, referral to private collection agencies, referral to Treasury or a Debt Collection Center, reporting to a credit bureau, wage garnishment and litigation.
The discharge does not, however, satisfy the debtor's legal obligation to pay taxes on the debt, since it may represent taxable income to the debtor. The term cancellation is used the same as discharge; both terms are found primarily in the tax code. Close out and discharge occur simultaneously.
Given the new requirements of the DCIA, Treasury is reviewing these definitions, particularly those for write off and termination, and evaluating whether they are still valid or need to be changed. Please contact Mary Harper at (202) 874-5893 for 1099C related issues.
Can a 1099C be issued on debts included in bankruptcy?
Yes, debts discharged in bankruptcy should be reported on a 1099C. IRS then determines whether or not there is any tax consequence.
Under federal law, a federal agency may, without first obtaining a court order, order an employer to withhold up to 15% of your wages for payment to the federal agency to satisfy a delinquent non-tax debt. See 31 U.S.C. § 3720D; 31 CFR § 285.11.
When can a federal agency use AWG?
A federal agency can use AWG to collect delinquent debt if you are employed and not paying a debt as agreed. AWG may be used to collect a debt even if state law does not allow wage garnishment. A federal agency may not garnish your wages if you have not been in your current job for at least 12 months and you were involuntarily separated from your previous job.
How do I know that the federal agency intends to collect a debt using AWG?
At least 30 days before beginning AWG, a written notice must be sent to you at your address last known to the federal agency. This AWG notice must state the nature and amount of the debt, the agency’s intention to begin garnishment, and an explanation of your rights.
What are my rights?
Before AWG begins, you must have an opportunity to inspect and copy records related to the debt, enter into a repayment plan acceptable to the federal agency, and have a hearing.
How do I request a hearing?
You must send a request for a hearing, with written evidence to support your claim, to the address listed in your AWG notice. To have a hearing before AWG begins, you must request a hearing within 15 business days after AWG notice is mailed to you. The federal agency may continue the AWG process if you request a hearing after the 15-day period. You may request a hearing concerning the existence or amount of the debt, or the terms of the proposed repayment schedule under the garnishment order. The federal agency will determine whether your hearing will be oral or written. If the agency decides to hold an oral hearing, the agency will decide when and where the hearing will be held, and you may decide whether the hearing will be held in-person or by telephone. You will have to pay your own travel expenses for an in-person hearing.
Who will hold the hearing and how will my case be decided?
The federal agency will choose a hearing official to review and decide your case. The federal agency will have to prove that you owe the debt. You will have to prove why you disagree with the federal agency. The hearing official must issue a written opinion as soon as practicable. If the decision is not made within 60 days of the hearing, AWG must stop until the agency makes a decision.
How much of my pay can be garnished?
A federal agency can order your employer to deduct up to 15% of your disposable pay. Disposable pay means your compensation (salary, bonuses, commissions, vacation pay, etc.) after deduction of any health insurance premiums, federal, state, and local taxes, and involuntary retirement or pension payments. You are entitled to keep an amount equal to 30 times the federal minimum wage ($154.50/week). If your pay is being garnished for other debts, the deduction for AWG will be reduced so that your total garnishments do not exceed 25% of your disposable pay.
What happens if I suffer a disability, divorce, or catastrophic illness during the AWG process?
You may, at any time during the AWG process, ask the federal agency to review whether the amount being deducted from your pay should be reduced based on a material change in your situation, which results in a financial hardship.
Can my employer fire me if my pay is being garnished?
Under federal law (31 U.S.C. § 3720D), your employer may not fire you, refuse to employ you, or take any disciplinary action against you because your wages are being garnished.
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